How do Canadian bank brands rank on a global scale?

Canadian banks may have drawn catcalls and ogling from the global finance industry for their competent strut through the economic crisis, but when it comes to brand value on the world scale, they fail to make the top ten according to Brand Finance’s Banking 500 rankings.

While first-place bragging rights go to American bank Wells Fargo, Canada makes its debut in 14th spot with the Royal Bank of Canada, which was pegged at US$12.4 billion in terms of brand value. TD follows in 18th place worth $11.1 billion. The others that make up the Big Six in Canada – Scotiabank, BMO, CIBC and National Bank of Canada – ranked 32, 34, 53 and 85 respectively.

The standings take into account size of operations, geographical presence, global and regional reputation and brand classification. Frankly put, Canada is just too small to compete on a global scale says Kai Li, a finance professor at University of British Columbia’s Sauder School of Business.

“Our capital markets are just a tiny fraction of the global market, so for Canadian banks – we’re like minnows,” says Li. “There’s just not enough wealth, there’s just not enough people to start with.”

She point out that’s why the list is dominated by U.S.-based and Chinese financial institutions, both countries with more diverse economies than Canada.

“We very much rely on commodities, resources and big manufacturers,” says Li. So when the oil price tanked, it led to a chain reaction where jobs were cut and consumers are cutting back on spending, hurting the banks’ bottom lines.

It’s what compelled Barclays banking analyst John Aiken to downgrade BMO, RBC, TD and Laurentian Bank of Canada from equal weight to underweight last Friday.

“The negative, uncertain outlook for Canada’s economy will continue to weigh on the Canadian banks, challenging the group’s earnings over the near term,” wrote John Aiken in a note to clients surrounding the downgrade.

He also called the Bank of Canada’s surprise interest rate cut a strike against the banks.

“From our standpoint, the surprise reduction in the overnight rate by the Bank of Canada is a net negative for the banks,” he wrote. “We believe that the action from the central bank implies lower economic growth than is currently reflected in the market. Further, we do not anticipate a significant uptick in consumer loan demand and believe that incremental margin compression is likely.”

But there was trouble in the sector before the Bank of Canada rate surprise. The S&P/TSX bank industry group endured a cringe-worthy 14.6 per cent fall from grace since hitting a record high in September. It was an un-ceremonial end to a record run for the banks.

In 2014, the Big Six earned over C$30 billion in profits according to PriceWaterhouseCooper’s Canadian Banks report. Last year, on the other hand, isn’t looking so hot says Li.

“We might see some improvement,” she says. “But it’s bleak.”

The best way for Canadian banks to boost profits while the consumer loan side of things dwindles is to diversify.

“A couple weeks ago RBC had a major $6 billion acquisition in the U.S. – an asset management business with Hollywood stars for clients,” says Li. “That’s diversification.”