The employment strength is a sign that the economy is still experiencing excess demand and that the pause Bank of Canada’s Tiff Macklemmay be shortlived. Because of this uncertainty, Grauman said his team prefers life insurance companies to Canada’s banks.
The Scotiabank team also flagged a more challenging capital and regulatory environment in which the banks will be hit with a higher tax rate as the federal government’s tax on excess profits kicks and be forced to pay the Canada Recovery Dividend, another post-pandemic measure.Grauman thinks Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce stand the best chance of outperforming during earnings season due to above-average loan growth.
Analysts at Canaccord Genuity also struck a less sanguine tone on the banks, lowering their first quarter adjusted earnings forecasts by three per cent because of softening capital markets and credit expectations. Canaccord Genuity analyst Scott Chan said in a Feb. 17 note that the “higher for longer” attitude around interest rates in Canada and the U.S. could add to those credit concerns. The headwinds could drag into next year, too, leading Chan to revise estimated full-year earnings for 2024 down by one per cent.
Given the uncertain environment, neither Scotiabank nor Canaccord are anticipating dividend hikes this quarter.
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