Paul Bagnell

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Lower loan losses reported by big U.S. banks are a clear positive for most of Canada’s banks – and one in particular, according to one Bay Street analyst.

Credit Suisse Analyst Mike Rizvanovic said Bank of Montreal likely stands to benefit the most from an improving credit environment witnessed recently in the United States.

Rizvanovic took a close look at the most recent earnings reports for 14 big U.S. banks, searching for trends that affect Canada’s major financial institutions, and particularly those with big banking operations in the U.S.

At the top of his list is U.S. banks reporting much smaller provisions for credit losses – money set aside in advance of loans considered to be shaky.  And several U.S. banks actually took money out of earlier booked loan-loss reserves and put back into the income stream.

Rizvanovic said it's still too early for Canadian banks to announce releases from loan loss reserves (different accounting rules on each side of the border are a factor), but the improving credit outlook will be a material positive.

Bank of Montreal stands out because it has a large commercial lending business in the U.S. Midwest and prior to the pandemic, was ramping up lending to U.S. businesses.  BMO may now be poised to report lower provisions on expected losses from those loans, he predicts.

Some other takeaways in his note include how ultra-low U.S. interest rates means growth in net interest income will be challenged and that a solid quarter in capital markets – marked by a booming quarter in equities trading – will be plus for National Bank of Canada.

Canada’s banks will report their fiscal first-quarter earnings – for the quarter ending on January 31 – on February 23, 24 and 25.