Post by
retiredcf on Oct 07, 2022 7:29am
BofA on Canadian Banks
BofA Securities hosted executives from the major Canadian banks and analyst Ebrahim Poonawala provided a summary of the discussions:
“Our investor conversations during BofA’s annual Canada Banks Day suggests a high degree of caution on the macro outlook… While acknowledging slowing growth, management teams highlighted the strength of the consumer (~$200bn in excess savings; historically low unemployment rate) which is seen as buffering the blow from a recession-like economic backdrop … The group is trading at 9.2x P/E (2023E) and 1.4x P/B vs. 10yr medians of 10.9x P/E and 1.8x P/B…. No debate that rising interest rates and the lack of affordability are likely to drive home prices lower. Our discussions highlighted: 1) acute pressure in the pre-construction condo market dominated by speculative investors; 2) a particularly hot rental market with rents in GTA up 20% YoY in August; 3) cottage prices, second homes that boomed during the pandemic, hardest hit; and 4) potential for a policy response if things got materially worse that would enable banks to “work” with customers.”
The analysts’ most positive comments were reserved for Royal Bank, saying it holds “all the cards. Margin tailwinds on the back of a high quality retail deposit base, disciplined expense management and significant capital flexibility has positioned Royal particularly well for this period of heighted uncertainty. While mgmt. is open to M&A it remains focused on maintaining its best-in-class ROE.”
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