A Canadian portfolio manager said investors should see Canadian bank stocks as a utility with good dividends – not for their growth potential – but doesn’t see a big blowup looming.

“It really comes back to there’s a lack of growth in Canada – there’s no growth at our banks,” said Greg Taylor, chief investment officer at Purpose Investments, in an interview with BNN Bloomberg Wednesday. “And that’s more the problem, I think.”

“The big thing to figure out from the stock point of view is just what value you put on that – because the Canadian banks haven’t really been shooting the lights out. They’re not the star performers over the last few years.”

Taylor argued that while the performance of Canadian banks has been flat in recent years, there is still value in them.

“No one is really there expecting growth anyway, so just look at them as utilities with good dividends … I don’t see a big blowup here,” he said.  

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    The comments were made in response to Steve Eisman’s short thesis, which he laid out Tuesday on BNN Bloomberg. Eisman, who is a portfolio manager at Neuberger Berman and infamously foresaw the collapse of the U.S. housing market, argued Canada’s bank CEOs are “ill-prepared” for potential credit losses if the Canadian economy declines.

    When pressed, he also said share prices could fall “20 per cent plus.”   

    “I just don’t think there’s any real catalyst to cause this to be a massive short,” Taylor said. “I think the Canadian banks could underperform because there’s no growth there.”

    “They’re already trading at a discounted multiple to what they have over the last five years. And I really don’t think Canadians own these banks for their growth – they own them for their five-per-cent dividend.”

    Of the big Canadian lenders, Eisman said that he’s shorting Royal Bank of Canada, Canadian Imperial Bank of Commerce and Laurentian Bank of Canada.

    “At the end of the day, you’re going to say Canadian banks are just going to muddle through, there’s not a lot of growth, but there’s still a good four-to-five per cent dividend yield, which isn’t really at risk,” Taylor said. “And I would just say there’s better returns in other parts of the sector.”