Shares of Canada-focused banks outstrip rivals with overseas bets

TORONTO, Aug 17 (Reuters): Three of Canada's largest banks, driven by domestic growth, have soared in the stock market this year on a spate of acquisitions, while lenders with global ambitions have sagged on rising costs in foreign markets.

Shares of Royal Bank of Canada, CIBC and National Bank have outperformed the broader TSX index's 9.8 per cent rise so far in 2024. National Bank was the top gainer with a 15.2 per cent rise, followed by RBC with about 13.5 per cent and CIBC with 10.9 per cent.

The TSX banking index has advanced about 7.5 per cent.

Shares of rivals that rely on overseas markets to increase revenue have fallen, led by Bank of Montreal with an 11.3 per cent drop; followed by Toronto-Dominion Bank, down about 6 per cent; and Bank of Nova Scotia with about 1 per cent.

Among the winners, RBC was propelled by its acquisition of HSBC Canada this year and National Bank rose on its C$5 billion ($3.65 billion) proposal to buy Canadian Western Bank.

CIBC got a boost from its focus on digital banking and wealthy clients in Canada, and growing US commercial accounts.

"It's really a question of more risk appetite. The expansion within Canada, the east-west expansion, is a much lower risk proposition" than growth south of the border, said Ben Jang, a portfolio manager at Nicola Wealth, which holds shares in TD, RBC and CWB.

However, Canada's Big Six banks - four of which are among North America's 10 largest - already control more than 90 per cent of the domestic market.

Some sought growth abroad after the government quashed plans in 1998 to merge RBC and BMO, and TD Bank with CIBC. The push intensified with TD's US acquisition spree in the mid-2000s and BMO's $16 billion purchase of regional US lender Bank of the West in 2022.

Scotiabank expanded even further south, to the Caribbean, Mexico, Peru and Colombia and other parts of Latin America.

However, the southward drive has encountered roadblocks. TD has been plagued by US regulatory probes into its anti-money laundering program, and RBC Capital Markets analysts in July flagged faster credit deterioration at BMO than its US peers.

Scotiabank last year laid out a plan to focus on the North American corridor. Its stock fell 3.4 per cent on Monday after it announced a surprisingly aggressive move to buy a 14.9 per cent stake in US bank KeyCorp.