by Tom Bradley

Everyone has been picking on the banks lately, but we shouldn’t feel sorry for them. I was reviewing their quarterly earnings last week and the news is all good - higher profits and dividends. But a couple of things really jumped out at me when looking at the numbers.

• TD generates a return on equity (ROE) of 45% on its Canadian retail bank (you and I). The equivalent numbers for its other divisions are a fraction of that. Its U.S. retail bank has an ROE of 10% and the wholesale business is 16%. The other banks break down their ROE along different lines, but suffice to say that all the banks are riding on the backs of the Canadian public. 45%? They’re charging you and I too much.
• I couldn’t help but think the banks are talking out of both sides of their mouths when it comes to real estate markets and over-indebted Canadians. They posture publicly for governments and the Bank of Canada to do something about rising prices and debt loads, but meanwhile they’re pushing their clients to borrow more (we recently heard a lot about the banks’ sales strategies). The number that prompts this comment is the amount of HELOCs (home equity loans) TD has on the books. TD has $68 billion of HELOCs compared to $188 billion of residential mortgages. It isn’t just mortgages that are driving up debt levels. Money is cheap and the banks are selling hard. “Do you want fries with your mortgage?”

When my wife, Lori, complains about the banks, I remind her that ridiculously profitable banks are better than the alternative (i.e. banks in need of a bailout), but I’m starting to change my tune. Couldn’t the Big 5 be just a little more respectful of the privileged position they have in this great country of ours?