Monday, January 15, 2007

Genuity CM on CWB & Laurentian Bank

Financial Post, Duncan Mavin, 15 January 2007

It's generally accepted that Canadian bank earnings will continue onward and upward in 2007. But which banks will grow their profits the most?

For the answer, you have to look outside the big six, said Genuity Capital Markets analyst Sumit Malhotra in a note.

"We look for earnings growth at Canadian Western Bank of 20% and Laurentian Bank of 18% to surpass that of the big six banks (10%) by a noticeable margin in 2007," Mr. Malhotra said.

The key reason -- CWB and Laurentian will post lower loan-loss provisions than their bigger rivals.

Mr. Malhotra said the two smaller banks have already been setting aside enough for bad loans throughout favourable credit conditions in 2006. Nor have they benefited from the same level of corporate loan-loss reversals as the big six.

In recent periods, the stock prices of both smaller banks has been largely tied into their respective regional strongholds -- Laurentian in Quebec and CWB in booming Alberta.

But earnings growth should help the performance of both CWB and Laurentian in 2007, Mr. Malhotra said.