Turmoil at select U.S. and European banks over the last month has prompted worries about the health of the global financial sector and has driven down bank stocks as spooked investors watched the situation play out.
Despite banking worries, experts told BNN Bloomberg that the period of panic rattling the market contains some promising investment opportunities in bank stocks, particularly with Canadian names.
CANADIAN ADVANTAGE
Equity analyst Steve Boland, managing director of diversified financials at Raymond James, said the meltdowns at Silicon Valley Bank and Signature Bank in the U.S. have highlighted the relative stability of Canadian banks, and investors should take note.
The American banking landscape contains thousands of names for investors to look at, but Canada’s roster of fewer than 81 banks means regulators can keep a more watchful eye on them, Boland said.
“Investors have been looking south because there’s lots of choice, but maybe it’s time to look at the Canadian industry in general,” Boland told BNNBloomberg.ca in a telephone interview Tuesday.
Boland was one of the authors on a Raymond James report published Tuesday outlining the case for Canadian banks. Those include the tighter relationship with regulators and rules that ensure balance sheets are stronger than in the U.S. and better liquidity ratios.
While a run on deposits like the one that toppled Silicon Valley Bank is still a possibility in Canada, Boland said it seems unlikely right now as media coverage has reassured Canadians about the financial sector’s strength, and banks are reporting that they have not received an influx of worried calls from people seeking to withdraw their money.
Allan Small, senior investment advisor at Allan Small Financial Group, said the Canadian bank stock selloff shouldn’t be a deterrent because it’s happening “for the wrong reasons,” in reaction to a bank crisis in the U.S. he considers unlikely to spread north.
U.S. EXPOSURE
John Zechner, chairman at J. Zechner Associates, agreed that Canadian banks remain generally stable investment choices. But he noted that Canadian banks eyeing expansion into the U.S. are risker options right now.
Those include Bank of Montreal, which closed a $16.3-billion acquisition of Bank of the West this year, and TD Bank, which has offered $13.4 billion to buy First Horizon Corp., another regional bank that’s seen shares tumble to 40 per cent lower than TD’s takeover offer as of this week.
The SVB and Signature Bank crises have cast a pall over U.S. regional banks like Bank of the West and First Horizon, Zechner said. The chaos has raised further doubts about whether TD’s deal will go ahead.
“(BMO and TD) both added regional banking exposure and more of the risk is in the regionals in the U.S.,” Zechner said, adding that the risk to both appears short-term.
SOME U.S. OPPORTUNITIES
Still, some larger U.S. lenders have actually benefited from the chaos at regional banks, experts said.
Zechner said big, U.S. money centre banks have a more diverse, insured deposit base, similar to banks in Canada, and they have benefited from panicked regional bank customers in the U.S. scrambling to move their money elsewhere, making for a more attractive investment.
“So many people just pulled their money from the regionals, they had to put it somewhere and they stick it with these bigger players because they view it as safety,” he said. “That gives them stronger balance sheets.”
Small said he is also viewing the regional banking concerns as an opportune time to buy larger big money centre U.S. bank stocks, because their price has lowered “for reasons that really don’t have much to do with their own type of business.”
“Nothing like a nice crisis to bring down the price of some of these good quality names,” Small said Tuesday. “I started adding money to them over the last few days and I will continue to do so as they remain cheap.”
Boland said investors should be careful with U.S. bank investments given the volatility, though he expects there may be “decent returns for the ones that are stable,” and he pointed again to Canada.
“If you don’t want the fatigue of worrying about U.S. banks, look north,” he said. “To us, you’re getting all those things that may be superior to what’s happening in the U.S.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
