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.