Six Canadian Lenders Hit Record Highs Ahead of Earnings Season

  • Big lenders expected to lift quarterly profit 7%, Cormark says
  • Barclays says bank valuations may be nearing infection point

Six Canadian lenders including Royal Bank of Canada and Toronto-Dominion Bank reached record highs Monday, extending a North American bank rally as analysts predict higher profits.

Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Laurentian Bank of Canada also reached peaks, helping extend the eight-company S&P/TSX Commercial Banks Index’s streak of record highs for the fourth straight day. Bank of Montreal rose, though remained 8 cents short of its all-time high.

The Canadian banks begin reporting fiscal first-quarter results next week, with CIBC scheduled for Feb. 23. The six largest lenders are expected to post a 7 percent increase in adjusted profit from a year ago, led by Scotiabank with a predicted 11 percent jump, Cormark Securities Inc. analyst Meny Grauman said Monday in a note to clients.

“It is probably an exaggeration to suggest that the outlook for Canadian banks is all sunshine and lollipops, but we do believe that there is reason to be optimistic about bank results,” heading into earnings, Grauman said.

Canadian banks should post “relatively solid" first-quarter results, with an average 6.9 percent increase in profit from a year earlier for the six big banks, Barclays Plc analyst John Aiken said in a Monday note. Still, Canadian bank valuations may be starting to reach an inflection point given the share performance and the challenges in the Canadian economy, he said. The Canadian Banks Index is trading at 13.8 times earnings, the highest level since April 2011.

“Layered against a sluggish domestic economy underscored by prolonged low oil prices, export pressures, and uncertain U.S. policies fueling a more dovish Bank of Canada policy stance, we believe that valuations for the banks are stretched," Aiken said.

Canadian Western Bank, which is still trading below its 2014 record high, led lenders with a 1.24 percent rise in Monday’s trading in Toronto, followed by the 0.8 percent gain of Montreal-based Laurentian and Bank of Montreal’s 0.6 percent increase.

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