Canadian banks begin reporting earnings this week, with investors watching for signs of credit stress, earnings growth and progress on return targets.
BNN Bloomberg spoke with Matthew Lee, analyst at Canaccord Genuity, who said strong capital markets and wealth management revenues are supporting a favourable backdrop, while consumer credit trends and U.S. execution remain key swing factors.
Key Takeaways
- Earnings per share for Canadian banks are expected to rise nearly 10 per cent this year, supported by strong capital markets and wealth management revenue.
- Consumer credit remains relatively benign, though weakness in credit cards and a softer job market could lift provisions in the near term before improving into 2027.
- BMO’s goal of reaching 15 per cent ROE by 2027 implies significant earnings growth, contingent on stronger U.S. banking performance and cost discipline.
- Valuations for several banks, including CIBC and National Bank, are seen as full, with future upside tied to clear and repeatable earnings growth drivers.
- Large, diversified players such as Royal Bank and TD are viewed as benefiting from scale, capital strength and improving execution, particularly in the U.S.
Read the full transcript below:
ANDREW: Canadian banks are set to report earnings starting this week. Scotiabank kicks things off tomorrow. Let’s get some ideas on what to expect from Matthew Lee, analyst at Canaccord Genuity. Matthew, great to see you and thanks for joining us. You’re looking for a pretty decent year for the Canadian banks, with earnings per share up almost 10 per cent?
MATTHEW: Yeah. I mean, look, the setup is favourable right now. If you think about the different factors that go into what makes bank earnings work, we have strong capital markets, strong wealth. We have credit that’s remained relatively benign. Loan growth, not there yet. But overall, yeah, I mean, absolutely looking for a good year.
ANDREW: I guess the worry is always about possible consumer losses. What is your feeling? I mean, we are seeing some weakness in the Canadian job market, but you don’t think provisions are going to be a huge problem?
MATTHEW: No. I mean, I think you’ve probably heard this term before. It’s a K-shaped economy, right? And for better or for worse, the banks are most levered to kind of the higher end of the consumer range. What that basically means is that, until unemployment really starts to ramp up, or if it does, there’s some protection there, especially on the mortgage book. Where we might see some pain is the credit card book. I think even in Q1 you can start seeing some impact there. But overall, again, credit has been benign. Most of the banks have got it toward downward sloping in the second half of the year. I think 2027 might actually be even better.
ANDREW: Talk to us about Bank of Montreal. You say they have a pretty high return on equity. However, work is needed on their U.S. operations.
MATTHEW: Yeah, you know, their ROE is the lowest of the group, but it is improving. One of the biggest incremental data points that we got from the quarter so far is that they expect to be exiting 2027 with ROE of 15 per cent. Now their ROE in 2025 was 11 per cent, so if you do the math there, I mean, that just generates great earnings growth. They can do it from a number of directions. U.S. banking, to your point, Andrew, that’s a big piece of it, right? They’re going to have to do a lot better in the U.S. in terms of generating wealth management revenue, reducing costs, rationalizing the footprint. But Canadian costs, Canadian credit, those are going to be factors as well, as well as the fee revenue we talked about earlier — investment banking, wealth management.
ANDREW: So you have a buy on Bank of Montreal. You also have a buy on Bank of Nova Scotia. You feel that the repair job or the restructuring of that company is doing well. They had quite a few years of underperformance.
MATTHEW: Yeah, you know, they’ve done a good job. They’ve had great execution over the last couple of quarters. If I look at the international business in particular, I mean, that was something that a lot of folks didn’t want to touch last year. It was an area of major concern. I think right now people are turning around on that. Maybe it’ll be a growth area, probably not in Q1 right away, but over the next couple of years, that could be an outperforming earnings grower.
ANDREW: CIBC, you have a hold. Is that because of valuation?
MATTHEW: Yeah, primarily. I mean, look, they’ve been executing great too. They’ve done a good job rationalizing costs, growing net interest margins. I like the way that they’ve been performing, but their valuation — they’re not cheap anymore.
ANDREW: Why have investors been jumping in to CIBC?
MATTHEW: I mean, you know what? Everyone likes a good execution story, right? If you’re doing well and you’re blocking and tackling correctly in this business, investors reward you, and they should. They’ve earned every dollar that they’ve kind of improved. Their Canadian banking operation has been very successful. To me, the biggest question for CIBC is, where is the next leg of growth? They don’t do international. They don’t do the U.S. So it’s a lot of Canadian exposure. For the valuation at this juncture, it’s just not there for me.
ANDREW: And National Bank. Also you have a hold. Is that — do you feel the stock is relatively expensive?
MATTHEW: You know, with National it’s kind of the same story again. Yeah, to your point, it is expensive. When I think about what I like in a bank right now, it’s stories where the earnings growth is relatively easy in terms of how you’re going to get up 10 or 12 per cent over the next couple of years. So nothing against National. I think they’ve done a very good job. But a lot of their earnings in 2025 came from capital markets. To me, there are some questions around the replicability of that, versus BMO, like I said earlier, where the kind of steps are clear in terms of how you get earnings growth.
ANDREW: Royal Bank, the aircraft carrier of the sector. You do have a buy on that one?
MATTHEW: I mean, you can’t bet against Royal, right? I mean, their ROE is great. Their ROE guidance is even better. And frankly, I think that they can outperform that this year. If I look at the kind of recipe that they’ve got, their wealth management business is the biggest. Their U.S. is good. Their capital markets is best in class. I mean, you know, it is expensive. Royal is not a discount bank by any means. But when you buy that, you’re buying quality, you’re buying execution. And I think they’ve done both.
ANDREW: OK, Andrew, we’ll just round it out then. TD Bank is set to go on winning back investors.
MATTHEW: Yeah. I mean, you know, it’s been an incredible story the last couple of years. We obviously had the anti-money laundering issue with TD. They came out of that, they apologized profusely. They’ve invested in order to make sure that AML strategy was succinct and strong. They’ve restructured the U.S. business a lot. I think there’s a lot of growth there. I mean, in Canada, TD Bank has one in three Canadians in some form. You can’t beat that market share. In the U.S., they’re a top-10 bank as well. And frankly, it sounds like the strategy is in the right direction right now. I think that’s what people like.
ANDREW: One in three Canadians. You said TD does business with, one way or another?
MATTHEW: Yeah.
ANDREW: That’s amazing. Just finally, Matthew, I don’t think you cover EQB, but could you give me your broad thoughts on them becoming a bigger competitor with the acquisition of PC Financial?
MATTHEW: Yeah, you know, I don’t cover it. I do believe that there’s always a benefit to having a bigger, more scaled bank. So anything that helps you do that profitably is good. Again, I don’t cover it, though, so I don’t really have a qualified opinion on that one.
ANDREW: For sure. The government, as you know, in the latest budget made noises about increasing competition in Canadian banking, but my guess is anything will occur at a glacial pace.
MATTHEW: Yeah. I mean, look, the Canadian banking system is very strong. We’ve done a very good job of managing through crises. We’ve protected the Canadian consumer. We’ve protected savings. Even given the real estate market today, we’re not panicking the way that they did in the U.S. over a decade ago. So I think you have to balance adding competition with providing those protections to Canada overall. I think the banks have done a really good job. And the other thing to say about that too, the banks are competitive amongst each other, right? You talk to any mortgage broker, you talk to any retail banker, any commercial banker, they’re out there competing every single day. So I don’t think there’s necessarily a lack of competition in Canada.
ANDREW: We’d better jump. Thank you very much, Matthew.
MATTHEW: Sure.
ANDREW: Matthew Lee of Canaccord Genuity.
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This BNN Bloomberg summary and transcript of the Feb. 23, 2026 interview with Matthew Lee are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
