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Noah Zivitz

Managing Editor, BNN Bloomberg

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One analyst tracking the Canadian bank sector said Thursday it's time to buy amid what he described as an attractive opportunity as this country's largest lenders underperform their American peers.

In a report to clients, Meny Grauman from Scotiabank said Canada's domestic systemically important banks (ie, the Big Six) are trading at a price-to-earnings multiple of 10.7x, compared to the largest U.S. banks' multiple of 13.6x. He noted that those big so-called money-center American banks have been on a tear since the U.S. Federal Reserve’s most recent decision, when the central bank said a slowdown in its asset-purchase program could soon be warranted. 

"While some of this Canadian bank underperformance is tied to rising rates and elevated regulatory risk, the relative performance is still puzzling and not entirely justified by fundamentals," Grauman wrote. 

He acknowledged the curveball that was thrown by the Liberals on the campaign trail when they proposed applying a surtax on the country's largest banks and insurers, as well as introducing a yet-to-be-defined Canada Recovery Dividend. However, Grauman said in his analysis that the "worst case impact" would be no more than a hit representing 3.5 per cent of earnings per share on average.

Among Canada's biggest lenders, Grauman has Sector Outperform ratings on Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada and National Bank of Canada; while Toronto-Dominion Bank is rated Sector Perform. 

Grauman acknowledged on Thursday that his call to buy is for the sector as a whole; however, he reaffirmed his cautious view on shares of TD and said BMO is his top pick heading into the next earnings season.