Friday 9 February 2007

Hate Bank Charges? If You Can't Beat 'em, Join 'em

If you are like me and find all those bank charges too high, then here's one way to get it all back - buy stock in the banks.

Look at this chart from Yahoo to see why this makes sense. Just taking two banks as an example, from mid 1995 to today, both Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) have risen amazingly. Historical data from Yahoo that includes dividends and adjusts for stock splits shows the price of BNS has climbed from $4.90 at the end of January 1995 to $50.76 at the end of January 2007. That's a 10 times return or 1000%, an annual compound rate of return of 21.5%. The regular dividend payments seem to hover around 3% (BNS is currently at 3.3% yield and RY at 2.9%). An investment of $3100 today in BNS would cover $100 in bank fees from the dividends alone.

Of course, there is never any assurance that the stellar past performance of the banks will continue forever. Enron put quite a dent in CIBC and some banks have failed entirely through bizarre antics of a very few people (Barings Bank comes to mind).

Who knows, Canadian banks might just prove out the warning "be careful of what you wish, it might come to pass" and be allowed by the government to go ahead with their desire to merge. Many years ago, when I did my MBA one of my projects was to examine the merger that created the National Bank. The idea was to combine two smaller banks, the Banque Provinciale and the Banque Canadienne Nationale, to create a player on the scale of the big five. Unfortunately, the merger took so much time and effort of management over the next several years that it stayed the same size while the big five continued to grow and it lost all the ground it initially gained. One of the main problems was merging computer systems, which had been announced in the press by top management as being straightforward because both BP and BCP used IBM systems. These people would probably describe playing the clarinet as easy since it only requires blowing in one end and running one's fingers up and down the holes. The acquiree's shareholders gained but the acquirer's lost on the deal.

In the meantime the banks look pretty good to me and I have a lot tied up in them, including BNS and RY. Anyone's thoughts on what else to look out for that could derail them in a significant way would be most welcome.

1 comment:

38 swede said...

I have been retired 9 years. My swedish pension is coming in every month to my RBC account. In aug.2007, RBC added a 15.00 dollar transfer fee. That is 7% of my pension. My increase is about 0.34%.I watched Barbara Stymiest from RBC on BNN in Aug. 2007, bragging about the shareholders dividend and the little exposure the bank had in the sub prime problems area. Little did I know, that Barbara and the rest of the RBC management, had decided to screw me and all the other old immigrants, just so they could keep their high salaries and the dividend for the shareholders. I think it is sleazy as hell, that the management cannot take responsibilty for their bad loans, but instead passing it over to the immigrants to make up for the losses , created by their greed.

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