PREVIEW-Canadian banks expected to post strong fourth-quarter earnings

Banks head into fourth-quarter results with strong valuations

Capital markets, wealth management expected to boost earnings

Fiscal 2026 forecast in focus

By Nivedita Balu

TORONTO, Dec 1 (Reuters) - Analysts are expecting Canadian banks to report strong fourth-quarter results this week, benefiting from business at their investment banking and wealth management segments while credit continues to stabilize, although lofty valuations will be tested.

Uncertainty over U.S.-Canada trade talks and lingering concerns over the health of Canadian consumers and mortgage renewals will also be in the spotlight.

“What we need to see is 2026 and 2027 estimates get revised higher. That will be able to sustain multiples,” said Rob Poole, co-head of equities at bank investor PICTON Investments.

VALUATIONS OF BIG SIX CANADIAN BANKS ARE HIGH

The big six Canadian banks- Royal Bank of Canada (RY.TO) , TD Bank (TD.TO) , BMO (BMO.TO) , CIBC (CM.TO) , the Bank of Nova Scotia (BNS.TO) and National Bank (NA.TO) - have added an average of roughly 32% to their shares so far this year, surpassing the Toronto Stock Exchange’s (.GSPTSE) roughly 27% gain, largely shrugging off the impact of the trade war in the past two quarters.

“The Canadian banks are trading at levels that could charitably be described as fully valued… any miss on earnings in the fourth quarter could have significant negative consequences for valuation multiples, with near-term upside likely constrained, even under a modest beat scenario,” John Aiken, an analyst at Jefferies, said in a note.

The six Canadian banks’ fourth quarters ended on October 31.

Heading into this week, they were trading at 12.9 times their forward earnings on average, a 23% premium to the 10-year average, CIBC analyst Paul Holden said, adding that it makes the stocks more susceptible to market gyrations.

Net income in the fourth quarter is expected to grow between 3.5% and 41.9% at the six banks, while loan loss provisions are expected to grow between 5% and 32% at five banks and fall 46% at BMO, LSEG data showed.

After some regional U.S. banks flagged bad loan and fraud issues earlier this year, investors will scrutinize credit results for signs of strain in the banks’ loan books, looking for their exposure to private credit or “non-bank financial institutions.”

The Canadian lenders’ U.S. businesses, which over the years have grown to contribute to a large chunk of their business, have been a key focus as they seek growth outside of a saturated market at home.

Of the six banks, BMO had the largest exposure while Scotiabank had the smallest, analysts at RBC noted.

“We have several concerns about the space including limited disclosures, rapid growth, and market opacity. … We hope to gain a better understanding of the industry during Q4/25 reporting,” RBC analyst Darko Mihelic said.

Scotiabank will release its quarterly results on Tuesday, RBC and National Bank will do so on Wednesday, and BMO, CIBC and TD will issue their reports on Thursday.