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Tuesday's analyst upgrades and downgrades Add to ...

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Inside the Market’s roundup of some of today’s key analyst actions

Canaccord Genuity analyst Gabriel Dechaine said he is “waiting for bullish 2017 signals” for Canadian banks.

In a research report previewing fourth-quarter earnings season, which kicks off on Nov. 29, Mr. Dechaine said he is forecasting average earnings per share growth of 2 per cent, noting the discussion around housing “could be positive (for a change).”

Mr. Dechaine said: “It was a busy quarter for developments in Canada’s mortgage market: (1) The Minister of Finance announced a series of measures aimed at cooling the market; (2) as a result of these measures, several mono-line mortgage providers have quantified the reduction in volume growth they anticipate; (3) B.C.’s tax on foreign buyers has resulted in sharp declines in Vancouver’s real estate transaction volumes; and (4) in the wake of the Trump-driven rise in rates, banks have increased prices on new mortgage originations. We believe recent regulatory changes and the surprise rise in rates have improved the earnings outlook for the Canadian mortgage business due to a combination of lessened competition and potential margin improvement.”

However, he said the current low-rate environment has not helped the banks, and should act as a ratings tailwind.

“The low rate environment has not helped the banks. In recent weeks, the rate discussion has become more constructive with a steeper yield curve and increased certainty of Fed action,” said Mr. Dechaine. "In our view, there are three key areas of focus: (1) updated guidance, notably from TD, on the impact of U.S. Fed rate hikes; (2) potential upside, and timing thereof, from higher Canadian 5-year yields on margins; and (3) an indication from banks on what level of rates would become a concern, specifically as it relates to consumer debt affordability.”

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