CIBC, National Bank and TD all susceptible to slow
CIBC, National Bank and TD all susceptible to slowing housing market
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John Shmuel
Friday, Mar. 15, 2013
A new report from Barclays says CIBC, National Bank and TD are all vulnerable to slowing consumer lending. Above, new houses are seen on a street in Fort McMurray, Alta. Brett Gundlock/Bloomberg
A slowing housing market could deal the most damage to CIBC, National Bank and TD, according to new a report by Barclays Capital.
The report comes as data released Friday shows the number of homes sold in Canada last month fell 16% compared with last year. Roughly 80% of local markets in Canada saw housing sales declines in February.
“Based on our analysis, CIBC retains the greatest sensitivity to domestic loan volume changes to overall revenues by a significant margin,” said John Aiken, analyst for Barclays Capital. “The importance of TD’s and National’s respective domestic loan books places relative pressure on their revenue growth outlook as well.”
But the other three of Canada’s big six banks don’t get off easy, either.
“While Scotiabank, BMO and Royal have the lowest relative sensitivity to slowing domestic retail lending, we note that it is still an absolute headwind for these names as well,” he said.
Analysts have expressed concern about how much longer Canada’s banks can pull in their blockbuster profits, given that Canadian consumers are extremely indebted. New data shows that household debt levels remained steady at 165% in the last three months of 2012, which is unchanged from the previous quarter and one of the highest levels in the developed world.
Meanwhile, new mortgage rules introduced by the federal government last year have helped cool sales in Canada.
“Although still far from a critical condition, the slowing resale activity in February likely translates to incremental pressure on mortgage volume growth for the Canadian banks,” said Mr. Aiken, who has a neutral outlook on financial services stocks, given all the pressures.
Of course, the question now is just how much impact decreased borrowing and a slowing housing market will have on Canada’s banks. While analysts expected a decline in bank profits in the most recent quarter, the five largest banks surprised everyone by posting their largest collective profit ever of $7.33-billion.