As investors you have 2 sides or a ying and yang, you are often a consumer and an investor. Sometimes the two will mesh with each other and you will be delighted as an investor and sometimes the traits that make the stock good from the investor point of view is lousy for the consumer, unless you are one of the exceptions to the normal business practice.

Many years ago working for a bank, some of the benefits were free checking, higher savings rates, lower interest rates to pay and a host of good things. After leaving the bank, all the things consumers said was wrong, it was easier to see, but still the stock was kept and added to.

A book from the consumer side of banking, in particular the Canadian banking is called Fleeced by Andrew Spence, published by Sutherland House, Toronto, Ontario, 2024. In the book, Mr. Spence outlines how the banks charge higher fees than comparing to either US banks or UK banks.

When it is very good to write a check when there is money in it, the NSF fee in Canada is $50 and to avoid it, the bank charges an overdraft fee per month such as $5.00. In Australia the bank fee is $5.00 Why is that important for a Canadian bank with $400 billion in consumer deposits, the fee income will be in the $4 billion range. A UK bank with $400 billion in consumer deposits takes in $2 billion in fees.

Banking’s key statistic is net interest income, the difference between what it pays you for your savings and what it makes on its loans. In Canadian banks, that is 52% of their income, the other 48% is fees, commissions, income from trading stocks, bonds and other financial products.

Canada’s small group of very large banks so thoroughly dominate the market for financial services that it can manipulate prices, stifle innovation. and choke off or buy competitive threats. The gains flow to the banks and their shareholders.

Credit card interest rates is a cash cow because in 1981, the interest rate on Visa and Mastercard was 25%, the bank rate was 21% or a spread of 2.25%. In 2024, the interest rate is 20%, the bank rate is about 7% or a spread of 13%.

There are other examples in the book about how the financial system is not very consumer friendly, but how good are the returns and how consistent are they: In the years of 2022 and 2023, TD and BMO have operations in Canada and the US – in Canada their return on equity for domestic personal and commercial banking was 37% versus 14% in the US.

Linking to dividend paying stocks, this case was used because the Canadian banks are very profitable companies and there are reasons. The reasons are as an investor you should consider owning shares in the companies is the profits are consistent. Will the government or the market change things, highly unlikely which means the patterns should continue into the future. In other sectors analyst discuss subscription or fee income, some industries do it better.

There are more questions than answers, till the next time – to raising questions.