Canadian Western Bank (CWB.TO)

Tough going right now out West, and as a result banks lending primarily to Western provinces are having some troubles. Historically a very well-run company, solid business and diversified, but in the current territories they are in a bit of trouble. Stock has been beaten down a long way. From a loan loss point of view, you can expect to see some losses showing up. He would prefer to see a bottoming in the Western economy before he got aggressive on this.

This bank had a great run over the previous 10 years, but has gone through a rough patch recently. He is Short this, largely because of its exposure to Western Canada. Thinks there is a rough patch coming. If you look at how they performed in 2008-2009, a lot of the provisions really didn’t come in until late 2009, and carried on until 2011. Feels the market is not anticipating some of the issues they are going to have. Also, in the last conference call, they have a very substantial “preferred share book” which has been very hard hit. They did not take a write down to that portfolio, but it they wrote it down to its current market value, it would essentially wipe out at least the last quarter if not more in terms of earnings. He can still see a 10%-20% downside.

Because of its geographic concentration, and that all of the banks have underperformed, she would rather buy one of the larger ones. Dividend yield of 4.4%.

Earnings expectations set it at 8.6 times, which is very low. But there could be another 10% down in the stock if oil stays low much longer. It is an energy trade and will recover proportionately if oil does. You could nibble away here.

Has been punished because everybody thinks that every loan in Alberta is going to go under. That just isn’t the case. You are buying this at about 8X earnings compared to other bank stocks where you are paying 10X or 10.5X earnings. You’ll get a 1% multiple bump over a 5-7 year period, and you are probably going to get a nice growth bump, because the earnings that are not going down will show enhanced growth as Alberta recovers. This is exactly what a contrarian investor would be looking at. Dividend yield of 3.8%.

It has not had a good year and is less expensive now. The problem is the exposure to lending in Western Canada. There were not a tremendous amount of debt restructurings in 2015 so he is cautious the longer oil stays low.

(Market Call Minute.) This has suffered from a slowdown out West. It is the middle of the pack for him. Has an okay yield. There is no compelling reason to own this when some of the other banks are trading at some of the same valuations.

Short. (A pairs trade with a Long on Callidus Capital (CBL-T).) This is essentially to take out some of the market specific risk and industry specific risk. Dividend yield of 3.41%.

Banks in general may be soft for a year or two. He would prefer ZWB-T, which does not own CWB-T. He would not step into ZWB-T yet.

This bank is so tied to the energy complex in the west and the western economy, there is probably going to be a little bit of rough water before calm seas set in. He would be more comfortable buying one of the bigger banks, as they are breaking out of their technical formations, meaning they are making better money. Watch the loan loss provisions get built into the big banks when they report in a month. If they start to go way up, that augurs poorly for this bank.

This has been unduly hit because of Alberta. He is trying to figure out how to play the Alberta recovery. (See Top Picks.)

It has been hit by the energy price. This one is down more because of where they are. It is a well managed bank. He has no problem with the stock.

(A Top Pick May 22/14. Down 33.35%.) Thinks the selloff has been overdone. This bank trades with oil. 40% of its assets are in Alberta. Last quarter earnings were quite good. It has sub-20 provisions for credit losses, which is well below all the other banks. Trading close to BV, and with a 3-5 year time horizon, it is a great buy.

A lot of equipment financing. He thinks reserves for loan losses will go up. If you have patience and can handle some volatility, it will pay off, even at these levels.

To some extent, he thinks the market has been unduly harsh, but it is really viewed as one of the best pure proxies on the economy in Western Canada. As a consequence there have been a lot of Shorts on the name. Believes it is one of the worst performing Canadian banks over the last 12 months, and doesn’t see that changing in the near future.