23 September 2011

Review of Bank's Q3 2011 Earnings

Scotia Capital, 23 September 2011

• Third quarter operating earnings were modestly better than expected, increasing 16% YOY and 2% QOQ. Volatile and depressed wholesale banking results were offset by resilient retail banking earnings and strong earnings growth from both wealth management and international.


• Despite the challenging quarter, profitability remained strong (ROE 17.2%, RRWA 2.36%) with CM and TD both increasing dividends a modest 3%.


• Reducing our 2012E EPS by 4.5% due to expected decline in retail NIM and our target prices by 14% based on a contraction in P/E multiples due to the overall decline in valuations, systemic risk, and lower earnings estimates. We are introducing our 2013E EPS with expected growth of 9% YOY.

• We are upgrading LB to 2-SP from 3-SU as its valuation discount has widened to 27% versus CWB and its shares have underperformed in 2011. We are also downgrading BMO to 3-SU from 2-SP due to high relative valuation versus profitability and potential for weaker wholesale earnings.

• Maintain overweight the bank group.