UBS: Kanadískir bankar einna minnst fallít af vestrænum bönkum

 Loan-to-deposit ratio of  96% in the U.K. = allsherjar gjaldþrot breska bankakerfisins og þar með breska þjóðarbúsins er óhjákvæmilegt, aðeins spurning um tíma.

Less risk in Canadian banks: UBS

Posted: February 11, 2009, 11:35 AM by Jonathan Ratner

Economy, Financial services, banks, capital reserves

Bay Street is likely to suffer less than Wall Street as global economic conditions worsen and international banks continue to grapple with bad loans and toxic assets, according to UBS. Researchers at the Swiss bank “expect Canadian banks to continue to outperform their global peers given superior asset quality, capital, liquidity, and return on equity.”

While shares in U.S. and Canadian banks both hit historical lows in January, UBS points out that Bay Street banks have suffered a 38% fall while Wall Street bank stocks have fallen 66%.

Researchers at the investment bank say they “remain negative on the outlook for global banks due to a weaker economy,” but see less risk lurking in the books of Canadian banks.

“Exposure to high risk toxic assets is fundamentally lower in Canada,” according to the UBS team.

The researchers also point to several other key metrics that indicate a healthier banking system, including more stringent underwriting standards for home loans. The bank points out that Canadian banks are less leveraged than international peers, with a “a low loan-to-deposit ratio of 78% versus 83% in the U.S., 96% in the U.K.”.

In particular, the bank argues investors should not use the same conservative metrics to evaluate the riskiness of Canadian banks that are in vogue for measuring U.S. banks. U.S. investors have been increasingly ignoring measures of banks’ capital reserves that are based on elaborate systems of risk-weighting arrived at by executives and regulators.

Instead, they have been stripping balance sheets down to so-called tangible common equity, because “all assets have become more risky in this environment”, making “risk weightings less reliable, according to UBS.

Using this risk-averse metric, Canadian banks look significantly less well capitalised. But UBS argues this is misleading. It points to a number of conditions in Canada that, including strong earnings flows.

“We think that earnings are the most important cushion for credit losses,” the researchers say, adding: “therefore their implicit pro forma capital levels are higher than their US peers regardless of what number is used.”

Eoin Callan