Recent gloomy results from major U.S. financial institutions suggest the Canadian banks are unlikely to surprise on the upside in the coming earning season, a bank analyst has warned.
Brad Smith, an analyst at CI Capital Markets, said poor capital markets revenues particularly at Citi and JP Morgan suggest there is little room for optimism around revenue and credit growth in the sector despite evidence of modest improvements in net interest margins.
While it is difficult to extrapolate to what’s going on in Canada, the U.S. results suggest “limited scope for positive surprises when domestic banks begin reporting their Q1/2010 result in late February,” Mr. Smith said in a note to clients today.
Since the financial crisis analysts have been keeping a close eye on provisioning for credit losses at the domestic banks and many are predicting a decline in provisions as the economy picks up.
But Mr. Smith notes what he calls a “pervasive deterioration in credit” in the U.S. that he says will put upward pressure on provisioning.