RBC Capital Markets analysts anticipate a challenging quarter for several of the country’s leading lenders as Canadian banks prepare to broadcast their quarterly outcomes the following week, stating that the “macroeconomic outlook has become more uncertain.”

RBC Capital Markets analysts reduced their core earnings per share forecasts for five major banks by an average of about 3% in a study released on Wednesday. On May 24, the Bank of Montreal and Bank of Nova Scotia will be the first lenders to publish second-quarter results.

The analysts reduced their projections for BMO’s second-quarter core earnings per share by 5.8%, Bank of Nova Scotia’s by 4%, Canadian Imperial Bank of Commerce’s by 1.1%, and Toronto-Dominion Bank’s by 2.8%. Core earnings per share forecasts for National Bank for the second quarter were unchanged.

As the macroeconomic outlook has grown more unclear, “our reduced forecasts mostly reflect larger stage two PCL [provision for credit losses] than we previously projected. We also have reduced hopes for the capital markets, according to the report.

The lowered prognosis for Canada’s big banks, according to the research, appears to be more of a short-term problem.

In the long run, the analysts predicted that revenue growth would be “partly offset by normalizing PCL [provision for credit losses],” which would result in an average increase in core earnings per share of about 5% in 2024, barring the occurrence of a more severe economic downturn.

Expectations for how well the capital markets would perform were also reduced.

Large Canadian bank equity markets “remained under pressure in the quarter,” the analysts observed. It is projected that revenue would drop by about 2% and profitability will fall by about 11% respectively in the second quarter compared to the prior quarter.

Bank of Montreal

The investigation discovered that the Montreal-based lender may feel the effects of BMO’s February acquisition of the Bank of the West.

During a difficult quarter in the U.S., “BMO will record integration expenses, a credit impact, a fair value effect, close out its “hedge” for the fair value mark, and likely engage in some RWA [risk-weighted assets] management.”

Because BMO likely had to operate “conservatively” during the quarter, the analysts predicted poorer quarterly profits from BMO.

TD Bank

The cancellation of the agreement between TD Bank and First Horizon Corp. will cost the Canadian bank a charge of US$225 million, which will affect the bank’s earnings.

“TD had invested US$494 million in FHN’s [First Horizon] preferred shares as part of the deal,” the analysts stated.

According to the merger agreement, these preferred shares will be converted into FHN [First Horizon] common shares if the transaction is terminated for lack of regulatory approval.

According to the analysts’ analysis, the conversion of those shares might result in a $199 million loss for TD Bank, however, it might appear as an unrealized loss.

American Banking

According to recent research from CIBC Capital Markets, current unrest caused by bank failures in the U.S. would probably have an impact on the narrative throughout earnings season.

“With the recent bank failures in the U.S., a main focus this quarter will be on funding and liquidity risks and the overall impact to (net interest margins) going forward,” CIBC analysts wrote in the research.

The analysts emphasized that banks with ties to the United States might see additional cost constraints. In addition, Canadian lenders will probably be more cautious about lending shortly given the U.S. banking crisis.

Ebrahim Poonawala, an analyst with BofA Securities, stated that BMO and CIBC may profit from market volatility in a letter to investors on Friday.

A higher regulatory threshold for U.S. regional banks “might be a catalyst, but not necessarily an immediate one, for BMO/CIBC to emerge as market share gainers,” he added.

Following the integration of Bank of the West, BMO may experience gains in net interest margin, according to Poonawala’s research. This is because perceived credit concerns may encourage investors to maintain caution as momentum for deposit repricing grows, he said.

According to Poonawala, CIBC’s net interest margins may increase as a result of its “flat-lining expenses” in the second half of the year.