What U.S. bank earnings mean for Canada’s big banks

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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Credit Suisse analyst Joo Ho Kim assesses the implications of U.S. banks earnings for the domestic banks,

“We believe the trends from the U.S. banks’ Q1/23 earnings were a modest negative for BMO and TD given the slowdown in PTPP [ pre-tax, pre-provision] earnings growth, which was driven by a much less impressive margin improvement and slower loan growth. Meanwhile, the reserve builds across the U.S. banks looked lite in our view, particularly given the heightened volatility in the macro-outlook brought forth by the regional banking ‘crisis’ in March.

“Profitability is expected to continue to erode further entering 2023. According to Bay Street’s consensus, TSX Q1/23 EPS is expected to tumble 7.6% quarter-over-quarter to $335. On a year-over-year basis, Q1 earnings growth is expected to contract 11%, a visible reversal from a peak growth rate of +127% year-over-year in Q1/21.

“Over the last 3reporting seasons, stocks have sold off into earnings season and then rallied on ‘better than feared’ results. In short, stocks have de-rated lower going into earnings but then re-rated higher as companies jumped over the lower earnings expectations for the quarter. The process then repeats itself as the next quarter’s estimates are revised lower into reporting season.

 

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