Making bank

So far this week we’ve moaned abut trade, tariffs, Trump and his apostle running Alberta. Time for arousing good news, right?

And we have some. One word. Banks.

They’re the canary in the Canadian coalmine, and that bird is fat and happy. Like Ozempic level. They are woven into every aspect of our economy and provide a boffo barometer of economic health. At this moment, it’s robust. Stable. Consistent. All the stuff you wish was everywhere.

The latest earnings are awesome.

RBC made $6 billion in 90 days, up 11% from last year. Record revenue in domestic banking pushed TD’s profit up 38%, to $4.6 billion. BeeMo came in just under three billion, for a 22% surge. CIBC has had nine quarters of double-digit growth, this time 26%, on revenue of over $8 billion. And it was a record quarter for Scotia with a 37% pop in earnings.

Banks don’t make money without economic activity, business expansion, capital market growth or consumer spending. These results tell us there is vast underlying strength in the Canadian story, reflecting a big inflow of investment dollars and impressive management. These profits have been made in a time of economic uncertainty, real estate torpor, the Trumpian trade war and political volatility.

Of course you should not put money in the banks, You should own them.

The financial sector dominates Bay Street – a weighting on the TSX of 37% (way more than energy, at 17%). It’s an eight-year high, fed by performance. And since financials make up the largest industry exposure on the entire market, investors who own a fund pacing the broad index should sleep well – whatever America tries to do to us (like stealing our lake).

Why are the banks snorfling money?

Capital markets have popped in the past year, and the bankers are heavily engaged in wholesale, institutional and retail trading. The wealth management business is healthy, just like all the rich (and hated) Boomers it caters to. Interest margins have improved. Loan loss provisions have declined. And uncertainly in other sectors has driven more wealth into the warm arms of the TNL@TB.

Of course, all this love has meant bank stock valuations are more stretched than in the past. That makes individual bank stocks prone to a pullback, and the latest battle with the White House could feed volatility. Tariffs and retaliatory actions by the Carney government could fuel inflation, leading to interest rate increases in 2027. In the meantime the real estate market could be whacked by the trade war if unemployment increases, eating into returns from the banks’ massive mortgage portfolios.

So while financials have leapt in valuation by more than 25% in the past year, further gains could be limited until Mr. Trump leaves office or is stolen by Natalie.

Meanwhile, of course, the banks pay dividends. As high as 3.8% at the moment, which is a nice premium over inflation and better than you can get with most GICs. Even sweeter, the cash distributions happen four times a year, and investors can benefit from the dividend tax credit. In short, you get better returns, more cash flow and pay less tax than by saving.

Like we said. Own the banks. Don’t just bank there.

And the best way to do so?

An ETF, of course. Consider a TSX capped composite fund married to a nice Canadian dividend ETF. Despite today’s plop, the market is ahead 15% in 2026 and a pleasing 29% in the past twelve months. Yes there will be reversals. Of course the White House will be trying to squish us. And the headlines will be full of distressing noise.

But through this time the banks will keep making money, building their equity, and coping calmly with change.

You can, too.

About the picture: “A while ago there was a query as to the most featured dog on your blog,” writes Lloyd. “I’m not positive but I think it might be Ziggy (she is pretty photogenic). Regardless, here’s another one should you be desperate not to resort to cat pics. Thanks again for your tireless, and consistently entertaining, writing.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2026/08/27/making-bank-2/