Is The Next Domino To Fall.... Canada?

Tyler Durden's picture

While two short months ago, "nobody" had any idea that Italy's banks were on the verge of insolvency, despite that the information was staring them in the face (or was being explicitly cautioned at by Zero Hedge days before Italian CDS blew out and Intesa became the whipping boy of the evil shorts), by now this is common knowledge and is the direct reason for why the FTSE MIB has two choices on a daily basis: break... or halt constituent stocks indefinitely. That this weakness is now spreading to France and other European countries is also all too clear. After all, if one were to be told that a bank has a Tangible Common Equity ratio of under 2%, the logical response would be that said bank is a goner. Yet both Credit Agricole and Deutsche Bank are precisely there (1.41% and 1.92% respectively), and both happen to have total "assets" which amount to roughly the size of their host country GDPs, ergo why Europe can not allow its insolvent banks to face reality or the world would end (at least in the immortal stuttered words of one Hank Paulson). So yes, we know that both French and soon German CDS will be far, far wider as the idiotic market finally grasps what we have been saying for two years: that you can't have your cake and eat it, or said otherwise, that when you onboard corporate risk to the sovereign, someone has to pay the piper. Yet there is one place where that has not happened so far; there is one place that has been very much insulated from the whipping of the market, and one place where banks are potentially in just as bad a shape as anywhere else in Europe. That place is.... Canada.

As the chart below shows, which is a ranking of global banks by tangible common equity, lowest first, of the banks with a TCE ratio of under ~4% a whopping 30% are those situated in Canada, the same place where nobody thinks anything can go wrong, and which has been completely spared from the retribution of the bond vigilantes. Something tells us Canadian sovereign CDS, not to mention Canadian bank CDS, are both about to go quite a bit wider...

h/t Geoffrey Batt

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Stoploss's picture

LOLOL!!!! Sorry, i can't help it.

redpill's picture

What's this all aboot, eh

wang's picture
wang (not verified) redpill Aug 18, 2011 2:35 PM


30% of Canada`s banks

that would be one bank


Pladizow's picture

Whats all this blasphamy aboot, Eh!

TruthInSunshine's picture

Well, it would seem dat der is some talk abooot money troubles in Canada, dontchya know.


Drop ze puck.

wang's picture

here is the TCE ratio  (TCE/RWA)  for each of  Canada`s Banks for Q1 2011 (all in the 9% to 10% range) similar for full year and prior year


I believe that US Treasury has as their target a TCE/RWA of 4% (and if I am not mistaken that ratio is the standard currently in use when discussing TCE in the context of evaluating a banks capital adequacy) - some further explanation of the chart in Tyler`s post would be of value  (I`m guessing it`s TCE/TA)

full report on Canada`s banks (large file)


and more on the Treasury and the  TCE ratio

Sancho Ponzi's picture

Last year Deutsche Bank stess tested 42 Euro banks, and they averaged 3.2%. Can you say KABOOM?


sleepingbeauty's picture

I'd really like to understand this information, as I have money in a ScotiaBank drip and this is the first I've heard of Canadian banks being risky. I know that CIBC is the cowboys of Canada, but even CIBC is pretty well conservative when compared with other countries.

wang's picture

read the above PDF and make up your own mind - Tyler tossed out a metric, which is great but there are manifold metrics that measure the health of a financial institution so it would be of value if Tyler could perhaps provide some context and background on the TCE metric he chose to use vs the widely used TCE/RWA, which the Canadian banks score very well on.

ZeroPower's picture

Wtf? This is a joke article. Definitely not by 'Tyler' TD but by a newbie intern probably.

And im not even biased towards Canadian banks.

How about you look at their (core) T1 ratios, their NPLs/Loans, RoRWA, Loan loss reserves, etc etc i could go on.
Bar none, the Cad banks are the safest in the world. Add in some Scandinavia though i havent personally done my DD there just have been told they are decent as well

How about exposured to peripheral sovs on their banking book? Even RBC CM which is the largest CAD bank in the CM space, they have virtually zero exposure to Greece and the other shit sovs. The large US bulge banks and of course every single large EU bank is taking haircuts in the area of 15-30% on their banking book. Disastrous for their equity..

Finally, there is no CAD sov CDS. Definitely proofread the stuff posted by your other members, Tyler.

jic's picture

How about Canada Housing trust balance sheet is ballooning, eventually the mortgage bond holders will want to be compensated for this risk with higher rates.

Sure our banks will enjoy this higher rate enviormemnt with higher deposit rates and with a CDN government PUT on CMHC mortgage buy back, our banks will

be made whole good but our government will have egg on their face in allowing this low interest policy to run so long and allow our housing bubble to linger !

ucsbcanuck's picture

Thanks jic - many in Canada think we are somehow "special" and "different". No we aren't. Today I had a discussion with friends about this issue. As usual, it ended with a "We are not US! We are not Europe!" diatribe. 

You can't compare Canada to anything in US or Europe now - and that includes cell phone plans LOL! It always ends with "We have a stronger financial system than the US or Europe." Or some other nonsense.

Just the other day, there was an interesting article in the Ottawa Citizen about high tech in the Ottawa area. For those familiar with Ottawa - it used to be known as Silicon Valley North and was the high tech centre of Canada. Not any more:

"The fact that Shopify set up here is very much an accident. Lütke followed his girlfriend, now wife, here. Chief technology officer Cody Fauser moved to Ottawa from B.C. because his wife got a job with the government. Not only that, the city would have lost this startup to California had Shopify not been so successful early on that moving became problematic.

"I always thought of Shopify as this San Francisco company that took a wrong turn and ended up in Ottawa," says Lütke. Even now, for two weeks every quarter, Lütke travels to California's Silicon Valley to "recharge my battery of thinking big."

However, whenever I tell people here in Ottawa I'm thinking about moving back to CA, there's always the inevitable "OMG why would you want to move to California. It's sooo awesome here." Well, if it's so awesome here - where's our Google? Facebook? Apple? Intel? RIM is cratering right now. Nortel already bit the dust. 

One of my friends from South Africa said once at dinner - why wouldn't someone in high tech want to work in Silicon Valley? Immediately the whole dinner table started complaining about California. Inevitably the discussion became about the California economy! Nobody wanted to even contemplate the fact that CA might be better for high tech than Canada.



itchy166's picture

Reread.  30% of the banks on this list are Canadian...not 30% of Canadian banks are represented.

And it looks like 100% of the big Canadian banks are on the list.



Howard_Beale's picture

For all intents and purposes, Canada's Big 5 are the banking system in Canada. When TARP occurred, they were bailed out at the same time in a budget line item that the Canadian public was not aware of for several months. The Toronto Star did an investigation and found the $500 billion in funds that were budgeted to the banks.

wang's picture

howie $500 billion is half of  Canada`s  GDP if I am not mistaken I think the number was $25b later bumbed to $75

macholatte's picture

OK. Let me see if I get this right..... the American tax payer via its Pimp, the Fed, bailed out Canada as well as Europe while the MSM told everybody (and maybe the dim witted President & VP too) that all the money was going to shovel ready BS. Did I get that right or did I miss something?



noun      an artifice or expedient used to evade a rule, escape a consequence, hide something, etc.

Synonyms:   deception, scheme, trick, dodge, ruse.




bankrupt JPM buy silver's picture

Good.  All the somolian taxi cab drivers are abooot to lose those $300K homes at 2% variable. 

Betty Swallsack's picture

It IS laughable and hardly news.  Anyone paying attention merely has to check out the derivatives exposure of our Canadian banks (Canadian Imperial Bank Of Commerce, TD Canada Trust, Bank of Montreal, Royal Bank of Canada, et al).  Just Google 'derivatives exposure canadian banks'.

Here's a sampling:

Howard_Beale's picture

Interesting data but the guy was short the big 5 on 9-15-2009. Ouch.

ZeroPower's picture

Um, its from 2009. Taking the first metric posted there which is ever important T1 leverage, its as at July31 09. All banks in the world were heavily under their targets at that point! Currently if i were to average the CAD banks itd be around 9% Tier 1 lev... take SocGen this week and theyre at about 6%, BAC might be trying to boost it a bit with their asset sales.

Anyway, metrics from 2 years ago dont matter.

IQ 145's picture

I like these nice easy questions; the answer is NO. This sounds like something written to have a crazy contest with George Washington.

He_Who Carried The Sun's picture

No, Mr Durden, this time you got it wrong and your data is too narrow and biased.

It may well be that Canadian banks will be drawn down by the general global problems

but not on their own like SocGen or its Italian, Irish, Greek counterparts.

Stop fearmongering, it easily becomes immoral when overplayed.

Gene Parmesan's picture

Where has Leo been lately?

Almost Solvent's picture

No longer @ ZH for some reason or another

Vic Vinegar's picture

Agreed.  They are most definitely trolls to those who like to live in an echo chamber. 

I hope you enjoyed writing your comment.

tmosley's picture

Trolls are one thing, but those guys were so consistantly WRONG in every last one of their calls that their presense here had degenerated into nothing more than a farce.

If you are going to be bullish, be bullish for the right reasons.  And admit when you are wrong.

Vic Vinegar's picture

their presense here had degenerated into nothing more than a farce.

I agree.  They didn't think the world was going to end tomorrow and tried to share their takes on the market. 

RockyRacoon's picture

RobotTrader used to post nice pics of scantily clad wimmin but not lately.  Must have had privileges revoked.  Without that he was out of ammo.   Leo used to post videos of stupid Europeans vacationing on Greek islands getting drunk -- went on hour after boring hour.   They're gone?   So what.   Waste of bandwidth.

slewie the pi-rat's picture

i agree that pictures take up bandwidth, especially for the poorer zeroHeads worldwide, who may get quite slowed by them.

leo went away mad, apparently.  he may have been claiming he wasn't allowed to defend himself, here.  not sure;  pretty hard to speak for another.

RT will be baaaaack, i'll betcha.  one of our strapped avatars was concerned, last hiatus, and RT re-emerged.  still, this time,...who knows? 

personally, rocky, i think RT misses the junks

fuu's picture

I miss the Junk button more than RT at times.

BorisTheBlade's picture

Junk button was as blind as justice, beautiful.

gulf breeze's picture

Robo is a troll that hides when market is not going his way.  I am long FAS @ 12.61.  It does not matter to me which way it goes. I will not critique others on their forecasts.  Robo constantly bashed on the contributors while posting 15 min charts after huge moves.  Fock him and his bank rally that I am betting with stops.

fuu's picture

No they are trolls for BRINGING the echo into this chamber. This is the refuge from the echo chamber that surrounds you at those other "news" sources.

Vic Vinegar's picture

Aw shucks…I thought this was the place for smiles, cupcakes and greenies.  Am I on the wrong website?

I read a lot of their work and it seemed each knew quite well what’s going down.  But your point is understood, if not agreed with.

IQ 145's picture

---"it seemed each knew quite well what was going down." Wow. that's amazing. I guess you're one of those people who learned how to read, but it didn't do any good. It would be very, very, difficult to be wronger than Leo, and for all the wrong reasons. Robo Trader was a bullshit artist.

Vic Vinegar's picture

Let's just agree to disagree.  On a personal note, thanks for not tossing around an excessive amount of semicolons in that comment.

tmosley's picture

He lost his contributor status and got all weepy and pissed off at Tyler, and is currently sucking his thumb while wearing a diaper in his mother's closet, which is his new bedroom.

Gene Parmesan's picture

Ah - sorry to speak of the dead in that case. On to the business at hand then.

EvlTheCat's picture

ROTFL....  Wow, coming up in the world is he!?

RockyRacoon's picture

He is communing with MasterBates?

Flakmeister's picture

WTF ever happened to Johnny Bravo?

Sancho Ponzi's picture

I think he morphed into Math Man who morphed into Harry Wanger who morphed into Hamy Wanger who morphed into Harry Wanqer. 

Flakmeister's picture

You missed William the Bastard....

My fav was Texas Gunslinger.... I think he suffered from multiple personality disorder

Raphio's picture

I hear gunslinger got a job as a CEO (Chief Executive Officer) at some fabulous new internet startup

Raphio's picture

But seriously, CIBC, for instance, always seems to be the hoser bank most involved in dubious affairs.... the had the greatest Canadian exposure to Enron and plenty dodgy MortgageBS...

Flakmeister's picture

"Best non sequitur of the thread" winner