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Many banks won’t achieve 2019-level earnings until 2022 or beyond
James Shanahan, Edward Jones
Another recent report from Barclays analysts John Aiken, Joseph Ng and Aria Samarzadeh forecast profits for most of the Big Six would stay below pre-pandemic levels in 2021 and 2022.
“While we anticipate a strong bounce back for 2021 from the depressed (fiscal 2020) levels, amidst the challenging environment and gradual recovery, our outlook for 2022 earnings growth remains fairly muted,” the Barclays analysts wrote. “Although data points on GDP, housing and employment continue to show signs of strength, we believe the road to recovery from COVID-19 will be a long one.”
The previous successes of the banks could be another challenge for them, as 2019 represented “peak earnings” for North American lenders, according to Shanahan.
“Analysts are anticipating sequential improvement in 2021, but earnings still won’t be as high as they were in 2019,” Shanahan said. “And many banks won’t achieve 2019-level earnings until 2022 or beyond.”
Bank of Montreal and Bank of Nova Scotia will be the first members of the Big Six to report fourth-quarter results, on Tuesday. Next will be Royal Bank of Canada and National Bank of Canada on Wednesday, followed by Toronto-Dominion Bank and Canadian Imperial Bank of Commerce on Thursday.
Despite COVID-19-related uncertainty that continues to dog the economy, the lenders are entering their latest earnings season with a bit of momentum provided by investors.
Canaccord Genuity analyst Scott Chan wrote in a Nov. 24 report that since the Big Six began reporting third-quarter results on Aug. 25, they had returned an average of approximately 12 per cent for shareholders, compared to around three per cent by the broader S&P/TSX Composite Index.
“Although the near-term outlook remains challenging, we believe the market is ascribing more optimism for a rebound in F2022 (e.g. COVID-19 vaccines),” Chan wrote.
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