18 January 2006

BMO Increases Forecast for Bank Profits

The Globe and Mail, Sinclair Stewart, 18 January 2006

Canada's retail bankers may be about to get some relief after seeing their profit margins squeezed by a persistently low level of interest rates over the past three years. BMO Nesbitt Burns Inc. analyst Ian de Verteuil predicted in a report yesterday that spread compression is coming to an end, prompting him to increase his profit forecasts by between 1 and 2 per cent, and ratchet up his 12-month target prices -- in some cases significantly. Mr. de Verteuil suggested that higher profit this year for the banking group, coupled with a difference in profit trends relative to the U.S. sector and easing competitive pressures, bolster the case for higher targets. Bank of Montreal's target was increased $7 to $72, while Canadian Imperial Bank of Commerce's was moved up $7 to $88. Both are the most likely candidates to be acquired if Ottawa allows mergers between the banks, and Mr. de Verteuil suggested it was "prudent" to nudge up the multiples on these banks given the likelihood of the Conservatives winning the federal election.