Pat McHugh Royal Bank RY-T TOP PICK May 28, 2007

In his opinion, the only quality banks in Canada are RY and NA. Best run for decades. He's not a huge bull on the Canadian banks, but this is one of the two names he'd buy.

Will benefit from any passive flows given its huge weight in ETFs. A quality company. Is not overly concerned with credit losses.

Value scores 8/10, fundamentals 8/10. King of capital, resilience, and diversified lending. Steady, consistent beats compared to the other Canadian banks. Strong Q1, shrugging off a lot of the rate cut noise. Still sees upside in wealth management and US expansion. Rock-solid balance sheet that can weather any storm.

Slowing mortgage growth, which could continue if Canadian housing slows and tariffs ramp up. Core hold for her on reliability and growth.

The gold standard. Paying a premium valuation for a premium asset. Good opportunity to buy if it came off a bit. Because of its premium status, it's come off less than the others.

Likes the big 5 Canadian banks; all have wealth management, retail, and commercial banking in Canada. This one is among the cream of the crop, over-capitalized, best performer. Rock-solid dividend yield ~4%. Nothing not to like about it. Best in wealth management. Steady dividend growth.

His least-favourite Canadian bank, the most over-valued. Prefers TD because it was beaten up, and BNS for better value. If it's new money, wait till $130-140, though you could buy a small tranche yere.

His big position in Canada. Leader in wealth management. Great capital markets business. Great balance sheet. Very well managed. When you get into a sloppy market, you want to own the best. Thinks you could buy this here, but he's not adding any new positions in anything at all right now.

Good time to buy. Multiple has contracted on prospect of a slowing economy and potential for increased loan loss provisions. As a group, banks have been increasing loan loss provisions for a couple of years. Unknown how tariffs will impact economy; but RY is diversified with strong retail deposit base. HSBC Canada integration going well, source of future growth. Attractive dividend, increases a bit each year.

Both have a very large domestic presence, which helps them in this environment. Both had very good numbers last quarter and are very good businesses. As expected, all banks increased credit provisions.

RY will benefit more from its large capital markets business. Volatility helps capital markets a lot; perhaps you won't get the M&A, but a lot of trading goes on with equity, debt, and other derivatives. It's global. Expectation in US of deregulation in financial services; if so, RY will benefit a lot more than NA.

NA is smaller and more focused in Quebec, though the CWB acquisition is changing that.

RY is the least-exposed bank exposed to tariffs. Good. Volatilty in capital markets benefits RY's cap markets division. The dividend is reasonable and now trades at a premium valuation in this sector, but this is deserved.