Canadian Banks Rise to the Highest in Year on Eve of Earnings

Canadian bank shares climbed to their highest level in a year before their second-quarter earnings begin Wednesday.

The eight-company S&P/TSX Commercial Banks Index rose as much as 1.5 percent in Toronto on Tuesday, its highest level since May 4, 2015, with Bank of Montreal shares up as much as 1.3 percent to a 17-month high of C$83.74.

Bank of Montreal , Canada’s fourth-largest lender, reports results for the fiscal quarter Wednesday, the first of Canada’s largest lenders to disclose quarterly earnings. Analysts forecast 2 percent higher profit after excluding some items from a year earlier for the Toronto-based bank.

Earnings growth from domestic retail banking, including loan growth, will aid Canada’s large banks while slower capital markets and rising loan losses, including higher impaired energy loans, are expected to weigh on results for the period ended April 30, according to analysts. Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce report results on Thursday, followed next week by Bank of Nova Scotia and National Bank of Canada.

“After the healthy rally in Canadian bank stocks which started in early-February, the group has moved from near-crisis valuations to what we call fair valuation with some downside risk," Mario Mendonca, an analyst with TD Securities, said in a May 19 note to clients. "We believe this quarter should be sufficiently strong to support the recent move in bank stocks."

The Canadian banks index has risen 8.3 percent this year, led by Bank of Nova Scotia and Canadian Imperial Bank of Commerce, compared with the 4.4 percent decline of the 24-member KBW Bank Index of U.S. lenders.

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