Wednesday, February 15, 2006

UBS Upbeat on Cdn Banks

The Globe & Mail, Carolyn Leitch, 15 February 2006

Jason Bilodeau, analyst at UBS Canada Securities, expects another good quarter from Canada's banks when financial results for the first fiscal quarter begin rolling in.

In a note to clients, Mr. Bilodeau said the banks ended 2005 with good momentum in the retail banking business and momentum continued into the New Year.

In addition, he said, generally robust capital markets appear to have fuelled good trends in wealth management. Credit costs may increase but he expects investors will anticipate that and take it in stride.

As a group, Mr. Bilodeau rates the bank stocks “neutral weight.” While they remain well-capitalized and dividends will likely rise, the analyst says, he sees limited room for price-to-earnings multiples to expand any time soon,

The analyst singles out Toronto-Dominion Bank as his top pick in the group.

He sees a key catalyst for TD Bank shares in the bank's U.S. on-line brokerage business now that its TD Waterhouse USA unit has joined with Ameritrade Holding Corp. to create a discount brokerage powerhouse. TD Bank's shares have climbed more than 26 per cent in the last 12 months, well shy of the 41-per-cent gain by Royal Bank of Canada, the best performing of Canada's big banks.

Another interesting name, in Mr. Bilodeau's opinion, is Canadian Imperial Bank of Commerce. He believes the bank can benefit from costs savings and the stock's valuation, meanwhile, is conservative. The analyst says reduced risk and improved productivity could lead to a rise in the shares. CIBC shares have advanced 10 per cent in the last 12 months, making it the worst performing stock among the so-called Big Six banks.