TD Newcrest Analyst: Expect Softest Quarter in Years from Canada's Biggest Banks

Canada’s big banks will report the “softest quarter we have seen in years” when they publish earnings for the second quarter of 2008 later this month, says TD Newcrest analyst Jason Bilodeau. Profit growth will be stymied by weak capital markets revenue, rising loan losses, and another round of write downs, Mr. Bilodeau says.

TD is forecasting another C$1.5-billion to C$2.5-billion in writedowns at Canadian Imperial Bank of Commerce (CM), pushing its total subprime related charges since the final quarter of 2007 toward C$7-billion. Royal Bank of Canada (RY) is facing C$1-billion of charges in the quarter, and Bank of Montreal (BMO) and Bank of Nova Scotia (BNS) could each be looking at about C$200-million in writedowns, Mr. Bilodeau says.

The TD analyst is expecting near-term volatility for stocks across the sector. But with low share prices for the banks reflecting conservative expectations among investors, good returns are available, Mr. Bilodeau adds. TD is forecasting an average 12-month total return of 20% for the group — Mr. Bilodeau has 'buy' ratings on Scotiabank and National Bank [NA/TSX].

CM vs. RY vs. BMO vs. BNS 1-yr chart: