Quote:
Originally Posted by Yoho
|
Canadian banks have 2 big risks: the Canadian real estate market is declining, so they could start losing money on mortgages that aren't repaid. They also have a problem with the yield curve, which is very inverted. Since banks generally borrow short term money (ie deposits) and lend for longer term (mortgages and loans) having short rates higher than long rates hurts their profitability.
Now, to be clear I think exactly zero of the big banks in Canada is at any risk of failure. I'm talking about whether their shares will be a good investment. If the yield curve normalizes and/or the real estate market stabilizes I think an investment in Canadian banks would likely work out well. If the curve stays inverted and we have a big real estate crash owning banks on the way into that isn't likely to be good. That uncertainty is why they trade at such a low multiple of trailing earnings. I haven't bought any banks yet but am considering it.