BofA Securities -BMO top pick (from G&M) BofA Securities analyst Ebrahim Poonawala previewed earnings for the domestic banks and reiterates BMO as his top pick.
“The continuation of a more upbeat mood in the equity markets (TSX Bank index +12% since mid-July lows), reassuring management comments and relatively undemanding valuations could drive stocks higher in the near term. Street will be watching for signs of credit stress (we don’t expect much) … We lower our POs, by 4% on average, to reflect a higher weighting to a recessionary scenario (50% vs. 25% previously). BofA’s Economics team calling for a US recession starting late 2022, but expects continued GDP growth in Canada... Updated forecast reflects higher net interest margins given the more aggressive pace of rate hikes in Canada/US, moderation in Canadian residential mortgage loan growth, weaker investment banking/wealth management revenues and modestly higher PCLs (credit costs). Margin expansion could emerge as the key differentiator in a backdrop of slowing balance sheet growth with TD Bank-TD likely to see the greatest boost… BMO remains our top idea in the sector given the potential for superior loan growth (US commercial growth could be particularly strong), margin expansion, deal driven synergies (Bank of the West) and solid execution.