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THE JOHNSON, JOHNSTON AND MACRAE INVESTMENT GROUP

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Address 366 King Street East Suite 500 Kingston ON, K7K 6Y3
Telephone Number (613) 531-5520
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The JJM Investment Group

January 09, 2023

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Man analyzes a line chart on his laptop

View from the Street: Canadian Banks - Dissecting Earnings per Share, or EPS, Risk

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.


Bank stock symbols

BMO: Bank of Montreal

BNS: Bank of Nova Scotia

CM: CIBC

NA: National Bank

RY: Royal Bank

TD: Toronto-Dominion Bank

 

Glossary of terms

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

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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