Bank of America analyst says ‘beginning of the end’ of earnings growth for Canadian banks

Daily research and analysis roundup from Globe and Mail market strategist Scott Barlow

Sal Guatieri, senior economist at BMO, warned that domestic debt and the domestic economy will face pain,

“Despite high debt and the largest increase in borrowing costs in 30 years, the average debt service ratio of Canadian households rose only half a percentage point in the third quarter to 14.0 per cent of disposable income, still a full percentage point below the previous peak of 15.0 per cent Almost matched before the Great Recession and the pandemic. Barring a reversal in interest rates, the DSR is likely to exceed its all-time highs as mortgages, especially refinance at higher rates in the coming years. This will weaken spending power and could tip the economy into a mild recession next year.”

“BMO: “Cdn Household Debt: Paying the Piper”” – (excerpt from research) Twitter


Bank of America banking analyst Ebrahim Poonawala has published a report on Canadian banks titled Ominous Benefits and Beyond: The Beginning of the End,

“2023 EPS consensus revision -1.2% (vs. pre-4Q): TD +1.4% best; CM -6.2% worst. With slower loan growth, slower profit expansion and cost of credit (PCL) Normalized, few drivers for positive EPS revisions going forward. Capital leverage in most cases non-existent. Bank of America forecast FY23 vs. FY22: Average. Loan balance +7.4% vs. 12.4%; Net interest income +10.7% vs. 10.9%, PCL 29 bps and 13 bps respectively… Valuation at 9.9x 2023 PER and 1.5x YE23e PER: Considering the backdrop of slowing growth. Increased probability of recession could send stocks back into Previous trough P/E multiples (implying 15% downside on average) or could be worse… Mortgage growth buckling: 1.9% QoQ loans in 4Q22 vs. 2.4% in 3Q22 as higher interest rates lead to Slowing activity… Gross impaired loans up 8% QoQ; flat YoY; net write-offs +21% QoQ; Things can be under pressure”


Also from BofA Securities, whose widely followed monthly Fund Manager Survey (FMS) revealed pessimism about economic growth,

“A net 69% expect weaker Global growth, but steady due to pessimism in China (74% expect full reopening by end-23); macro concerns mean CIOs want CEO to focus on balance sheet (56%), not capex (21%) or stocks Buybacks (16%); good macro news…a record 90% of investors predict lower global inflation in the 23rd century…expected reduce Highest rate since March 20 as reduce Bond yields are near record highs; peak Cash… FMS cash level fell from 6.2% to 5.9%, peak Risk off… FMS investors say the best 23 year performing assets are government bonds and most overweight bonds vs equities since April 09 (Chart 1); peak yield = peak USD…highest USD depreciation expectations since May 06… reverse transaction: If GDP/EPS does not collapse, Q1’23…long equities, REITS, consumer, industrials; if China reopens = higher inflation/federal funds in secular…short bonds. “

“In a nutshell, Bank of America Fund Manager Survey” – (excerpt from research) Twitter


Citi US equity strategist Scott Chronert offered another “bad first half, good second half” market outlook, but made an interesting observation (my emphasis) on the recession consensus view,

“Recession risk next year remains a key focus. The view implicit in our S&P 500 price and earnings forecasts is This could be the most widely expected recession in decades. Therefore, investors need to acknowledge that the historic recession playbook may disappoint. We view index weakness at the start of the year as a buying opportunity. While our year-end 2023 index price target of 4,000 implies mediocre performance, the year should be defined by continued volatility, increased diversification resulting in equity, sector and thematic investment opportunities. “


diversion: “Watch the best images of the exciting Artemis 1 splash” – Gizmo

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