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Other made-in-Canada factors also may be pressuring prices, including concerns about exposure to overheated housing markets in two of the country’s biggest cities — Toronto and Vancouver — as well as credit rating downgrades by Moody’s Investors Service in May.

Greater value

The spread between Canada’s eight-company S&P/TSX Commercial Banks Index and the KBW Bank Index of 24 U.S. lenders reached its narrowest this week since Oct. 9, 2007, based on price to tangible book value. The ratio measures what investors are willing to pay for a company’s equity after removing intangible items, such as goodwill and brand names that would have little value if the firm went out of business.

By that measure, Canadian banks are now 52 per cent pricier than U.S. banks, trading at about 2.29 times tangible book versus 1.76 times for the U.S. group. In July 2009, they were almost three times more expensive, at about 2.97 times versus 1.12 for U.S. banks. Over the past decade, they’ve traded on average at more than twice the valuation of U.S. lenders.

The Canadian banks index has fallen 7 per cent since touching a record high on March 6, and year-to-date performance is up 0.1 per cent, trailing the 2.2 per cent gain of the KBW Bank Index.

The dissipating premium for Canadian banks comes even as those lenders produce superior profitability and higher dividend yields while operating in a country poised to outperform the U.S. economy this year for the first time since 2014, according to economists’ estimates compiled by Bloomberg.

“I would view the Canadian banks as inherently more valuable than the American banks, simply because of the structure of the industry in Canada,” Baskin said. “It’s such an oligopoly, the returns on invested capital are so terrific and so consistent over time that I think they deserve a premium.”