This article first appeared over a year ago, on February 8, 2016, but the teaser pitch is still making the rounds and I’m still getting questions about it, so I’m re-posting it here for your information.

The data below and my comments are all from a year ago, I have not updated or revised them (and the ad itself, though undated, still appears to be unchanged from a year ago as well). For what it’s worth, I did just go back and check on the performance of those investments over the past year — the five big Canadian banks are all up and all moving together, they’re up about 50% on average over the past year and, perhaps not surprisingly, have had almost exactly the same performance as the average big US financial institution (the XLF ETF, representing the financial sector, is also up 50% since February of last year). And Goldman Sachs, which is the bank they were (and are, apparently) predicting would go bankrupt is up even more, with a total return of just about 70%.

So, without further ado, the tale of woe and bankruptcy that we deciphered on February 8, 2016:

If you’d like an external indicator for the fear that many folks seem to have about the market, you need look no further than the world of newsletter teasers. There are almost always “doom is nigh” teaser pitches around, and they’ve been there since at least the 1980s, but they proliferate during times like right now, when things are looking uncertain or when the market is moving downward — that’s when we’re most likely to respond to “things are going to be terrible” sales pitches.

And, since we’re already in a somewhat pessimistic mood so far in 2016 for whatever reason — whether it be the presidential campaign’s cycle of exaggeration, or the drop in the S&P 500 over the past few months, or the failure of our “can’t miss” investments in gold or hot IPOs (or whatever) to save us — the copywriters can find fertile ground for weaving their magic. So far the ones that have caught our eye are David Stockman’s inaugural teaser pitch promising that Amazon will crash (that’s been a good call so far, with AMZN down 20% in the last two weeks), and today’s pitch from Michael Lombardi that “You’ll Never Guess Which BIG American Bank is Going Bankrupt NEXT.”

Lombardi’s ad, which is hawking subscriptions to the aptly named Judgement Day Profit Letter, is, in fact, similar to the ads he was running in January, 2012 about buying “New Swiss Bank Accounts” — which should probably come as no surprise, since 2011 and 2015 have been by far the worst years for the broad market since 2008 (and the financial sector, which is what he was talking about then, as now, was down by about 25% on the year as of December, 2011).

Here’s the “imagine yourself in a panic” spiel that opens the ad:

“70-times more leveraged than Lehman Brothers…

“You’ll Never Guess Which BIG American Bank is Going Bankrupt NEXT
And just like Lehman Brothers, the government won’t save them….

“Imagine it’s 3 p.m. on a Friday afternoon and you’re sitting at your desk…

“The markets are about to close and you’re catching up on few things before the weekend arrives.

“A call comes in. It’s your wife. She wants to know when you’ll be home.

“Then this headline hits your computer screen…

“One of the World’s Biggest Banks Just Collapsed

“At first it seems like a hoax. Perhaps a misprint.

“But the familiar face of a well-known financial journalist hits your favorite financial news site and says:

‘I don’t know how they didn’t see it before. The bank was leveraged 349-to-1′”

Cue the spooky music. Prepare the made-for-tv special.

So what’s Lombardi talking about? Well, my impression is that he thinks there’s a Lehman-like moment coming, and that he’s got your safe haven ready — here’s the hint on that:

“How You Could Protect Yourself and Profit From the Undoing of this Bank

“Although I believe the inevitable crisis will devastate the majority of unsuspecting investors…

“There are always ways you could safeguard your money… and even turn a profit—in any market.

“In a moment, I’ll reveal a handful of potential safe-haven investments I’ve recommended my readers use to shelter their money…

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“…it includes a series of banks that have never collapsed, never needed a bailout, and are immune to any financial collapse…

“Banks that pay up to 400% more than the average bank CDs…

“Some have even grown their payouts as high as 36% in recent years.”

So what’s the story? Well, we can identify what his “Big American Bank to go Bankrupt” is by checking those clues — here’s what he thinks tells the story:

“‘The Smoking Gun’ of the Next Catastrophic Financial Scandal

“Buried deep on page 26 of the latest quarterly report from this government agency, we found something that made my jaw hit the floor.

“It was the same reaction I had when I first saw Lehman’s balance sheet.

“Only this time it could be a whole lot worse.

“A much bigger catalyst that could devastate the global economy… unraveling every market, every stock, and every retirement account.”

That quarterly report he’s talking about is called “Notional Amount of Derivative Contracts: Top 25 Commercial Banks, Savings Associations and Trust Companies in Derivatives”

Sounds fun, right? It’s a report from the Office of the Comptroller of the Currency, in the Treasury Department, which tracks bank derivatives activity. And the images they lift from those reports indicate that the bank they’re talking about is Goldman Sachs (GS), the big investment bank that does indeed have much higher derivative exposure than most commercial banks (though we don’t know what the derivatives are based on, or to what degree they balance each other out or are hedged on the books at GS).

So… is Goldman Sachs going to be the next canary in the coal mine? Will they go bankrupt and bring us back into another dark age? I have no idea. Goldman does have a large exposure to derivatives relative to its assets, and that relative exposure in those reports from OCC is much larger than most of the big commercial banks, but GS is not really a commercial bank and they don’t work from that huge asset base or have the same business model — they’re traders and facilitators, not lenders. There’s a pretty good explanation of what the interest rate swap derivative exposure for Goldman might mean from a SeekingAlpha author here — they might not be right, but they can explain it better than I can. And the spiel about Goldman being 70X more levered than Lehman Brothers and having $44 trillion in obligations is comparing apples to hand grenades, from what I can tell — the quarterly derivatives activity report isn’t really about the health or safety of Goldman’s balance sheet, or even their net exposure.

I’m not rushing out to buy GS, but neither am I assuming that it will collapse into bankruptcy — that seems like a leap to me, given the fact that Goldman has much the same leadership now as it did in 2007 and presumably is not taking ludicrous risks. Maybe that’s pollyannish of me, I don’t know, but I don’t expect Goldman Sachs to bring down the economy if interest rates rise and the interest rate swaps market loses a lot of money for poorly-positioned banks. I don’t think there’s ever been an interest rate change as widely expected or thoroughly telegraphed as the current (and presumably continuing) rise in the Fed Funds rate, so the notion that rates rising this year will shock and rock Goldman Sachs (or anyone else) seems absurd.

But you can form your own opinion on that, what I’m interested in sniffing out are the safe haven investments that Lombardi talks about as his antidote for this Goldman-led crash. Here’s how he catches our interest:

“4 Elite Banks That Will Save You

“I’m talking about a unique set of banks that have been tested and proven to withstand the tide of economic destruction…

“…a group of banks that went through the 2008 financial collapse with no worse than a minor hiccup.

“You see, while traditional investment banks like JPMorgan, Citibank, Wells Fargo and Bank of America received help during the Lehman Brothers’ collapse…

“These financial institutions had no failures, no bailouts and no losses.

“In fact, they are ‘derivative-proof.’

“They are regulated tightly by a benevolent power with no ties to the Fed and no history of financial volatility…

“And over the past 150 years, they’ve avoided the intermittent crises other banks have experienced.

“In fact, the reason why banks like Lehman and the colossal giant I have been telling you about in this presentation fail is the exact reason why these banks are so safe.

“They are regulated and run by a strict team that makes sure they balance their books and forbids them to over-leverage.

“The Swiss Banks of America.“

What else do we learn about this? A bit more hinting:

“In fact, these banks offer a unique income program that pays multiple times more than average bank CDs…

“…a program that has paid out reliably and consistently every year going back as far as 1829.

“And in recent years the 4 elite banks you will learn about in my report have boosted their payouts by as much as 25% to 36%.

“They provide the most consistent and reliable and fastest-growing income stream I’ve ever seen.

“I consider them a MUST-have for both safety and income, especially in a crisis situation like the one I’m predicting will happen.”

So… we are not overly laden with hints here about who these “Swiss Banks of America” are, but that language leads me to think that we are very likely again being teased about… dum dum dum… Canadian banks.

The one that has “paid out reliably and consistently every year going back as far as 1829” is Bank of Montreal (BMO), which has indeed paid out a dividend for 187 years now. It hasn’t necessarily grown every year (they kept the dividend flat for several years following the credit crisis, for example), but the dividend has been paid every year and has reportedly never been reduced.

Unless, of course, you’re a US investor — Bank of Montreal is an international company, and they’re listed in NY as well as in Toronto, but they report in Canadian dollars and pay their dividend in Canadian dollars, so for US investors the dividend they receive has been disappointing in recent years. The US$ payout has fallen perhaps 15-20% or so since 2013, entirely because the Canadian dollar has fallen so precipitously against the US$.

And BMO did, of course, take a huge hit in 2008 along with almost all the other banks in the world. It’s true that their financials were much stronger than many US banks back then, but that didn’t prevent the shares from falling 60% or so while the crisis was roiling markets. The stock has been significantly less volatile than the average big US bank, and better than some — over the past ten years BMO has a total gain for US investors (dividends included) of about 45%. That’s better than the broad financials ETF XLF, which is down 20% and never really recovered from the 2008 crash, and it’s better than Goldman Sachs, which is up 17% over that time, but it’s not as strong as JP Morgan (JPM, up 84%) or Wells Fargo (WFC, up 97%). As financials have taken a big hit over the last month or few, BMO has been much more solid than the big US banks — down only 5% or so versus declines of 15% for JPM, WFC, etc. So yes, “solid and less volatile” seems a reasonable assessment.

Banking regulators have been widely considered to be stronger and more conservative in Canada in the US, and banks weren’t allowed to do some of the riskier things that brought down Bear Stearns and Lehman or to issue mortgages as freely as their US counterparts in the mid-2000s, but they are also inexorably tied to the Canadian economy and the Canadian dollar — they’re global banks, but they still do a large part of their business at home.

And while BMO does pay a solid dividend, and has for an incredibly long time, that’s not the same as getting income from a CD — so yes, of course BMO’s annual dividend is “multiple times more” than the average bank CD… but unlike an investment in a CD, buying BMO does not guarantee you any return of principal when the CD matures. The yield on bank stocks is higher than the income you earn from a bank account or CD because the risk is much higher.

Perhaps more relevant as a comparison would be the dividend yield of BMO compared to the dividend yield from the big US banks — and on that front BMO looks pretty decent, too, with a current yield of almost 4.5% versus the 2.5-3.5% that’s typical of large US banks. Of course, part of this is because of an intentional plan to pay out more of their income (and to the still fairly depressed dividends from US banks, since many of them have been putting excess cash flow toward rebuilding their reserves over the past several years). BMO has a payout ratio of about 50%, versus 30-40% for JPM, WFC or USB (to name just a few US bank examples).

Canadian stocks in general tend to pay higher dividends, over the last five years or so the average yield on large cap Canadian stocks has been about one percentage point higher (100 basis points) than the average yield on S&P 500 companies, so presumably it’s in part a tradition and an investor demand for yield (and a high weighting to energy and natural resources businesses, some of which were built as income-focused companies), so I guess it’s no surprise that Canadian bank stocks have somewhat higher yields than their US counterparts.

What might the other “Swiss Banks of America” be? Well, the three likely ones are the three larger Canadian banks that are listed in the US — Bank of Montreal is one of the “big five” Canadian banks that dominate the business north of the border, but it’s actually the fourth largest, the bigger ones are are Bank of Nova Scotia, sometimes called Scotiabank (BNS), Royal Bank of Canada, sometimes called RBC (RY) and Toronto-Dominion Bank (TD). The smallest of the “big five,” the only one smaller than BMO, is Canadian Imperial Bank, also called CIBC (ticker CM).

Here’s a chart of how those stocks have done for US investors, in terms of total return (dividends included) over the past ten years:

All of them have similar payout ratios in the high-40% range, and the dividend yield ranges from a low of 4% (CM) to a high of 5.25% (BNS). They have all been dividend raisers since the financial crisis, but they’re all in the same boat when it comes to their currency — so the effective dividend for US investors has been dropping for 12-18 months for all of them. That would presumably turn around if the Canadian dollar recovers against the US dollar, though predicting that would require knowing what will happen with the Federal Reserve and interest rates, the “flight to safety” that has everyone still rushing to the US$, and oil prices, among other things.

And none of them are dirt cheap, as banks go — if you go by their tangible book value, they trade in a range of 1.6-2.1X tangible book (that is, book value without including “goodwill” from acquisitions), which is substantially less than some superstar banks like US Bancorp (USB) at 2.3X tangible book, but also a much richer valuation than JP Morgan or PNC, for example (both around 1.2X tangible book). The trailing PE ratios for the Canadian banks are in the range of 9-11 mostly, so on that metric they’re perhaps slightly cheaper than the big US banks I looked at, but only marginally so.

Will they be the “New Swiss Banks of America?” I have no idea. I suspect that, as a group, the “big five” Canadian banks will probably continue to be a bit less volatile than US banks, and will continue to pay higher dividends. I also suspect that if there’s a huge derivatives counterparty crisis again and Goldman Sachs goes bankrupt, Canadian banks would not be a particularly comfortable hiding place — as we can see from that chart, they fell plenty hard in late 2008. They didn’t go out of business, and their actual financial results might be described as experiencing a “hiccup,” but their stocks collapsed along with everyone else. They did recover fairly sharply — but that’s actually true of the strongest US banks as well, and investors aren’t necessarily strong enough of stomach to plan to hold through a 60% crash before a recovery comes.

And no, I don’t think it will be derivatives on Goldman Sachs’ balance sheet that bring the whole house of cards down upon us — not because I think that’s impossible, but because it’s the kind of thing regulators and investors are looking for. The next “shock” crisis that brings us down will just as likely be something that no one is really thinking about today, and I’m substantially more worried about a global deflationary spiral than I am about inflation forcing a rise in interest rates and possibly hurting the swaps trading of some of the investment banks. But that’s just me, and I ain’t no expert.

Have a guess as to what our next crisis might be? Or any sentiment about whether Canadian banks will be a good hiding place when it hits? Let us know with a comment below.