Aug 7 Barclays Capital downgraded Bank of Montreal, Canadian Imperial Bank of Commerce, and Royal Bank of Canada, saying these banks are likely to generate lower levels of earnings growth, resulting in fewer dividend increases.
"The greatest risk facing the Canadian banks, in our view, remains a slowdown of the broader economy, triggering higher unemployment," Barclays analyst John Aiken wrote in a note.
Aiken downgraded Bank of Montreal (BMO) and Royal Bank of Canada (RBC) to "underweight" and lowered his rating on Canadian Imperial Bank of Commerce (CIBC) to "equal-weight".
BMO, RBC and CIBC will have below-average earnings growth in 2013, Aiken said, adding he does not expect RBC to keep pace with the growth of some of its peers in the near-term.
"With dividends currently being a much more dominant factor in Canadian bank valuations, we believe that investors should focus on earnings growth potential," he said.
Aiken upgraded National Bank of Canada to "overweight" from "equal-weight," and raised his rating on Bank of Nova Scotia to "equal-weight" from "underweight", saying both the banks can generate outsized earnings and dividend growth.
National Bank of Canada has demonstrated continued strong growth in domestic lending while Bank of Nova Scotia's international operations have growth potential, Aiken said.