An analyst says that he expects mixed results from Canada’s six largest banks this earnings season, as each lender deals with unique challenges amid economic uncertainty.
Benjamin Sinclair, an equity analyst with Odlum Brown, told BNN Bloomberg in a Tuesday interview that he remains bullish on the Canadian financial services sector over the long term, but said he expects some of Canada’s big banks to continue facing headwinds in the year ahead.
“In the short term, you’re really starting to see a divergence between the likes of (Royal Bank of Canada), (National Bank of Canada) and now (Canadian Imperial Bank of Commerce) to some extent as well,” he said.
“And on the flip side, banks like (Toronto-Dominion), (Bank of Nova Scotia) and (Bank of Montreal); they are dealing with some very challenging situations, and on a shorter term basis, it could very well be quite messy over the next 12 months.”
Bank of Montreal (BMO) and Bank of Nova Scotia (Scotiabank) each reported third-quarter earnings on Tuesday, with the latter missing analyst expectations on earnings per share (EPS), and the former posting a modest beat.
Sinclair said BMO’s earnings miss, which sent the lender’s shares down more than seven per cent in midday trading on Tuesday, is the latest in a string of disappointing results as loan-loss provisions continue to eat into the bank’s bottom line.
“If you look at the Canadian banks as a whole, the Big Six banks, they’ve now missed quarterly earnings estimates three times this (fiscal) year, and BMO has accounted for all three of them,” he said.
“Provisions have been the main culprit, and within that, the U.S. commercial loan book has been the main driver of that as well, so we’ve seen the shares sell-off and we think that’s appropriate.”
Meanwhile, Sinclair said that Scotiabank, which was the worst-performing stock of the Big Six in 2023, showed a number of positive signs in its quarterly earnings release.
“It was certainly better than BMO’s; I would say it was certainly quieter as well, there wasn’t as much of note,” he said.
“We are encouraged that Scotiabank seems to be making steady progress against the priorities of new CEO Scott Thomson.”
Sinclair said those priorities include increasing volume and “chasing profitable growth.”
He added that the bank’s recent purchase of a 14.9 per cent stake in Cleveland-based lender KeyCorp wasn’t a move he saw coming, and time will tell whether the acquisition will lead to positive returns.
“We’ll see how it goes. The bank has made good progress, so I think it’s appropriate to take a ‘wait and see’ attitude,” Sinclair said.
“Scotiabank, they think that they can get very attractive financial returns on this; we’ll see if there’s optionality beyond that, but in the meantime, all we can do really is wait and see.”
BMO and Scotiabank’s results come after Toronto-Dominion kicked off earnings season last week, posting its first quarterly loss in decades after taking a US$2.6 billion provision for fines related to money-laundering investigations in the U.S.
Royal Bank of Canada and National Bank of Canada are set to report their third-quarter results on Wednesday, followed by the Canadian Imperial Bank of Commerce on Thursday.
With files from Bloomberg News