Business - National Bank of Canada

Dear Mr. Berko:

Please tell me what you think of the National Bank of Canada that is on the Toronto Stock Exchange. I know you like foreign stocks, but I want to buy 55 shares for my IRA. My broker, who says he knows you, told me that we cannot buy foreign stocks in an IRA unless they are listed on the New York Stock Exchange. Is this true? My broker said he met you in Boca Raton two years ago and said to say hello because I told him I would write you.

E.S., Rochester, Minn.

Dear E.S.:

I seldom recommend foreign stocks because I'm not comfortable investing in countries whose language I don't speak and whose ruling body is more bent than our Congress. Canada is a neighbor, not a foreign country. Mexico is also a neighbor, but it's a foreign country. I like the National Bank of Canada (NA.TO - $60.32) that is home ported in Montreal and prints its statements in French, as well as in English. And while I am far from a Francophile, I do like the French language because it seems to have a different word for everything! I'm comfortable investing in Canada, a country with 34 million people (including the French) and a Parliament that, unlike our Congress, seems immune to graft, corruption and cupidity. The reason for Parliament's probity (many say) is that few of its members are lawyers. Canada exports more oil to the U.S. than any single country in the world, and the loonie (Canadian dollar) is a fairly strong currency. Canada's economy has not been bludgeoned by the likes of Goldman Sachs, JPMorgan, Merrill Lynch, Fannie Mae, Freddie Mac, a housing crisis, CMOs, deficits the size of Pluto, plus a health care and retirement system crippled by abusive claims and billings. So I believe the National Bank of Canada has excellent long-term potential.

NA.TO should continue to maintain sound credit quality. However, loan loss provisions did soar last year due to liquidity problems with asset backed commercial paper exposure; and corporate, credit card and personal loan losses. Still, NA.TO's negative numbers are well below its peers and should improve significantly in 2010, allowing earnings to increase from $4.73 last year to perhaps $6 this year. And while NA.TO's 13 years of consecutive dividend increases was abruptly halted last year, I'm certain as the morning tide that NA.TO will increase its dividend this year somewhere in the $2.54-$2.62 range.

At the current $60 price, shareholders are earning an attractive yield of 4.5 percent (Canadians get a 35 percent tax credit on that dividend). And because the Canadian economy should continue to recover from the hosing our economy gave it in the last few years, I'm confident NA.TO will continue to raise its dividend annually in the coming years.

NA.TO's credit risks are well below the average compared to its peers. The bank has 17,000 employees in 445 Canadian locations, plus branches in 20 foreign countries. And like Goldman, Merrill, JPMorgan and Bank of America, NA.TO benefits from a strong capital market business and proprietary trading revenues. But unlike Merrill, etc., NA.TO doesn't pay its big shots $20 million or $100 million a year in bonuses.

Still, future revenues and profits are expected to grow at an above-average rate for the foreseeable future. Management expects to reduce its long-term debt by 25 percent and increases its $33 book value by 50 percent in the coming four years.

If your broker looks like a cross between Col. Sanders and Jimmy Carter, then I know the guy. He's getting on in years, but I think someone ought to take his car keys away. Unfortunately, his age may belie his ignorance because there are no IRA restrictions on legitimately traded foreign securities.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at Visit Creators Syndicate Web site at

© 2010 Creators Syndicate Inc.

Published: Mon, Mar 22, 2010


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