By Ketki Saxena
Investing.com -- Tomorrow marks the start of earnings season for Canadian banks, with all of Canada’s "Big Six" banks set to report Q1 earnings in the next two weeks, reflecting results for the three months ended Jan. 31.
Royal Bank of Canada (TSX:RY) kicks off the season tomorrow before the opening bell, followed on Friday the 25th by Canadian Imperial Bank Of Commerce (TSX:CM) and the National Bank of Canada (TSX:NA). Canada’s 3 other major banks report earnings the following week, kicking off Tuesday the 1st of March with Bank of Nova Scotia (TSX:BNS) and Bank of Montreal (TSX:BMO) and closing with TD (TSX:TD) on Thursday, March 3rd.
Analysts expect Canada’s big six banks to post a moderate increase in adjusted earnings per share and revenue for the quarter The pace of growth in Q1 will certainly be slower than last year when bank profits surged to record profits from dismal 2020 levels, primarily due to strong mortgage lending, the subsidy of loan losses, and robust trading and deal activity.
With the pandemic and pandemic era monetary policy now ending, the interest rate hike is the one big factor banks will be watching, but of course, that particular penny hasn’t dropped just yet.
Bullish factors for Canadian banks before earnings:
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Demand for residential mortgage and commercial loan activity has grown despite anticipation of rate hikes
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Once they come through, the rate hikes should have a major positive on net interest incomes and margins
Bearish factors for Canadian banks before earnings:
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Capital markets revenues, notoriously volatile, are expected to be significantly lower in the quarter
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Expenses will likely have grown, due to wage growth, inflation, and capital outflows as banks invest heavily in technology
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Fixed rates on mortgages have risen, but slower than short term rates, which determine borrowing costs
Standout Stock by Key Metric:
Highest Dividends: BNS offers a 4.36% annual dividend yield, paid quarterly
Highest YoY growth expected: BNS is anticipated to post 9.1% year-over-year growth.
Analyst’s pick: TD, primarily due to its expanding U.S. exposure and footprint, and most leveraged to benefit from rising rates
Investing Pro Most Undervalued: As of market close today, CIBC shares were trading at $160.40. Investing Pro models suggest a fair stock price of $222.88, representing a 39.0% financial upside.
All currencies CAD, unless noted otherwise.