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Learn to love regional banks Add to ...

They are the poor cousins in Canadian bank, getting no respect, and little attention.

But Dundee Securities bank analyst John Aiken predicts Laurentian Bank and Canadian Western Bank, along with the smallest of the big six, National Bank, will out-perform larger rivals in coming months.

Working from the theme that the big Canadian banks are over-valued after an eye-popping run - the sector is up 63 per cent from lows set in March - Mr. Aiken is out with a report Wednesday that says "learn to love the regional banks."

When five Canadian banks sell off, don't say you weren't warned. Mr. Aiken is one of several analysts now cautioning these stocks have run too far, too fast.

The thesis in favour of smaller banks goes like this: National , Laurentian and Canadian Western have relatively small corporate loan portfolios, and that's where Mr. Aiken sees loan losses mounting in quarters to come.

And relative to larger peers, these banks have very little exposure to the still-troubled U.S. market.

When it comes to National Bank, Mr. Aiken sees a strong investment dealer as an undervalued asset. He said: "With National Bank having more than 25 per cent of its revenues coming from capital markets, it has the best incremental leverage to sustained growth in market activity."

For those who just can't leave better-known banks alone, Mr., Aiken said: "If you have to own one of the big five, choose TD… but keep an eye on U.S. credit and be wary of the valuation impact should TD decide to make another significant acquisition in the U.S."

 
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