The big six Canadian banks are up more than 50% over the last 12 months, outperforming the closest comparable sectors. Mario Mendonca, Managing Director at TD Cowen, explores why Canadian banks are outperforming and may not be as vulnerable to credit cycles as in the past.

Transcript

Kim Parlee: Over the last year, the big six Canadian banks are up more than 54%, outperforming most financial sector comparables. And after the last set of earnings, my next guest is asking the question, are the banks really that cyclical? Here to break it all down for us is Mario Mendonca. He is managing director at TD Cowen.

Great to have you here.

Mario Mendonca: Thank you.

Kim Parlee: Great report. We usually spend a lot of time talking about individual banks, but this is really a bigger question, I think, for all the banks. Maybe I’ll just start with a big question saying, why are you asking this question?

Mario Mendonca: Bank valuations are at very high levels. There are three, four, perhaps even more valuation metrics I use to gauge absolute and relative valuation. All of them are pointing to extremely high valuations. In fact, we’re looking at things like 24-year highs in certain metrics, all-time highs in others.

And when valuation becomes this stretched, we can only go one of two ways. You can either conclude that something’s changed, something’s different this time, or they’re going to come tumbling down, that this is unrealistic.

And I think a lot of the investors I speak to are grappling with that issue. So I spent time in this report trying to answer the question for myself and for investors.

Kim Parlee: So you actually– I’m going to bring your report right back to you. But you have– basically, there’s some basic reasons why we could

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