Monday, November 16, 2009 11:08 AM
Barclays launches on Canadian banks
Andrew Willis
There’s a new view on Canadian bank stocks, as Barclays Capital analyst John Aiken launched coverage of the sector with a cautious view on its prospects.
In simple terms, the Barclays analyst sees the Canadian banks holding too much capital, and commanding lofty valuations after the rally that’s played out since March.
“Over-capitalization is negatively impacting profitability, which will inevitably weigh on future valuations,” said Mr. Aiken, who is at the forefront of Barclays Capital’s push into domestic equity markets. He said: “We believe allocation of capital will be a key differentiator over the next few years.”
When it comes to the six big banks, Barclays Capital is telling institutional clients to overweight National Bank NA-T and Toronto-Dominion Bank TD-T “as we believe their valuations reflect strong risk-reward profiles.”
The oulook is bearish for Royal Bank of Canada RY-T and Bank of Nova Scotia BNS-T, with Mr. Aiken making and underweight call “as their relatively lofty valuations do not account for any potential revenue declines or additional credit deterioration.”
Shares in Bank of Montreal BMO-T and CIBC CM-T are expected to perform in line with the sector.
