Merrill Lynch & Co. has hiked its fourth-quarter earnings targets for all of the big Canadian banks, citing robust capital markets and, in particular, strong equity trading volumes.
“With less than a month remaining in the Canadian banks' fiscal 2005, it appears as though an improvement over 2004's strong results is in the cards,” analysts André-Philippe Hardy and Dennis Westfall wrote in a note released Tuesday.
The Merrill analysts expect that fourth-quarter 2005 year-over-year results will improve across the board, with the revised earnings estimates ranging from between one and four cents higher.
With less than a month remaining in the Bay Street banks' fiscal 2005 season, equity trading volumes have risen sequentially on both sides of the border, but especially on the S&P/TSX, a factor that should help the bank's agency business, the report said.
“Commodities trading likely maintained its strength, as the underlying futures index (bolstered by oil) has continued its ascent,” the Merrill analysts said, adding that oil has contributed to the dollar's rise, likely fuelling hedging activity and proprietary gains.
Equity and debt underwriting sales, and mergers and acquisition advisory fees will rise from the previous third-quarter, while trading will be slightly weaker, the report forecast. It did, however, question whether a drop-off in equity underwriting in September is the start of an anticipated slowdown caused by the uncertainty surrounding the future of income trusts.
In terms of fixed-income trading, the yield curve has continued to flatten, while corporate and high-yield bond spreads have widened on a year-over-year basis, the Merrill report said.
Royal Bank of Canada's fourth-quarter earnings target was raised by four cents to $1.47 a share; Toronto-Dominion Bank's by four cents to $1.07 a share; Canadian Imperial Bank of Commerce's by three cents to $2.23 a share, Bank of Montreal's by two cents to $1.12 a share; National Bank of Canada's by two cents to $1.10 a share; and Bank of Nova Scotia's by one cent to 80 cents a share.
Shares of Bay Street's big banks, which are slated to report their fourth-quarter financial results in December, were mixed Wednesday in the wake of the earnings upgrade.
© The Globe and Mail
