Canada's big banks have avoided the train wreck that has swept through much of the world's financial system. This week provided more examples, as the banks reported their results for the latest quarter.Fred Lum/The Globe and Mail
Canadian bank stocks were among the hardest hit on Tuesday as investors grew increasingly concerned about the possibility of a setback in the economic recovery.
Amid worries over slowing consumer spending and broader fears about sovereign debt problems in the United States and Europe, the S&P/TSX index sank 193.31 points, or 1.5 per cent, to close at 12,752.32.
Its drop was outpaced by major Canadian banks, which fell 2.2 per cent as a group, declining for six of the past seven trading days.
Bank of Nova Scotia led the way, falling 3.0 per cent to close at $52.54 a share. Since last Monday, shares in Canada's third-largest bank have dropped 8 per cent.
National Bank of Canada fell 2.8 per cent, closing at $72. Shares in Canada's sixth-largest bank have lost more than 9 per cent since last Monday.
Bank valuations around the world have been dropping in recent days. Canada's banks couldn't avoid the global drubbing altogether and appeared to be playing catch-up.
Royal Bank , Canada's largest lender, dropped 2.2 per cent on Tuesday to finish at $50.29 a share. No. 2 Toronto-Dominion Bank fell 1.5 per cent to close at $75.34. The fourth-largest lender, Bank of Montreal , dipped 1.6 per cent to finish at $59.07 a share, while shares in the fifth-largest bank, Canadian Imperial Bank of Commerce , dropped 2.45 per cent, closing at $71.19.
Canadian banks have become international darlings over the past few years, thanks to their strength amid the 2008 financial crisis. Now, some of their international shareholders may be at the root of the weakness as they look to free up cash, analysts said.
"Banks are a levered play on the economy," said Sumit Malhotra, Canadian financial services analyst at Macquarie Capital Markets.
"Simply put, when investors combine questions on just how healthy the global economy is with a less-than-inspiring reporting season from U.S. and European banks, they are going to accord a lower valuation to the sector. And while Canadian banks will still trade at a premium to their global peers, that premium has to be applied to a lower multiple."
In the U.S., the Dow Jones industrial average suffered its worst loss since June 1, closing at 11,866.62, down 265.87 points or 2.2 per cent. The blue-chip index marked an eight-day losing streak, its longest since October, 2008, amid concerns over the U.S. debt crisis and slowing job growth and the depressed housing sector.
Consumer stocks were also hit by worries about lacklustre household spending. General Electric Co. and Home Depot Inc. both fell 4.2 per cent. Drug-maker Pfizer Inc. lost 4.6 per cent, after reporting sluggish quarterly revenues.
Gold producers got a lift from fears, along with the price of gold, a traditional safe haven in times of turbulence. Barrick Gold Corp. rose 2.4 per cent, while gold futures rose to $1,644.50 (U.S.) an ounce, up $22.80. The rise coincided with word that South Korea's central bank is diversifying its foreign holdings with gold assets and moving away from the U.S. dollar.
With files from David Berman