Canadian Banks' Q4 Better Than Expected - TD Newcrest

Fourth quarter bank earnings weren't pretty, but long-term fundamentals remain far more stable than what is currently priced into the market, says TD Newcrest analyst Jason Bilodeau.

Mr. Bilodeau said in a note to clients:

Most operating results were consistent with pretty low expectations while on balance the 'surprise' write-downs were better than perhaps feared. The stocks are trading below what we believe is supported by long-term fundamentals. We expect fear/concerns to continue to dominate amid weak/volatile equity markets, but on reduced Target Prices we continue to see attractive upside on a 12-month view.

The analyst said the risk of further write downs is reduced, thanks to new accounting guidelines that have allowed banks to reclassify assets and shore up their capital positions.

In particular, the analyst finds Canadian Imperial Bank of Commerce (CM) attractive, upgrading the stock to Action List "Buy." His CIBC price target is unchanged at C$67.

He said:

The bank turned in a decent operating quarter (relative to reduced expectations). Coming out of the quarter the bank appears to be well capitalized and we believe that the worst (although not all) of the write-downs are behind us.

Mr. Bilodeau cut his Royal Bank of Canada (RY) price target from C$55 to C$40 and maintained his "hold" rating on the stock, saying the bank does not have the premium business mix to justify a premium multiple against peers. He also noted that Royal Bank has the thinnest regulatory capital ratio in the industry at 9.1%.

Laurentian Bank of Canada's (LRCDF.PK) price target was also cut from C$47 to C$37, on concerns the bank's return on equity, expected to run between 10 to 12% has "topped out." Mr. Bilodeau has a "hold" recommendation on Laurentian.

Comments

[cranyinnyc:]

ok lets see if i understand this right

"Fourth quarter bank earnings weren't pretty, but long-term fundamentals remain far more stable than what is currently priced into the market..."

so that's why he cut his price targets on 4 (RY-Hold, NA-Buy, LB-Hold, BMO-Hold) of the 7 Canadian Banks in his coverage by an average of 19.4% while keeping the other 3 (CWB-Hold, CM-Buy, BNS-Buy) unchanged. Well that's a new version of stable long-term fundementals - i guess he must have been previous mis-valuing those 'fundementals'

and how's his track record? let's see according to bloomberg he's covered all but LB and CWB for atleast 1 year and for the other 5 he had the same rating on each a year ago as he presently has.

Yesterday 1 year ago Change
RY Hold $37.50 $52.31 -28.3%
NA Buy $37.55 $53.85 -30.3%
CM Buy $53.27 $80.26 -33.6%
BNS Buy $34.76 $52.23 -33.4%
BMO Hold $36.12 $59.66 -39.5%

Average All -33.0%
Avg. Buys -32.4%
Avg. Holds -33.9%

oh and let's not forget the 18.8% drop in the value of the Canadian currency during the period for those of us who are playing in US$

2008 Dec 09 07:12 AM

[bindlepete:]

Lets Face it Canadian Banks are not in the trouble that the US's Big Banks are. They were and are more conservativly managed and are accourding to a recent report willing to lend at good rates.

Further, the nation has resources left to sell and a modest population.

Our ( the US's) moderate sized banks banks are unfortunately timid and under a huge disadvantage since their big bully brothers will likely start to run them into the ground with assistance from Obama.

Damn shame that the innocent must suffer to preserve the evil and unscroupulous. Obama is afraid to play by regular rules and in supporting the unworthy is peanalizing the worthy. If Lockheed had not been bailed out Mac Douglas would have survived. If GM is saved - we have already wasted a fortune on them- then Ford will fall victim. Let the dead die. Zombie companies steal from the living.

Save AIG to save Golman Sachs, save Bear Sterns to save Morgan Chase, Save Boa to save Merril Lynch . Talk abiout fraud and abuse. Geithner is core to this strategy while Hank Paulson got out of town with Aunt Minnie's money. We should have let the big boys go and the hedge funds with them.

Get real Mr. President.

Mar 31 02:23 PM