Can-Banc NT capital shares: trading at a discount: Can-Banc Capital Shares continues to look attractive

Money Digest, Feb, 1996

We have written about Can-Banc NT Capital Shares split shares before. Any one who has invested in these shares at the right time would have made a profit. It is now time to revisit these shares.

(Note: A split share is a dividend paying stock that is divided into two parts: capital and dividends. In broad terms, if you buy the `capital' part you are eligible for capital gains but not for dividends; if you buy the dividend part, you are eligible for dividends, but not capital gains. The actual terms are somewhat more complex. If you want to invest in these shares your broker can give specific terms.)

What is Can-Banc?

Can-Banc is an investment trust that exclusively holds an equal dollar weighted basket of common shares of the 5 biggest Canadian chartered banks: Royal Bank (TSE - RY, $32.75), CIBC (TSE - CM, $41.63), Bank of Montreal (TSE - BMO, $32.63), Bank of Nova Scotia (TSE - BNS, $32.00), and Toronto Dominion Bank (TSE - TD, $25.37). It will unwind on August 31, 1998, and pass the money to shareholders.

Why invest in Can-Banc Capital Shares?

The capital part of Can-Banc (Can-Banc NT Capital Shares) is of special interest. The rising bank profits and lower inflation indicate that bank prices will continue to rise. At the current level ($9.75) the shares are trading at a discount to their intrinsic value. As a result these shares have a good leverage potential.

The risks

While Can-Banc Capital Shares can be profitable, we should remember that it is a split share. Split shares (like strip bonds) are leveraged and can exaggerate both losses and gains.

So Can-Banc Capital is not automatically suitable for conservative investors. It is, however, suitable for investors who can afford to take calculated risks with their money. The company trades on the TSE (symbol XCN).