O Canada! Your banks are shaming us

Solid capital. Low risk exposure. Profitability. Let's send Wall Street's CEOs up north for a lesson or two in smart finance.

By Heidi N. Moore, contributor

For the next few days, Street Sweep will be corresponding from Montreal, Canada, where we have set up shop to transact jazz-related business. Lucky us, we landed here on Canada's birthday.

So far, the celebration is pretty polite, but Canada still can't help but be proud of how far it has come. The cover of the Globe and Mail says it all: THE YEAR CANADA GREW UP.

So as we were withdrawing walking-around money from our "checquing" account -- Montreal is festooned with signs and instructions in a kind of Miss Piggy French -- we couldn't help but ponder how, while Canada shows no recessionary signs, our U.S. banks are still in a fitful adolescence: complaining about their allowance, throwing tantrums, and otherwise being unbearable.

Two recent reports from Fitch and Deutsche Bank tell the story pretty well.

Fitch applauds Canada's biggest banks: "During the worst of the financial crisis in 2009, the Big Six were able to remain profitable. The strength and resilience of Canadian banks is evidenced by the fact that they did not resort to or need public bailouts and official liquidity support was relatively limited compared to other G7 countries."

Fitch describes how the Canadian banks got there: "solid capital and liquidity levels; conservative overall risk management practices partly associated with a relatively concentrated market structure that allows close and clear regulatory supervision; a relatively stable housing market; and the diversification derived from the banks' universal model."

So it seems like Canada's banks are profitable because they ... acted like banks. Not like, say, croupiers at a casino in Las Vegas, like some other banks we could name. Interesting.

Of course, it helps that Canada didn't have a subprime housing crisis, which has allowed consumer spending and housing loans to boost the lending activity of the Canadian banks. Canada's banks usually hold the mortgages they lend out, which naturally makes their underwriting standards higher.

In fact, high underwriting standards have protected Canadian banks from all sorts of trouble. The Big Six Canadian banks actually reduced their provisions for troubled loans to $3.9 billion in the first half of 2010 from $5.4 billion in 2009, according to Fitch. Not only is that a dramatic drop on its own, but look at the actual number: $3.8 billion wouldn't even feed a full unit of American investment bankers at a big American bank.

There is no question that American bankers are less well-fed these days, however. Deutsche Bank's update on U.S. banks and brokers says the bank is bullish on only a handful of American banks: Wells Fargo (WFC), Citigroup (C), Suntrust (STI), PNC (PNC) and J.P. Morgan (JPM). With second-quarter earnings coming up in mid-July, Deutsche Bank believes that earnings per share will stay low for a long time yet, particularly given issues of financial reform, but also including the bank's own sluggish businesses, particularly in those involving the markets. Of the 18 banks Deutsche tracks, it expects only 11 to report positive earnings.

Canada Day, of course, is only three days before the U.S. Independence Day on Sunday. But this year, we get a sense that the celebration in Canada will be less troubled.

--Heidi Moore is Sweeping the Street for the two weeks that Colin Barr is on vacation.