While Canada has a relatively strong banking system, not all Canadian banks warrant consideration as a long-term investment.
In January, I suggested investors pass on Scotiabank in my Scotiabank (BNS) Is A Terrible Long-Term Investment guest post published at Dividend Power. I subsequently wrote my TD Bank (TD) guest post at Dividend Power in which I recommended it as a long-term investment.
As a follow-up, my CIBC Is An Accident Waiting To Happen guest post at Dividend Power recommends you PASS on CIBC.
CIBC just has a knack for finding ways to make business headlines...and not in a good way.
Whether it is:
- recently paying Cerberus USD $0.77B to fully settle a lawsuit; OR
- recently losing an overtime class action lawsuit that was launched in June 2007 that was brought on behalf of current and former non-management, non-unionized employees of CIBC in Canada who are or were tellers or other front-line customer service employees (limited to personal bankers, commercial bankers and account executives, working at CIBC retail branch offices across Canada); OR
- miscommunication regarding the bank's right to amend terms and conditions on its products; OR
- ~$52B of variable-rate mortgages, or ~20% of CIBC's Canadian portfolio, where the borrower’s fixed monthly payments no longer cover interest
you can count on CIBC to come up with ingenious ways to destroy shareholder value.
Investors who focus heavily on dividend metrics or tempting valuations may be tempted to invest in CIBC. However, focusing heavily on dividend metrics is a terrible way to make investment decisions. Secondly, sometimes companies are attractively valued because they deserve to be.
Given the universe of potential investments, CIBC comes nowhere close to being an attractive investment. I have been strategically selling CIBC (and BNS) shares and now have relatively minimal exposure to these two banks.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long CM, BNS, and TD.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.