Are analyst earnings estimates too high? Bank executive guidance too rosy? What’s the risk to 2023 expectations? 

Conclusion from Paul Holden

The potential range of economic outcomes in 2023 remains wide, with the midpoint of expectations shifting down for much of the last year. Consensus EPS estimates for the banks are down 5% from peak on average and continue to imply average EPS growth of 2% next year. While consensus estimates appear to be broadly aligned with banks’ guidance, we think there is a high probability that numbers will have to come down further. This note explores key earnings drivers and associated EPS sensitivities across each of the big banks. Our estimates suggest downside risk to consensus EPS is greatest for TD and BNS, based mostly on PCL and NIM sensitivities.

 

Please feel free to read Paul’s more detailed remarks in his January 4th report (below). We list below, for your easy reference, a glossary of terms.

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ACL: allowance for credit losses

CET1: common equity tier 1

CMRR: committed monthly recurring revenue

EPS: earnings per share

FQ2: fiscal quarter 2

LTM: last twelve months

NCIB: normal-course issuer bid

NII: net interest income

NIM: net interest margin

NIR: net interest rate

NSFR: net stable funding ratio

P&C banking: personal & commercial banking

P/BV: price-to-book ratio/value

PCL ratio: provision for credit losses

PTPP: pre-tax pre-provision

Q/Q: quarter over quarter

ROE: return on equity

Y/Y: year over year