Canadian Banks Are Your Friends - The Dividend Guy Blog
Canadian Banks Are Your Friends
Canadian Dividend Stocks / April 20, 2017 by DivGuy / 5 Comments
About a month ago, TD Bank (TD.TO) was caught doing naughty things. They have been accused to push employees selling products clients don’t really need. A bank pushing product sales? Nah, never gonna happen, right?
To be honest, I laughed when I read that news. Many journalists jumped on this story and explain the world all banks are evil and tries to make money from clients… Well, this is pretty much the concept of a bank; in fact, we want them to make money.
Why it’s a good thing banks make money
For those who are still frustrated because they pay fees or because their bank manager refused them for a loan, I can tell you; banks are your friend and you want them to make money. What? We should be happy banks make money? Yup, you read it right.
What is important to understand is that banks are the heart of our system called capitalism. This is not just an analogy, banks are really the heart pumping liquidity in our system. Without banks facilitating money flows, nothing happens. We had a brief example of what the world could look like without banks during the 2008 credit crisis. The day banks decided not to trust each other and stop lending overnight money, Governments of the world went ballistic! When the money stop flowing from one hand to another, the whole world stop. The thing is that capitalism is based on trust we have in our economy and in the strength of our currency. Such beliefs are mainly supported by banks, the ultimate institution and guardian of the greater good… all right, I’m exaggerating here! Hahaha!
But the truth is that we want banks to make strong profit. The more money they make, the more they allow money to flow in the economy. When banks are reluctant to lend money, we see companies not hiring or not investing in productivity. We see people not buying houses because they can’t get a mortgage (some people should definitely not get one thought…). When banks stop pumping money into the system, the whole world suffer. You don’t get the raise or the job you deserve, you can’t buy the things you want and the store next door closes because he can’t afford doing business anymore.
On the other side, when banks are healthy, they actively contribute to our economy. Companies are not afraid to spend money as they know their line of credit will not be called back. For all those reasons, we should be happy our banks make money. This means we can make money too!
But does it make it for “unclean” sale practices?
Ah! What happened with TD bank and what is probably happening with the others (don’t think it’s only one black sheep) is that Canadian banks are “stuck” in a tiny playground. While everybody has its parcel of sand to play with, each bank is lurking its neighbors to get a bigger piece of the sand pit.
As the Canadian economy growth perspectives remain uncertain due to the oil price bust, banks try by any mean to improve their margins. One solution is to sell more products to their existing clients. Is it worth it? Not always. It is clean? Not always. It’s a sad story, but the world is full of companies telling you need more than what you have. The overconsumption phenomenon is happening in the banking system too.
I’d say that the first thing you should do is buy their stock. Canadian banks are among a rare type of beast on the stock market. They evolve in an oligopoly protected by the Federal Government. The best part is that Canadian government setup rules that are strict enough to avoid banks to go bankrupt. We had the proof in 2008 where all big banks declared profit at the end of their 2008 and 2009 fiscal years. The best of all? They all pay a juice and increasing dividend!
You can read my complete analysis on the Big 5 Canadians banks here.
But the next time a teller or your advisor wants to offer you a brand new services, ask what’s in it for you before signing up!
Thanks, but I will still stick with Swedish banks.
Svenska Handelsbanken is probably the best bank in the world.
If you are not familiar with it, I recommend googling them to understand their unique business model which creates a strong moat around them.
In addition, the stock has been listed in Stockholm Stock Exchange since 1873 making it the most profitable stock in the world.
just like you I laughed when I heard this story. I walk up to a teller they say hi, oh your approved for overdraft protection. I laugh and tell them a teller says that every time. I don’t need that. The reality is the average person really don’t have an idea about money and how to manage it. Whenever I meet with a banker about a financial product I realize I know more then they do. It’s true what you say though it would be sad if they weren’t around. I needed a mortgage =)
hahaha! yeah, unfortunately, there are many bankers with limited knowledge about their own product. I wish the whole industry would put more emphasis on financial education than selling products such as “overdraft protection”!
Like WFC was caught doing naughty things several months ago it’s clear that every bank pushes employees to sell products to customers continually. No need to sell me on Canadian banks. Been happy with my TD, BNS and RY for almost three years now and plan to hold for the foreseeable future. I still have BMO and CM on my watch list but may wait to add more banks to my portfolio at this time.
In my opinion, you already hold the best 3 😉