Analyst John Aiken raised his target on seven of eight banks — Canadian Imperial Bank of Commerce was the only exception. If banks’ profits look better than forecast, the shares may be poised to trade at higher valuations, Aiken said in a note to investors Monday.
His call comes as Wall Street analysts prepare for what’s expected to be a challenging earnings season, starting Thursday with Royal Bank of Canada and Toronto-Dominion Bank, two of North America’s largest lenders. Loan demand is expected to cool, and traders are betting on more central bank rate hikes — potentially creating greater financial stress for Canadian households and curbing their appetite for borrowing. Banks are taking measures to slow down expense growth after a hiring spree.
Aiken noted that the ongoing macroeconomic and geopolitical uncertainty, recession risks and inflation pressures mean there will still be volatility to contend with. “That said, we maintain that the Canadian banks’ reputation as a relative safe haven, along with their strong capital and reserve levels, will continue to enable the group to weather the market volatility but not completely avoid the pressure,” Aiken wrote.
He left his target on CIBC unchanged because of downside risks such as a slowdown in domestic banking and residential mortgages. The bank has a greater concentration of its business in Canada than its large-bank peers.The S&P/TSX Commercial Banks index was down 0.1% at 1:30 p.m. Toronto time on Monday. The gauge fell 3.8% last week — its biggest weekly drop since the March turmoil that followed the collapse of Silicon Valley Bank.