Maybe the banks will never again split their shares

I have fond memories of bank shares being in the $17-27 range. And I don’t mean during the global recession, when BMO and BNS could be had in the low twenties, but for most of my time as a retail investor. The accepted notion always seemed to be that lower share prices encouraged retail share ownership (see prior post “When will Canadian banks split their shares?” Jan 6-10). So when a bank stock hit $40 or $50, it would split. And we’d all feel good. Scotiabank (BNS: TSX), for example, split its shares in 1998 and again in 2004. In fact, BNS split its shares in each of the past five decades.

Today, you’ve got CIBC and TD shares in the low to mid $80s. BMO and Royal in the mid $60s, with BNS not too far behind at $58. Is this the new reality? Like E-L Financial (ELF:TSX)?

In the wake of the 2008 financial crisis, it seems as though the various bank Boards of Directors have concluded that a high share price is a badge of honour, even necessary, reflecting the continuing difference in the health of Canada’s banks versus those that belong to the New York Fed, for example. And back when the share prices of JP Morgan and Citibank were in the 10s and 20s, that argument certainly had merit. Now that they both are around $50 again, you have to wonder if its just lassitude.

Or concerns about their institutions’ capacity to continue to grow earnings. You’d never want to split your stock right before a weak earnings patch, would you? With so many of us as shareholders, let’s hope this is inertia at work and not an absence of confidence that the party is going to continue.

MRM
(disclosure: we own BMO, BNS, RY and TD in our household)