Canada Outperforms the U.S. in Investment Banking
It's been another tough year for banks, as the effects of fiscal policies gone terribly wrong continue to reverberate all over the globe. While European banks have had it especially tough, not even U.S. institutions have clawed their way back to robust good health. This is true of the investment sector as well -- where Canadian banks seem to be stealing the show lately.
Canadian banks are performing well on all fronts
Our neighbors to the north have been really shining as of late, having recently been showcased as some of the most stable financial institutions in the world. This sparkly outlook extends to the banks' investment arms as well. Although they haven't been necessarily setting the mergers-and-acquisitions arena on fire, there are definitely some positive trends going on, particularly when compared with the sad-sack situation in which U.S. banks such as Goldman Sachs, JPMorgan Chase (NYS: JPM) , and Morgan Stanley find themselves.
The investment section of Toronto-Dominion (NYS: TD) , for example, recently showed an increase in profit year over year of 5%, at least some of which is attributable to its increased M&A, trading, and other activities of its TD Securities section. Royal Bank of Canada (NYS: RY) also saw decent performance in its RBC Dominion Securities department, despite the overall lethargy of the financial sector. RBC is so pleased with its performance in this area that it would like to expand its global reach, and it may be looking into bidding on some of Bank of America's (NYS: BAC) non-domestic investment assets -- for which B of A expects to receive a cool $3 billion. Bank of Nova Scotia (NYS: BNS) has been chugging along, too, turning in profit numbers comparable with the same time one year ago. Acquisitions to BNS's portfolio are regarded as solid and low-risk, poised to bring in profits when the markets wake up -- an investment in the future, if you will.
U.S. banks losing their edge
Meanwhile, big U.S. banks are finding their dance cards are not as full as they used to be, as top-tier clients turn to M&A specialists instead. This, in turn, has spurred banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs to move down the food chain, elbowing middle-market companies out of the way to take on smaller deals with tinier paydays.
Some of this change comes from the fact that many companies are pursuing smaller, more compatible additions to their own offerings, rather than engaging in huge mergers. There is evidence, however, that the formerly sterling reputations of these big investment banks may have been tarnished by their behavior before and during the financial crisis. Interestingly, many of the companies that are now getting the goods are run by former investment-bank stars.
If the big U.S. investment banks are suffering from a tarnished reputation, then surely issues like JPMorgan's recent hedging blunder, the Facebook IPO flap, and Moody's announcement that it plans to kick Morgan Stanley down a notch or two closer to junk status this month certainly won't help. In the touchy-feely department, Greg Smith's scathing indictment of Goldman's toxic work ethic seems to have been a weight on that company as well -- after all, what client would want to be called names and made fun of behind his back?
The markets will eventually bounce back, but the banks' reputations may take more time and effort to polish. If they are looking for some guidance, looking northward might speed things up a little.
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At the time this article was published Fool contributorAmanda Alixowns no shares in the companies mentioned above. The Motley Fool owns shares of Facebook, Bank of America, and JPMorgan Chase.Motley Fool newsletter serviceshave recommended buying shares of Moody's, The Bank Of Nova Scotia, and Goldman Sachs. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.