« July 2009 | Main | September 2009 »
There had been predictions floating around the internet that BMO might have to cut its quarterly dividend, as reported here. As someone who owns shares in Canadian banks, specifically Royal Bank of Canada (RY) and Toronto Dominion Bank (TD),I am always concerned about precedent setting dividend cuts. And I have been watching both BMO and Bank of Nova Scotia (BNS) as possible buys. But a dividend cut does not seem to be in the cards at BMO, at least not this quarter. On Tuesday, the bank posted third quarter results that easily exceeded analyst expectations, and which indicate a degree of ongoing stability:
Over the last year (above) shares have gone from $45 to $48, after hitting a low of $19.32 in March. The most recent dividend cut by a Canadian bank was in 1992, when National Bank of Canada cut its quarterly dividend from C$0.20 to C$0.10 a share. BMO has paid a dividend since 1829.
The FDIC has closed 81 banks this year, by my count. The closures always seem to happen on Fridays, no doubt to stay out of the news cycle. The banks that were closed by the FDIC on Friday include Guaranty Bank, GFG (securities investments were the problem); CapitalSouth Bank, CAPB (done in by construction loans); First Coweta, FCWT.OB (residential mortages); and eBank of Atlanta, EBDC.OB (real estate loans). Per the New York Times:
"These banks did not get in over their heads with derivatives or hide their bad assets in off-balance sheet vehicles. Nor did their traders make bad bets; they generally had no traders. They did not make loans that they expected to sell quickly, so they had plenty of reason to care that the loans would be repaid. What they did do is see loans go bad, in some cases with stunning rapidity, in volumes that they never thought possible.
The fact that so many loans are souring is a testament to how bad the recession, and the collapse in property prices, has been...."
The US seems to be adopting the "Japan approach" to its current banking and housing crises - a slow, patch the holes as they appear strategy. In 1990, Japan's banking crisis began in earnest. The Nikkei plunged and so did property values, as you can see, left. Nominal home price changes have been negative each year since. The housing index chart (below, left) shows that home prices rose over 40% between 1985 and 1990 but, on an inflation adjusted basis, they are now close to 1980 levels. Will US housing follow? Looking back, most experts agree the cause of Japan's crisis was excessive risk taking by banks that filtered through the economy. A combination of declining profit margins, deregulation, and weak regulation of banks led to: aggressive expansion, credit liberalization and inflated asset values. Sound familiar? Hopefully the US housing market will not go sideways, or gradually downward, for 20 years like Japan's.
Japan's financial crisis took an entire decade to play out as follows:
1989-90:The stock market peaked in 1989, then collapsed in 1990, dropping an incredible 43% (the Dow is currently down 38% from its peak). Japan's banks were allowed to hold equities as part of their capital base. Over the next three years the market experienced high volatility, with a general downward trend.
1992: Land and home prices begin a steep decline and defaults rise on consumer loans.
NDSN, Nordson Corporation, from $0.1825 to $0.19 per share. The company manufactures adhesives and industrial coatings. Over the last 10 years, it has raised its dividend at a compound annual rate of 4.1%.
CINF, Cincinnati Financial Group, from $0.39 to $0.395, quarterly. The company offers property, casualty and life insurance throughout the US. Over the last 10 years, CNF has increased its dividend at an annual compound rate of 10.2%. Click chart, left to enlarge.
CTWS, Connecticut Water Service, Inc., from $0.2225 to $0.2275, quarterly. CTWS is a regulated water utility and provides contracted services to other water and waste-water utilities. Over the last 10 years, it has increased its dividend at a compound annual rate of 1.3%.
Asian economies are rebounding(see chart, left). Emerging economies there grew at an annualized rate of 10% in the second quarter, per The Economist. And per Barclay's Capital, this is the only region of the world where output has regained its pre-crisis levels. As a result, stock markets in Asia are up substsantially - shares in China's markets have nearly doubled since the bottom in November 2008. Meanwhile, in the US, the big news is that the number of people filing first time jobless claims is up to 558,000, an increase of 4,000 from last week. And in the EU, the big news is that Germany and France are no longer in recession, based on data from the most recent quarter. Other news from around the world follows:
Atticus Capital closes flagship fund.
Fire-sale to lower Ireland's commercial property values?
Brookfiled (BAM) buying property as if the bottom is in.
Seven Norway towns sue Citigroup on subprime investments.
Pfizer (PFE) to increase its recently-cut dividend?
UK dividends will drop 15% this year.
The recession is over in Germany and France.
Enjoy the recovery while it lasts.
Prudential Plc (PUK) raises its dividend.
Zions Bancorp (ZION) income may not cover dividends, interest.
Emerging Asia's economic rebound.
Non-performing loans threaten 150 more US banks.
Berkshire Hathaway's new positions.
Japan moving out of recession.
Seven companies raising dividends.
Case-Shiller's housing market data was released last week. Although home prices are still going down, apparently, the rate of decline has been slowing for the last four months. Of course, that could change if the Fed starts raising interest rates, which ultimately, it will have to do. The most recent 10 and 20-city indices were down 16.8 and 17.1% respectively from May 2008 to May 2009. Interestingly, 13 of the 20 cities surveyed had positive price gains between April and May 2009. Some of the winners and losers over the last year (05/08-05/09):
The best cities: Dallas,-4.1%; Denver, -4.6%; Cleveland,-6.2%.
The worst cities: Phoenix, -34.2%; Las Vegas, -32.0%; San Francisco, -26.1%.
