Canadian banks and insurance companies are core holdings in many portfolios and the failures of many institutions in the U.S. and elsewhere would make Canadian investors wonder: Is there an AIG or Wachovia lurking among our financial institutions? In its latest outlook, Leith Wheeler outlines the attributes that a healthy financial company should possess:
• a sound business model characterized by above average levels of profitability and a secure and growing dividend
• an earnings stream that is diversified both by product and by geography
• a strong balance sheet and access to a variety of funding sources
• a competent and shareholder-oriented management team
The report then concludes:
When one examines the list of a healthy financial company’s necessary attributes, the major Canadian chartered banks and insurance companies stack up extremely well relative to their global peers. The Canadian chartered banks have diversified streams of earnings that include powerful retail and commercial banking, wealth management, investment banking, corporate lending, and trading businesses. The large Canadian insurance companies have been building out their international insurance and wealth management franchises for over 100 years. The balance sheets, levels of profitability, dividend streams, access to liquidity, risk management practices and management teams of the major Canadian financial institutions are world class.
