For the first time in recent memory the domestic banks will post sequentially lower provisions for bad loans in the upcoming quarter, says John Aiken, an analyst at Barclays Capital.
That should be the headline news, according to Mr. Aiken, but instead it will likely be overshadowed by declines in trading revenue based on what’s happening in the sector in the United States.
“With the U.S. integrated banks incurring declines of more than 50% sequentially in their trading revenues, it is highly unlikely that the Canadian banks will be able to escape similar fates,” he said in a note to clients.
He predicts Royal and National Bank will take the biggest hits.
Meanwhile, net interest income is also projected to decline on the back of lower lending.
And with regulatory capital rules still up in the air, banks will continue to hoard capital and avoid acquisitions and share buy-backs at least until the second half of 2010.
However, despite the headwinds Mr. Aiken is calling for a sound quarter.