The banking crisis is a nasty mess throughout most of the U.S. and Europe. Just recently Lloyds Banking Group PLC (NYSE: LYG) ceded 75% of its assets to the government of Britain, and Citigroup Inc. (NYSE: C) closed at $1.05 on Monday. Let's not forget JP Morgan Chase & Company (NYSE: JPM) has $87.7 trillion worth of outstanding OTC contracts as of September 30. JPM will not disclose how much of this is toxic.
Canada's banks have already taken big write-downs on their toxic securities. The Royal Bank of Canada (NYSE: RY) says it has only C$3 billion in net exposure to subprime and risky mortgages. RBC has a loan exposure to the U.S. of only 28%.
Canada's three largest banks posted healthy profits with RBC earning $850 million in the three months through January. It trades at only 1.5 times book value. (As an aside, you should always look at the book value when buying a bank stock.)
Now here's the best part. They are using old-fashioned lending practices, requiring 20% down for their loans unless they are guaranteed by the government. Only 20% are guaranteed by the government, which means that 80% of Canadian banks are taking responsibility for the loans they make.
Here's another big plus: Canadian banks have been able to beef up their capital, and they made C$22 billion of new loans in 2008, the largest amount on record.
It seems that Canadian banks did not go berserk like the Americans and Europeans.
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