CIBC (TSX:CM) or BMO (TSX:BMO): Which Major Bank Belongs in Your RRSP?

Here’s a head-to-head look at banking giants Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Bank of Montreal (TSX:BMO)(NYSE:BMO), which are compared across their operating metrics, growth drivers, and valuations.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With GDP growth expected to slow over the coming quarters, Canadian banks have been under pressure with major names like CIBC (TSX:CM)(NYSE:CM) and BMO (TSX:BMO)(NYSE:BMO) falling off their all-time highs. But which of these two presents a buying opportunity, as opposed to a value trap? To help us determine the answer, we will look at their operating metrics, growth drivers, and valuations.

Operating metrics

Last quarter was a lukewarm period across the entire sector, as the housing bubbles in Toronto and Vancouver began to cool along with nationwide consumer spending and as 2018’s rate hikes begin to finally catch up to the credit markets. For second quarter 2019, BMO’s return on tangible equity ticked upwards to 16.4% from 15.6% in the prior year, though CIBC did not fare as well, returning only 15.9% of adjusted net income to equity compared to 17.4% in 2018.

On the efficiency side of things, both BMO’s and CIBC’s efficiency ratios (which measure the amount of expenses compared to revenues, with the lower number being better), were stable year over year, remaining within the high 50% range. Finally, with the credit cycle beginning to turn, total provisions for credit losses ticked upwards by $16 million to $176 million for BMO and by $43 million for CIBC to $255 million.

Near-term growth drivers

In the near term, I anticipate that BMO will be able to leverage its smaller exposure to Canadian lending relative to CIBC by essentially sitting out an economic downturn at home. Moreover, BMO’s U.S. business earnings totaled $417 million, up 16% versus the prior year, though, of course, with the U.S. Fed set to cut interest rates, it remains to be seen how much longer this strong performance can persist.

Furthermore, BMO also went through a bit of a restructuring in the capital markets division, which is expected to save $40 million in operating expenses, and combined with its large share of the Canadian capital markets as a whole, this segment can possibly deliver strong operating results for the rest of 2019 and 2020. Like BMO, CIBC will be relying on its U.S. division to generate growth, as Canadian Personal & Small Business earnings fell 3% year over year, although losses on Canadian impaired loans might be subdued in the coming quarters, thanks to the Bank of Canada’s pause on any further rate increases for 2019.

Valuation

On the valuation front, BMO’s consensus 2019 EPS is expected to be $9.5, while CIBC’s is anticipated to deliver EPS of $12.14. These numbers translate to 2019 P/E ratios of 10.48 for BMO and 8.52 for CIBC. Therefore, both these names are offering similar discounts to their 2018 P/E of 11.2 for BMO and nine for CIBC, though slightly more so for BMO.

Therefore, due to its lower exposure to Canadian lending, better operating metrics, and superior valuation, I would have to pick BMO over CIBC for a place in my RRSP.  

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Matsepudra has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Bank Stocks

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold in 2025?

Royal Bank is down 6% in 2025. Is it time to buy the dip?

Read more »

chart reflected in eyeglass lenses
Stocks for Beginners

Seize the Dip: Investment Opportunities Await This April

If you're looking for one and only one opportunity during a market dip, buy this top stock.

Read more »

hand stacks coins
Bank Stocks

Here’s How Many Shares of IGM Financial You Should Own to Get $1,000 in Yearly Dividends

Besides its attractive dividend income, IGM Financial’s strong long-term growth fundamentals could help its stock outperform the broader market in…

Read more »

A person looks at data on a screen
Bank Stocks

Where Will Bank of Montreal Stock Be in 5 Years?

These factors give Bank of Montreal (TSX:BMO) stock the potential to outperform the broader market in the next five years.

Read more »

calculate and analyze stock
Bank Stocks

Where Will TD Stock Be in 3 Years?

Here are some key reasons why I expect TD stock to reward patient investors handsomely over the next three years.

Read more »

Pile of Canadian dollar bills in various denominations
Bank Stocks

1 Dividend Stock Down 10.2% to Buy Now for Lifetime Income

A high-yield stock with a nearly 200-year dividend track record is a screaming buy right now.

Read more »

calculate and analyze stock
Bank Stocks

Why Smart Investors Own Canadian Financial Stocks

Top Canadian stocks like these could help smart investors get strong returns on their investments in the long run.

Read more »

customer uses bank ATM
Tech Stocks

2 Canadian Bank Stocks to Shield Against Market Downturns

Anchor your portfolio with dividends and stability built to outlast trade war turbulence with Royal Bank of Canada (RBC) and…

Read more »