Analysts scale back price targets on Canadian banks #CanadaFinance

Analysts at CIBC and Canaccord Genuity knocked back price targets on all Canadian banks under coverage, citing ongoing uncertainty caused by U.S. tariffs and expected impact on loan portfolios.

Writing that “trade uncertainty casts a grey cloud over the banks,” Canaccord analyst Matthew Lee lowered the price-to-earnings (P/E) multiple target for the group of banks from 11.8x to 11.3x. Price targets were lowered by around four per cent for most banks, with the exception of Bank of Montreal (BMO.TO, BMO), down 1.21 per cent from $165 to $163.

CIBC’s Paul Holden emphasizes the importance of the lenders’ relative U.S. exposure amid the unfolding tariff story as he lowered targets most significantly for Bank of Nova Scotia (BNS.TO, BNS – from $81 to $75) and National Bank of Canada (NA.TO – from $135 to $127), with smaller reductions to Toronto-Dominion Bank (TD.TO, TD – $96 to $95) and BMO ($156 to $152). The latter two, Holden writes, have “the lowest proportion of Canadian loans and highest proportion of USD earnings,” serving therefore as “tariff protection picks.”

Canaccord is maintaining its “Buy” rating on Royal Bank of Canada (RY)(RY.TO), TD, BMO and BNS, and “Hold” on CM (CM.TO)(CM) and NA.

Lee expects more adjustments will be necessary. “At this juncture, it is too early to fully determine the net impact of reciprocal tariffs, fiscal stimulus, and domestic trade.”

Both analysts expect the banks to record an increase in provisions for credit losses (PCLs) — money set aside to cover loans they expect won’t be paid — in the second quarter of 2025, as tariffs and accompanying uncertainty ripple through the economy.

“We don’t know how long tariffs will last, but we think it is prudent to adjust estimates to at least capture an anticipated increase in performing PCLs,” Holden wrote.

Lee writes that Canaccord has “modestly increased our impaired estimates with the expectation that consumer credit will generate additional headwinds,” and points out that all the banks except for TD have set aside reserves to cover potential loan issues in the second quarter. “Most of the banks signalled the need for further builds if tariffs were mandated, which implies that we will likely see further builds in Q2,” he said.

Holden observes that “more U.S. is better,” with earnings in the banks’ U.S. businesses under less pressure than earnings in Canada, with the same for loans. “BMO and TD have the highest proportion of earnings and loans in the U.S.,” Holden noted. “RY is the other bank that is better than average. BNS and NA are the two banks with the lowest proportion of U.S. earnings.”