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Canadian bank analysts cautious on 4Q; eye RBC, TD, CIBC results as Scotiabank disappoints

Published Nov 29, 2023 14:55 Updated Nov 29, 2023 15:15
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Canadian bank analysts cautious on 4Q; eye RBC, TD, CIBC results as Scotiabank disappoints
 
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Proactive Investors - Discounted valuations for Canadian bank stocks reflect a challenging operating backdrop, but a worsening credit outlook is expected to temper investors’ appetite, according to Bank of America (NYSE:BAC) analysts.

In an update to clients, they also noted that 30% of Canadian mortgage loans, valued at about C$460 billion, are scheduled to re-price in 2024 and 2025, which is a "key overhang" on the Canadian economy and bank stocks, which combined with rising unemployment and persistent inflation pressures point to stagflation risk.

The analysts expect fourth quarter 2023 financial results from Canadian banks to be "noisy," with an anticipated 6% year-over-year decline in earnings per share, due to restructuring charges.

They added that investors are expected to focus on the potential for expanding net interest margins to offset slowing loan growth and rising credit costs.

Bank of Nova Scotia (TSX:BNS) shares closed nearly 5% lower on Tuesday after the Big Canadian bank reported 4Q EPS that missed the analyst consensus forecast and set aside $1.26 billion during the quarter for bad loans, a notable increase from expectations of $870 million.

On tap for Thursday are the quarterly financial results for Royal Bank of Canada (TSX:RY), Toronto-Dominion Bank (TSX:TSX:TD), and Canadian Imperial Bank Of Commerce (TSX:CM), with investors likely eyeing loan-loss provision from those financial giants as well.

Analysts at BofA noted that buybacks have supported Toronto-Dominion Bank (TSX:TD)’s stock, with capital markets investments expected to continue, while lack of catalysts and worsening macroeconomic conditions keep them cautious on CIBC (TSX:CM) shares.

Meanwhile, Royal Bank of Canada (TSX:RY)’s HSBC acquisition will be closely watched given pushback from policymakers with "diminished drag" anticipated from its City National Bank subsidiary.

In addition, they point to increasing expectations for rate cuts to support Bank of Nova Scotia (TSX:TSX:BNS)’s stock given liability sensitivity and see Bank of the West deal synergies being supportive of Bank of Montreal (TSX:BMO) shares while watching expenses post the 3Q restructuring.

Read more on Proactive Investors CA

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Canadian bank analysts cautious on 4Q; eye RBC, TD, CIBC results as Scotiabank disappoints
 

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