Portfolio Update: Move Over, National Bank. Say Hello To TD.
It’s a sad day yesterday as I eliminated my National Bank position after holding the stock for 21 months. Of course, it’s also one of the very first four stocks I purchased when I began my dividend-investing foray (the others were Power Financial, Bank of Nova Scotia and Saputo).
While the sentimental value of National Bank made the sell button excruciating to press, I felt it was the right decision in light of NA’s large asset-backed commercial paper burden relative to its market capitalization. The mounting writedowns should persist for several quarters, distracting management’s attention away from the day-to-day operations and growth strategies. Even without the distraction, NA’s geographical reach seems to be boxed within the Quebec province. Why don’t they just go buy something? I also have skepticisms against management, but let’s no go there.
Enough of my ranting. So, where to redeploy the proceeds? The choice is obvious: TD Bank. The more I read about the subprime fiasco and TD Bank, the more I like Ed Clark. Writedowns? What writedowns? You’d think Ed Clark is taking Tylenol to cure his ABCP migraine, but no! He’s taking Viagra to extend his reach into the United States. Officially with the Commerce Bancorp acquisition, TD blossoms to become the seventh largest bank in North America while other banks are fleeing with a tail between their legs; only the highest quality banks shine eminently during financial crisis such as the one we’re in.
The story doesn’t end here. One of TD’s prime online trading competitors, E-Trade Financial, may go bankrupt because it gobbled more home loans than its cash-flow permits. This is good news for TD, because should E-Trade files for bankruptcy, customers are only protected up to the first $100,000. Half their customers are over that limit according to Sinclair Stewart of Globe and Mail. For these clients, the sensible reaction is to lunge for a quick exit, and jostle to TD Ameritrade.
Another option is for TD Ameritrade to acquire E-Trade, a potential bargain now. I like how Derek DeCloet put it:
E*Trade’s fall is stunning. In 1999, at the peak of the Internet lunacy, it was (very) briefly worth more than the Bank of Montreal. Now it’s worth less than little Canadian Western Bank. Not five months ago, two hedge funds asked - no, demanded - Ed Clark to get out of the way and let TD Ameritrade, the Toronto-Dominion Bank’s partly-owned U.S. brokerage, merge with E*Trade. Since then, the latter has lost about $8-billion in market capitalization. Where are the hedge fund geniuses now? Awfully quiet.
E-Trade is still a prestigious brand. All Ed Clark has to do is spend a few bucks ($600 millions) to bulk up its presence in the discount brokerage space. It’ll be interesting to watch how the story unfolds.
Seriously, short-term results are just random, nothing more.
[…] No es suficiente wrote an interesting post today!.Here’s a quick excerpt It’s a sad day yesterday as I eliminated my National Bank position after holding the stock for 21 months. Of course, it’s also one of the very first four stocks I purchased when I began my dividend-investing foray (the others were Power Financial, Bank of Nova Scotia and Saputo). While the sentimental value of National Bank made the sell button excruciating to press, I felt it was the right decision in light of NA’s large asset-backed commercial paper burden relative to its market capitalizat […]