RBC Capital Markets, 15 May 2007
Event
The Big 6 Canadian banks report Q2/07 results between May 23rd and May 31st.
CIBC and TD Bank are our favourite bank shares
CIBC and TD Bank are our favourite bank shares, but we see more positive catalysts for CIBC in the near term. Our investment thesis on CIBC is heavily based on expected positive revisions in earnings estimates in upcoming quarters, including Q2/07. (Our core cash EPS estimate of $1.97 is ahead of consensus of $1.89). The positive view on TD is more predicated on continued strong performance from domestic retail banking and wealth management, improved earnings from TD Ameritrade following the conversion of clearing platforms and a lower risk profile. We do not expect investors to become incrementally positive on any of those factors following the release of Q2/07 results, and in the meantime TD Banknorth continues to report disappointing earnings and U.S. discount brokerage volumes have been unimpressive in recent months.
Q2/07 EPS growth likely to be highest at CIBC, Royal Bank, and TD Bank
We estimate earnings per share growth of 14% versus Q2/06 for the group. CIBC (30% estimated growth in EPS), Royal Bank (22%) and TD Bank (13%) are expected to lead the group.
• The expected high rate of growth at CIBC is driven by easy comparisons in wholesale operations, revenue growth of 5% in retail banking on essentially flat expenses (our revenue forecast is 4% lower than Q1/07 results), and incremental earnings from the FirstCaribbean acquisition. CIBC will own 91.5% of FCIB versus 44% in Q2/06 and for the first two months of Q1/07.
• Royal Bank should benefit from easy comparisons in Canadian banking and continued strong revenue growth, which has been driven by active capital deployment and solid momentum in banking operations. We believe that the bank could surprise to the upside given the buoyant capital markets environment and the bank’s strength in that area. (Our core cash EPS estimate of $1.05 is slightly ahead of consensus of $1.01).
• There is no particular division to point to as driving most of the expected growth for TD. TD Ameritrade should benefit from higher ownership, retail revenue growth should remain strong (we expect 10%), although partially offset by higher credit losses. Meanwhile, wholesale banking comparisons should benefit from Q2/06 being the weakest quarter in 2006. (Our core cash EPS estimate of $1.22 is slightly below consensus of $1.26).
Our estimates are ahead of consensus for CIBC and Royal Bank, below for TD Bank and in line for Scotiabank and National Bank. Bank of Montreal’s consensus estimate is unclear as not all analysts are excluding the loss related to commodity trading from their estimates. We exclude those losses from our core EPS given the magnitude, although they are still an operating event in our view.
Retail
We believe TD Bank and Royal Bank should continue growing retail revenues faster than the industry, with expected growth of 10% versus 6% for the others. The two banks are benefiting from their heftier physical presences, larger sales forces and larger customer bases to which they can sell additional products and services, as well as greater exposure to insurance. The other three banks may surprise on the bottom line in any quarter based on timing of expenses. CIBC is keeping its costs flat and continuing to manage its unsecured loan losses down, while Scotiabank and Bank of Montreal should decrease their rate of expense growth from high levels. In all three cases though, we would view the earnings growth as less sustainable as revenue-driven growth and, it may also lead to market share losses as TD Bank and Royal Bank continue to invest heavily in their domestic retail franchises, including distribution, systems and advertising.
Retail credit losses should rise more rapidly at TD given faster than industry growth in credit cards. The majority of the increase in loan losses does not concern us as it has been priced for. However, some of the increase in TD’s loan losses has also come from short-term operational issues, and we suspect that pains typical of introducing new scoring methodologies are also affecting TD. We expect loan losses to remain high in 2007, as the bank refines its credit scoring methods.
Retail loan growth should remain in the high single digits for retail lending. Mortgages and other consumer loans were both up 9.8% in the 12 months ended January 2007. The conditions that have driven the rapid loan growth remain in place in Q2/07 - employment growth, rising incomes, low interest rates and a solid housing market. There is likely to be deterioration in some of those factors but the environment for retail loan growth remains very good, both in absolute terms and relative to the U.S.
Net interest income margins should be relatively steady outside of changes in product mix versus Q1/07 as the interest rate environment was stable and our conversations with management teams indicate that the pricing environment has been unchanged. Net interest income is likely to decline for most banks though, based on the quarter having three fewer days. Versus Q2/06, Scotiabank and CIBC face the toughest margin comparisons.
We believe that retail wealth management businesses are positioned for continued strong revenue growth. The S&P/TSX Composite Index is up 10% versus Q2/06, which is a positive for mutual fund businesses. Trading volumes are also up 10%, a positive for both full service and discount brokerage businesses. The value of financings was up 20%, which should help full service brokerage revenues.
Wholesale
We believe that positive earnings surprises are most likely to come from wholesale divisions, which would help Royal Bank and National Bank most in our view. Worldwide M&A, equity markets and credit markets are all very active, driven by high levels of liquidity, which is driving increases over already high revenues. Furthermore, new corporate loan losses remain low and recoveries of loans previously classified as impaired have proved more sustainable than we had anticipated. We believe that Royal Bank and National Bank would benefit the most from continued strength in wholesale markets revenues, while Scotiabank’s wholesale division benefits the most from the low industry credit losses. Royal Bank should benefit from the incremental investments made in the space, while we expect National Bank’s earnings to continue to benefit from securities gains (securities gains represented 13% of the bank’s total pre-tax income in 2006). The difficulty in forecasting wholesale revenues remains the primary reason why we believe they should structurally be valued at lower multiples, while cyclically low credit losses drive further caution to our valuation multiples. U.S. dealers are currently trading at 10.5 times 2007E earnings (we value the banks’ wholesale divisions at 8.5x to 11x earnings).
BMO (Reporting date: Wednesday May 23rd)
• We expect core cash EPS of $1.36, representing growth of 7% versus Q2/06. Consensus estimates are $1.13 (but we estimate that consensus would be $1.31 if all estimates exclude the commodity trading losses).
• Reported numbers should be highlighted by the mark-to-market commodity trading losses, which management estimated on April 27, 2007 would amount to $350-450 million. We exclude those losses from our core EPS given the magnitude, although they are still an operating event in our view.
• Outside of trading, wholesale banking should benefit from the already-seen increases in loan balances, which should add to earnings, although at tight spreads versus the prior year. Management is keen on targeting quality clients as other lenders become more cautious in their underwritings as credit quality deteriorates.
• The U.S. retail bank should benefit from lower transition and integration costs, which have impacted Bank of Montreal for longer than we had thought and has totaled approximately $85 million since 2005.
• Sequential results should benefit from lower stock-based compensation as Bank of Montreal expenses compensation to employees about to retire in the first quarter of the year. The cost in Q1/07 was $0.06 per share, spread across the different operating divisions.
• We do not expect benefits from the $135 million restructuring charge incurred in Q1/07 to accrue until later in the year when employee reductions begin to materialize. The company hopes to improve the efficiency and effectiveness of its groups and processes that support sales and service, and noted that the benefits of the cost savings are important to achieve their 2007 financial targets.
TD Bank (Reporting date: Thursday May 24th)
• We expect core cash EPS of $1.22, representing growth of 13% over Q2/06. Consensus estimates are $1.26.
• Wholesale revenues are likely to weaken from Q1/07 as trading revenues of $330 million were much stronger than the average of the prior three quarters ($222 million), while securities gains of $70 million from the bank’s equity portfolio remained high.
• TD Ameritrade and TD Banknorth’s earnings have been pre-announced at $63 million and $62 million (excluding restructuring charges), respectively. Looking forward, the outlook for growth from at TD Banknorth remains poor, with the pressure coming from rising credit losses, and continued margin pressure. TD Ameritrade should benefit from the integration of clearing platforms in May.
• Retail banking should continue to benefit from rapid branch expansion, marketing of credit cards to existing clients, continued buildup in wealth management advisors and insurance operations, overhaul of its automated banking machines, and increased penetration of existing customers’ small business banking needs. These increases should offset rising credit losses, which were $163 million in Q1/07, driven by the rapidly growing credit card book.
• The 'Other' segment had unusually strong results in Q1/07, driven by taxes and securitization activities. These should drop off as the year goes on, particularly following the close of the Banknorth going private transaction.
Royal Bank of Canada (Reporting date: Friday May 25th)
• We expect core cash EPS of $1.05, representing growth of 22% over Q2/06. Consensus estimates are $1.01.
• Risk weighted assets were up 19% from Q1/06 to Q1/07, which should help fuel revenue growth in Q2/07.
• Q1/07 retail net interest income margins were in line with normal range. The launch of a high yield savings account at the end of March may pressure margins somewhat going forward, but it should help personal deposit growth, which had been negatively impacted by the lack of such an account.
• Q1/07 insurance profitability was well above normalized levels, even after adjusting for positive one-time items. Claims experience was unusually good and actuarial reserves were released. We expect insurance core net income to decline from $124 million in Q1/07 to $81 million in Q2/07.
• RBC Capital Markets should benefit from continued investments in people and infrastructure. Management seemed optimistic on its deal pipeline following the reporting of Q1/07 results. Trading revenues were exceptional in Q1/07 ($652 million), benefiting from few “problems” and two large gains. Although always hard to predict, trading revenues are likely to decline sequentially.
Scotiabank (Reporting date: Tuesday May 29th)
• We expect core cash EPS of $0.96, representing growth of 7% from Q2/06. Consensus estimates are $0.95.
• We expect an increase in the quarterly dividend from $0.42 to $0.44.
• Numerous acquisitions help year-over-year comparisons in revenue and earnings; Banco Wiese Sudameris in Peru, Interfin in Costa Rica, Maple Trust and Travelers Finance in Canada. Risk weighted assets were up 22% from Q1/06 to Q1/07, which should help fuel revenue growth in Q2/07.
• Rapid market growth, aggressive marketing, and branch openings should drive continued strong revenue growth in Mexico. The expense ratio in the International banking division is likely to weaken versus Q1/07 as expenses were unusually low. We also expect provisions for credit losses to increase given the very rapid retail loan growth.
• Corporate loan balances were up 37% in Canada and 38% in the U.S. from Q1/06 to Q1/07, which should drive higher spread income in Q2/07 compared to Q2/06. The M&A market remains active, with debt a key part of most buyers’ financing plans.
• Domestic banking earnings should benefit from acquisitions, less technology-related spending and improved wealth management revenue growth, and net income should grow to $347 million compared to $298 million in Q2/06.
• Scotiabank Mexico has already reported its first quarter results, which should translate into a contribution of approximately C$114 million (Canadian GAAP) on its Q2/07 earnings, versus $141 million in Q1/07 and $124 million in Q2/06.
National Bank (Reporting date: Thursday May 31st)
• We expect core cash EPS of $1.32, representing growth of 7% over Q2/06. Consensus estimates are $1.33.
• We expect an increase in the quarterly dividend from $0.54 to $0.58.
• Efficiency of 57.6% in the retail bank was unusually good in Q1/07 and is likely to weaken, although the 59.9% expected in the second quarter should still be better than 62.5% in Q2/06. Growth in mortgages and credit cards is likely to remain below industry averages, offsetting the rapid growth in partnership loans as well as home equity lines of credit, which the bank is pushing as a way to increase margins.
• We believe that core financial markets revenues could weaken from Q1/07 levels. Trading revenues have been strong in recent quarters, driven by client driven equity structured transactions, which boosted revenue and lowered the bank’s tax rate. We believe that neither are sustainable throughout the year. Securities gains are likely to accrue following the listing of the Montreal Stock Exchange and an increased unrealized gain balance in Q1/07. While securities gains can remain high in the near term, we do not consider them to be a high quality source of revenues.
• The wealth management division’s margins is benefiting from investments made in the past, as economies of scale appear to be kicking in, as do the benefits from rising fee-based revenues. The performance of Q1/07 ($45 million in net income) is unlikely to be repeated, but expected net income of $41 million should be well up versus $27 million in Q2/06.
CIBC (Reporting date: Thursday May 31st)
• We expect core cash EPS of $1.97, representing growth of 30% from Q2/06. Consensus estimates are $1.89.
• Retail market share increased in Q1/07 in personal deposits and GICs, and was largely stable in mortgages. Signs of improvements in relative retail revenue growth would be positive for the stock. While we expect revenue growth should remain below industry average, operating leverage should still be achieved given tight expense management.
• We expect Q2/07 results should be helped by increased ownership in FirstCaribbean and higher earnings from that business, which we expect should contribute $47 million to net income this quarter. CIBC will own 91.5% of FCIB versus 44% in Q2/06 and for the first two months of Q1/07.
• Wholesale revenues should benefit from real estate securitizations, M&A and new issue activity. Offsetting those factors is likely lower capital markets revenues, which were unusually high in Q1/07. Merchant banking gains are also likely to decline.
;
Event
The Big 6 Canadian banks report Q2/07 results between May 23rd and May 31st.
CIBC and TD Bank are our favourite bank shares
CIBC and TD Bank are our favourite bank shares, but we see more positive catalysts for CIBC in the near term. Our investment thesis on CIBC is heavily based on expected positive revisions in earnings estimates in upcoming quarters, including Q2/07. (Our core cash EPS estimate of $1.97 is ahead of consensus of $1.89). The positive view on TD is more predicated on continued strong performance from domestic retail banking and wealth management, improved earnings from TD Ameritrade following the conversion of clearing platforms and a lower risk profile. We do not expect investors to become incrementally positive on any of those factors following the release of Q2/07 results, and in the meantime TD Banknorth continues to report disappointing earnings and U.S. discount brokerage volumes have been unimpressive in recent months.
Q2/07 EPS growth likely to be highest at CIBC, Royal Bank, and TD Bank
We estimate earnings per share growth of 14% versus Q2/06 for the group. CIBC (30% estimated growth in EPS), Royal Bank (22%) and TD Bank (13%) are expected to lead the group.
• The expected high rate of growth at CIBC is driven by easy comparisons in wholesale operations, revenue growth of 5% in retail banking on essentially flat expenses (our revenue forecast is 4% lower than Q1/07 results), and incremental earnings from the FirstCaribbean acquisition. CIBC will own 91.5% of FCIB versus 44% in Q2/06 and for the first two months of Q1/07.
• Royal Bank should benefit from easy comparisons in Canadian banking and continued strong revenue growth, which has been driven by active capital deployment and solid momentum in banking operations. We believe that the bank could surprise to the upside given the buoyant capital markets environment and the bank’s strength in that area. (Our core cash EPS estimate of $1.05 is slightly ahead of consensus of $1.01).
• There is no particular division to point to as driving most of the expected growth for TD. TD Ameritrade should benefit from higher ownership, retail revenue growth should remain strong (we expect 10%), although partially offset by higher credit losses. Meanwhile, wholesale banking comparisons should benefit from Q2/06 being the weakest quarter in 2006. (Our core cash EPS estimate of $1.22 is slightly below consensus of $1.26).
Our estimates are ahead of consensus for CIBC and Royal Bank, below for TD Bank and in line for Scotiabank and National Bank. Bank of Montreal’s consensus estimate is unclear as not all analysts are excluding the loss related to commodity trading from their estimates. We exclude those losses from our core EPS given the magnitude, although they are still an operating event in our view.
Retail
We believe TD Bank and Royal Bank should continue growing retail revenues faster than the industry, with expected growth of 10% versus 6% for the others. The two banks are benefiting from their heftier physical presences, larger sales forces and larger customer bases to which they can sell additional products and services, as well as greater exposure to insurance. The other three banks may surprise on the bottom line in any quarter based on timing of expenses. CIBC is keeping its costs flat and continuing to manage its unsecured loan losses down, while Scotiabank and Bank of Montreal should decrease their rate of expense growth from high levels. In all three cases though, we would view the earnings growth as less sustainable as revenue-driven growth and, it may also lead to market share losses as TD Bank and Royal Bank continue to invest heavily in their domestic retail franchises, including distribution, systems and advertising.
Retail credit losses should rise more rapidly at TD given faster than industry growth in credit cards. The majority of the increase in loan losses does not concern us as it has been priced for. However, some of the increase in TD’s loan losses has also come from short-term operational issues, and we suspect that pains typical of introducing new scoring methodologies are also affecting TD. We expect loan losses to remain high in 2007, as the bank refines its credit scoring methods.
Retail loan growth should remain in the high single digits for retail lending. Mortgages and other consumer loans were both up 9.8% in the 12 months ended January 2007. The conditions that have driven the rapid loan growth remain in place in Q2/07 - employment growth, rising incomes, low interest rates and a solid housing market. There is likely to be deterioration in some of those factors but the environment for retail loan growth remains very good, both in absolute terms and relative to the U.S.
Net interest income margins should be relatively steady outside of changes in product mix versus Q1/07 as the interest rate environment was stable and our conversations with management teams indicate that the pricing environment has been unchanged. Net interest income is likely to decline for most banks though, based on the quarter having three fewer days. Versus Q2/06, Scotiabank and CIBC face the toughest margin comparisons.
We believe that retail wealth management businesses are positioned for continued strong revenue growth. The S&P/TSX Composite Index is up 10% versus Q2/06, which is a positive for mutual fund businesses. Trading volumes are also up 10%, a positive for both full service and discount brokerage businesses. The value of financings was up 20%, which should help full service brokerage revenues.
Wholesale
We believe that positive earnings surprises are most likely to come from wholesale divisions, which would help Royal Bank and National Bank most in our view. Worldwide M&A, equity markets and credit markets are all very active, driven by high levels of liquidity, which is driving increases over already high revenues. Furthermore, new corporate loan losses remain low and recoveries of loans previously classified as impaired have proved more sustainable than we had anticipated. We believe that Royal Bank and National Bank would benefit the most from continued strength in wholesale markets revenues, while Scotiabank’s wholesale division benefits the most from the low industry credit losses. Royal Bank should benefit from the incremental investments made in the space, while we expect National Bank’s earnings to continue to benefit from securities gains (securities gains represented 13% of the bank’s total pre-tax income in 2006). The difficulty in forecasting wholesale revenues remains the primary reason why we believe they should structurally be valued at lower multiples, while cyclically low credit losses drive further caution to our valuation multiples. U.S. dealers are currently trading at 10.5 times 2007E earnings (we value the banks’ wholesale divisions at 8.5x to 11x earnings).
BMO (Reporting date: Wednesday May 23rd)
• We expect core cash EPS of $1.36, representing growth of 7% versus Q2/06. Consensus estimates are $1.13 (but we estimate that consensus would be $1.31 if all estimates exclude the commodity trading losses).
• Reported numbers should be highlighted by the mark-to-market commodity trading losses, which management estimated on April 27, 2007 would amount to $350-450 million. We exclude those losses from our core EPS given the magnitude, although they are still an operating event in our view.
• Outside of trading, wholesale banking should benefit from the already-seen increases in loan balances, which should add to earnings, although at tight spreads versus the prior year. Management is keen on targeting quality clients as other lenders become more cautious in their underwritings as credit quality deteriorates.
• The U.S. retail bank should benefit from lower transition and integration costs, which have impacted Bank of Montreal for longer than we had thought and has totaled approximately $85 million since 2005.
• Sequential results should benefit from lower stock-based compensation as Bank of Montreal expenses compensation to employees about to retire in the first quarter of the year. The cost in Q1/07 was $0.06 per share, spread across the different operating divisions.
• We do not expect benefits from the $135 million restructuring charge incurred in Q1/07 to accrue until later in the year when employee reductions begin to materialize. The company hopes to improve the efficiency and effectiveness of its groups and processes that support sales and service, and noted that the benefits of the cost savings are important to achieve their 2007 financial targets.
TD Bank (Reporting date: Thursday May 24th)
• We expect core cash EPS of $1.22, representing growth of 13% over Q2/06. Consensus estimates are $1.26.
• Wholesale revenues are likely to weaken from Q1/07 as trading revenues of $330 million were much stronger than the average of the prior three quarters ($222 million), while securities gains of $70 million from the bank’s equity portfolio remained high.
• TD Ameritrade and TD Banknorth’s earnings have been pre-announced at $63 million and $62 million (excluding restructuring charges), respectively. Looking forward, the outlook for growth from at TD Banknorth remains poor, with the pressure coming from rising credit losses, and continued margin pressure. TD Ameritrade should benefit from the integration of clearing platforms in May.
• Retail banking should continue to benefit from rapid branch expansion, marketing of credit cards to existing clients, continued buildup in wealth management advisors and insurance operations, overhaul of its automated banking machines, and increased penetration of existing customers’ small business banking needs. These increases should offset rising credit losses, which were $163 million in Q1/07, driven by the rapidly growing credit card book.
• The 'Other' segment had unusually strong results in Q1/07, driven by taxes and securitization activities. These should drop off as the year goes on, particularly following the close of the Banknorth going private transaction.
Royal Bank of Canada (Reporting date: Friday May 25th)
• We expect core cash EPS of $1.05, representing growth of 22% over Q2/06. Consensus estimates are $1.01.
• Risk weighted assets were up 19% from Q1/06 to Q1/07, which should help fuel revenue growth in Q2/07.
• Q1/07 retail net interest income margins were in line with normal range. The launch of a high yield savings account at the end of March may pressure margins somewhat going forward, but it should help personal deposit growth, which had been negatively impacted by the lack of such an account.
• Q1/07 insurance profitability was well above normalized levels, even after adjusting for positive one-time items. Claims experience was unusually good and actuarial reserves were released. We expect insurance core net income to decline from $124 million in Q1/07 to $81 million in Q2/07.
• RBC Capital Markets should benefit from continued investments in people and infrastructure. Management seemed optimistic on its deal pipeline following the reporting of Q1/07 results. Trading revenues were exceptional in Q1/07 ($652 million), benefiting from few “problems” and two large gains. Although always hard to predict, trading revenues are likely to decline sequentially.
Scotiabank (Reporting date: Tuesday May 29th)
• We expect core cash EPS of $0.96, representing growth of 7% from Q2/06. Consensus estimates are $0.95.
• We expect an increase in the quarterly dividend from $0.42 to $0.44.
• Numerous acquisitions help year-over-year comparisons in revenue and earnings; Banco Wiese Sudameris in Peru, Interfin in Costa Rica, Maple Trust and Travelers Finance in Canada. Risk weighted assets were up 22% from Q1/06 to Q1/07, which should help fuel revenue growth in Q2/07.
• Rapid market growth, aggressive marketing, and branch openings should drive continued strong revenue growth in Mexico. The expense ratio in the International banking division is likely to weaken versus Q1/07 as expenses were unusually low. We also expect provisions for credit losses to increase given the very rapid retail loan growth.
• Corporate loan balances were up 37% in Canada and 38% in the U.S. from Q1/06 to Q1/07, which should drive higher spread income in Q2/07 compared to Q2/06. The M&A market remains active, with debt a key part of most buyers’ financing plans.
• Domestic banking earnings should benefit from acquisitions, less technology-related spending and improved wealth management revenue growth, and net income should grow to $347 million compared to $298 million in Q2/06.
• Scotiabank Mexico has already reported its first quarter results, which should translate into a contribution of approximately C$114 million (Canadian GAAP) on its Q2/07 earnings, versus $141 million in Q1/07 and $124 million in Q2/06.
National Bank (Reporting date: Thursday May 31st)
• We expect core cash EPS of $1.32, representing growth of 7% over Q2/06. Consensus estimates are $1.33.
• We expect an increase in the quarterly dividend from $0.54 to $0.58.
• Efficiency of 57.6% in the retail bank was unusually good in Q1/07 and is likely to weaken, although the 59.9% expected in the second quarter should still be better than 62.5% in Q2/06. Growth in mortgages and credit cards is likely to remain below industry averages, offsetting the rapid growth in partnership loans as well as home equity lines of credit, which the bank is pushing as a way to increase margins.
• We believe that core financial markets revenues could weaken from Q1/07 levels. Trading revenues have been strong in recent quarters, driven by client driven equity structured transactions, which boosted revenue and lowered the bank’s tax rate. We believe that neither are sustainable throughout the year. Securities gains are likely to accrue following the listing of the Montreal Stock Exchange and an increased unrealized gain balance in Q1/07. While securities gains can remain high in the near term, we do not consider them to be a high quality source of revenues.
• The wealth management division’s margins is benefiting from investments made in the past, as economies of scale appear to be kicking in, as do the benefits from rising fee-based revenues. The performance of Q1/07 ($45 million in net income) is unlikely to be repeated, but expected net income of $41 million should be well up versus $27 million in Q2/06.
CIBC (Reporting date: Thursday May 31st)
• We expect core cash EPS of $1.97, representing growth of 30% from Q2/06. Consensus estimates are $1.89.
• Retail market share increased in Q1/07 in personal deposits and GICs, and was largely stable in mortgages. Signs of improvements in relative retail revenue growth would be positive for the stock. While we expect revenue growth should remain below industry average, operating leverage should still be achieved given tight expense management.
• We expect Q2/07 results should be helped by increased ownership in FirstCaribbean and higher earnings from that business, which we expect should contribute $47 million to net income this quarter. CIBC will own 91.5% of FCIB versus 44% in Q2/06 and for the first two months of Q1/07.
• Wholesale revenues should benefit from real estate securitizations, M&A and new issue activity. Offsetting those factors is likely lower capital markets revenues, which were unusually high in Q1/07. Merchant banking gains are also likely to decline.
