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B Of A Securities analyst Ebrahim H. Poonawala revised the rating on several Canadian Banks amid a declining rates scenario.
The analyst says the rapid decline in interest rates (5yr yield -120bp since Oct high) lowers the probability of tail risk events posed by a higher for longer scenario.
Although the analyst still expects 2024 to be challenging, he projects a reduced likelihood of a materially worse credit outcome relative to expectations.
Also, Poonawala decreased the PCL (credit costs) forecast for FY25/26 for Canadian banks, driving EPS estimates higher.
BofA Economics team calls for Canada's GDP growth to accelerate in H2 24/2025 and Bank of Canada (BoC) to cut rates by 125bp through FY24.
Consequently, the analyst upgraded Royal Bank Of Canada (NYSE:RY) and Bank Of Montreal (NYSE:BMO) to Buy from Neutral, expecting the deal synergies (assuming RY closes its pending acquisition of HSBC Canada) to offer leverage to both banks.
Moreover, the analyst raised Canadian Imperial Bank Of Commerce (NYSE:CM) to Neutral from Underperform on expected improving EPS and macro visibility and healthy capital positioning.
On the other hand, the analyst downgraded The Toronto-Dominion Bank (NYSE:TD) to Neutral from Buy.
The analyst sees TD's relative balance sheet positioning as less of a differentiating factor given the capital built at peers and the potential for rate cuts, which should ease funding cost pressures.
Price Action: BMO shares are up 1.43% at $93.81, CM up 0.29% at $45.62, and RY by 0.96% at $99.11, while TD is down 0.16% at $62.30 on the last check Monday.
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