RBC Analyst Downgrades TD and CIBC; Upgrades Scotiabank

RBC Capital Markets analyst Andre-Philippe Hardy has shuffled his ratings on several Canadian bank stocks following a dour set of second quarter earnings from the sector.

The top-ranked analyst cut Toronto-Dominion Bank (TD) to “sector perform,” citing rising expenses in domestic retail banking, higher loan losses from U.S. operations, and muted capital markets revenue.

Mr. Hardy also lowered his rating on Canadian Imperial Bank of Commerce (CM) to “underperform” because of weaker-than-average growth in retail banking revenues and ongoing problems in wholesale banking. He cut his 12-month target price for CIBC shares from C$67 to C$64.

National Bank’s [NA/TSX] stock on the other hand earned a higher 12-month target price, up from C$48 to C$52. Mr. Hardy said the bank’s shares may benefit because of National’s relatively limited exposure to structured finance and the U.S.

RBC also upgraded Bank of Nova Scotia to “sector perform” and bumped the target for Scotiabank’s stock from C$46 to C$49, citing momentum in domestic retail operations and strong growth overseas.

But overall Mr. Hardy is cautious about the sector because of

expectations for continued pressure on profitability, the potential for further negative earnings revisions, and valuations that are not overly cheap on a historical basis considering the challenges we think the banks will face.