Canadian Banks remain unstoppable -- but prefs are still junk

It's unbelievable actually; with all the big 5 third quarter numbers on the street, and National in as well, the numbers defy reality. Scotia, Royal, and TD all reported a net profit in the vicinity of $1 billion. BMO and CIBC came in with a half billion and about $80 million respectfully showing the only ABC exposure that amounts to much in Canada. National reported a record profit of $286 million.

Accordingly, all the common stock of these 6 which has been rising steadily all week, is on fire today. All in all, we have gains of approaching 10% in this sector over the past week or so.

What does it all mean? Well, for one, it means that regardless of financial calamity anywhere else, Canadian banks continue to do a wonderful job taking the average Canadian retail customer for the big ride. Fees for everything, and so much so that the resultant cashflow serves as protection for any dopy side dealings these banks may get involved with. Even CIBC, the so-called "cowboy" of the group that has more ABC exposure than all the other Canadian banks combined.

For two, it means that their prefs keep the coveted P1 status, and allows them to continue the policy of flooding the market with more and more of this paper. It's interesting that BMO themselves took as much of a writedown on their own preferred shareholdings as they did on ABC in the third quarter.

The conclusion is obvious: Canadian bank preferreds are little better than ABC, and have little or no growth prospects in the future. Sure, you'll continue to get the dividends. Nothing's really safer right now. But any rally in these prefs will continue to be snuffed out by ongoing new issues brought to the market.

Why do they keep doing it then? Well, the overly-analytical prefdrones will say it's got to do with Tier 1 capital ratios, etc. and that it's justified.

Wrong.

It's not justified, because it trashes the market, and the funding is simply not needed. The only problem is that the prefdrones continue to buy it up, which allows the banks to keep issuing it. If these so-called investors would do the right thing, and walk away from this prefjunk, then the rating agencies would assign the proper P3 or P4 labels on it, and the banks would have to back off. The market would cease being trashed.