As Canada's biggest banks prepare to report their second-quarter results, analysts say those that rely more heavily on wealth management and global markets will fare better amid slowing growth in Canadian retail banking.
Scotiabank (TSX:BNS) and Royal Bank (TSX:RY) are expected to lead the pack this quarter because of their focus on wealth management and capital markets.
Meanwhile, CIBC (TSX:CM) is expected to lag the group because of its heavy reliance on domestic retail banking.
Slowing loan growth with Canadians reluctant to add to already record debt levels and a cooling housing market combined with squeezed margins are expected to pressure the retail operations of the big banks.
Gareth Watson, vice-president of investment management and research at Richardson GMP, said earnings from capital markets and wealth management should provide for a "decent quarter."
If retail earnings are better than expected, the banks even have a shot of beating analyst expectations, Watson said.
"There is only a limited number of ways for banks to claw money out of 35 million Canadians," said Watson.
"But in the past they've actually been pretty good at finding new ways to do it."
Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier, said he doesn't foresee any "huge disappointments" because expectations in the sector are already quite low.
Analyst Robert Sedran from CIBC World Markets said he expects earnings per share to decline by 2.5 per cent from the first quarter because of the fewer number of interest-earning days.
But year-over-year he predicts seven per cent growth.
"Profit growth for the Big Six may be slowing, but those same earnings streams remain resilient," Sedran said in a report.
"While these are not boom times for the Canadian banking sector, the recent share performance of the sector as a whole is in our view more pessimistic than fundamentals would suggest."
Analyst John Aiken at Barclays was more skeptical, predicting a four per cent decline from the first quarter.
"After a surprisingly strong first quarter, aided by incremental expense management and significant declines in provisions for credit losses, we fear that banks may be running out of items in their bag of tricks to offset slowing loan growth and margin compressions," Aiken wrote in a note.
But he said rising global equity markets and the RRSP contribution season mean wealth management and capital markets should perform well.
TD Bank (TSX:TD) will report its second-quarter results on Thursday morning, followed by Scotiabank on May 28 and Bank of Montreal (TSX:BMO) on May 29. Royal Bank and CIBC will both announce their results on May 30.
According to the latest estimates compiled by Thomson Reuters, TD is expected on average to see earnings of $1.91 per share, while Royal Bank is expected to report earnings of $1.31 per share.
Analysts predict Scotiabank will report $1.26 per share, BMO will see earnings of $1.48 per share and CIBC will report $2.06 per share.