Scotia Capital, 12 September 2013
• Canadian banks continue to be heavily shorted relative to U.S. major banks (see our April 29, 2013 report Canadian Banks Short Interest Ratio Higher Than Prior to Lehman Collapse), based on the most recent data, August 30, by the TSX and NYSE.
Implications
• Canadian banks short interest ratio declined modestly in August to 9.4 trading days compared to 10.6 trading days in July. U.S. major banks short interest ratio remained flat at 1.2 trading days, well below the short interest levels of the Canadian banks.
• CM had the highest short interest ratio in the bank group at 11.8 days, followed by BMO at 10.7 days.
Recommendation
• Following the strong earnings beat from the Canadian banks in Q3/13, including dividend increases and new share repurchases, the short interest ratio declined a modest 0.3 trading days versus our last update (data as at August 15, 2013).
• Earnings could continue to surprise on the upside, especially if the net interest margin continues to stabilize and perhaps increase.
• Positive earnings momentum, housing market resilience and the high cost of carry is not expected to be short interest friendly.
• Maintain Overweight recommendation versus TSX, although we continue to recommend Overweight U.S. major banks (select and less aggressive) relative to Canadian banks.
;
• Canadian banks continue to be heavily shorted relative to U.S. major banks (see our April 29, 2013 report Canadian Banks Short Interest Ratio Higher Than Prior to Lehman Collapse), based on the most recent data, August 30, by the TSX and NYSE.
Implications
• Canadian banks short interest ratio declined modestly in August to 9.4 trading days compared to 10.6 trading days in July. U.S. major banks short interest ratio remained flat at 1.2 trading days, well below the short interest levels of the Canadian banks.
• CM had the highest short interest ratio in the bank group at 11.8 days, followed by BMO at 10.7 days.
Recommendation
• Following the strong earnings beat from the Canadian banks in Q3/13, including dividend increases and new share repurchases, the short interest ratio declined a modest 0.3 trading days versus our last update (data as at August 15, 2013).
• Earnings could continue to surprise on the upside, especially if the net interest margin continues to stabilize and perhaps increase.
• Positive earnings momentum, housing market resilience and the high cost of carry is not expected to be short interest friendly.
• Maintain Overweight recommendation versus TSX, although we continue to recommend Overweight U.S. major banks (select and less aggressive) relative to Canadian banks.
