大型加拿大银行：美国银行业的业绩凸显出TD和BMO面临的挑战越来越大

1、Equity Research Americas | CanadaFollowing Q3-19 results for U.S. banks that in most cases exceeded already-low expectations, we examine the potential read-through for the Canadian banks with exposure to the U.S. lending business. Our key takeaways include:Decelerating net interest income growth a s

2、izable headwind for TD and BMO that likely gets worse: The U.S. comp groups that we examined for TD and BMO were consistent in reporting much weaker growth in net interest income as stable loan volumes did not compensate for sizable margin compression. Near-term margin guidance by several of the U.S

3、. banks called for more downside, which could be exacerbated by further rate cuts (the forward curve is pricing in a high probability of several cuts through 2020). TD is by far the most exposed among the Canadian banks to that growing headwind.Overall credit trends remained stable in Q3: Most of th

4、e U.S. banks we looked at reported loan loss provisions that were generally in-line with consensus expectations. As such, we dont expect much noise on the credit front for either TD or BMO with respect to their U.S. Personal & Commercial Banking exposure when they report their Q4-F19 results.U.S. Ca

5、pital Markets stability could be a modest positive for the Canadian banks, particularly RY: We believe that a slightly healthier U.S. business (at least relative to recent quarters) is a potential positive read-through for the much smaller Canadian marketplace. RY, which has by far the most exposure

6、 to the U.S. market (50% of RYs total Capital Markets revenue is derived in the U.S.), stands to gain the most.Based on what we saw from the U.S. banks in Q3, we are modestly reducing our F2020E EPS for TD (-1%), BMO (-1%), and CM (-0.3%). Our revisions are exclusive to each banks U.S. lending busin

7、ess and reflect: 1) slightly lower net interest margins vs our prior estimates;2) some tweaks to our U.S. loan growth assumptions; and 3) the adverse FX impact as the Canadian dollar has strengthened vs its U.S. counterpart (the C$ spot rate was 1.4% higher as of 10/25/2019 relative to the average r

8、ate during the Canadian banks fiscal Q4).In addition, we are making one rating change as we downgrade TD from Outperform to Neutral given its material exposure to the U.S. market (40% of earnings are from U.S. Retail and the TD Ameritrade contribution) and elevated level of sensitivity to further po

9、tential interest rate cuts by the Federal Reserve, which we believe would put meaningful pressure on the banks earnings growth. Beyond margin compression in U.S. Retail we also see downside risk to TDs AMTD contribution as AMTDs recently updated revenue guidance is based on a single rate cut by the

10、Federal Reserve, which could be skewing AMTD consensus higher. Our TP for TD declines to C$74 (from C$76) as we apply a slightly lower PE multiple on our F2020E EPS.TD currently trades at a 4% premium to its large-cap Canadian peers, only slightly below its historical average premium of 6%, and we d

11、o not see any meaningful relative upside for TDs shares in light of growing challenges for its U.S. business.Research AnalystsMike Rizvanovic416 352 4511 HYPERLINK mailto:mike.rizvanovic mike.rizvanovicJonathan Orford1 416 352 4637 HYPERLINK mailto:jonathan.orford jonathan.orfordLarge-Cap Canadian B

12、anksU.S. Bank Results Highlight Growing Challenges for TD and BMOLarge Cap Banks | Downgrade RatingDISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and se

13、eks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that couldU.S. exposure for the Canadian banks becoming less favorableFollowing Q3-19 results for U.S. banks that in most cases exceeded already-low

14、 expectations - a note which can be found in the Q3 U.S. banks quarterly wrap-up published by our colleagues, (Grading on the Curve.the Low Bar Made It Look Easier; 3Q19 Wrapped Up) - we are slightly revising our estimates for the large-cap Canadian banks with exposure to the U.S. lending business t

15、o reflect: 1) slightly lower net interest margins vs our prior estimates; 2) some tweaks to our U.S. loan growth assumptions; and 3) the adverse FX impact of a stronger C$ relative to the US$ (the C$ spot rate was 1.4% higher as of 10/25/2019 relative to the average rate during the Canadian banks fi

16、scal Q4). All told, our F2020 EPS estimates decline modestly for BMO (from $9.57 to $9.47), TD (from $7.01 to $6.94), and CM (from $12.23 to $12.19).In addition, we are making one rating change as we downgrade TD from Outperform to Neutral given its material exposure to the U.S. market and elevated

17、level of sensitivity to further potential rate cuts (our TP for TD declines to C$74, from C$76). We also see downside risk to TDs AMTD contribution as AMTDs recently updated revenue guidance is based on a single rate cut by the Federal Reserve, which could be skewing AMTD consensus higher. Note that

18、 our AMTD contribution estimates for TD are based on current AMTD estimates by our U.S. colleagues, which assumes three rate cuts by the Fed through 2020 (F4Q19 Earnings - Estimate Risk to Revenue Guidance - Reiterate Neutral) Below are some key themes in the U.S. banks Q3 results and the read-throu

19、gh for the large-cap Canadian banks.Decelerating net interest income growth a sizable headwind for TD and BMO that is likely to get worseFalling interest rates in the U.S. drove weaker growth in net interest income (NII) for the banking sector in calendar Q3-19. That is a negative read-through for s

20、everal of the large Canadian banks, particularly for BMO and TD given their outsized U.S. exposure. The comp groups for each of those two banks saw very weak Y/Y growth in NII. BMOs comp group reported a modest 1.9% increase from last year (Figure 1), although that was a much weaker 0.4% if we exclu

21、de FITB from the comp group, which had 19% growth due largely to its acquisition of MB Financial. TDs comp group had a similar result as NII in Q3 was down 1.4% from last year (Figure 2), or up a modest 1.0% if we exclude WFC, which had a sizable decline of 7.6% as the bank continues to adjust its b

22、alance sheet mix.Figure 1: BMO U.S. P&C Banking vs U.S. comp group: Y/Y growth in net interest income12.5%10.6%10.4%9.3%6.9%5.5%5.8%6.0%5.0%3.1%4.3%4.8%4.4%1.9%14%12%10%8%6%4%2%0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segmentNote: U.S. comps include PNC, USB, FITB, KE

23、Y, RF, STI, BBT, and CFG Note: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesFigure 2: TD U.S. Retail Banking

24、 vs U.S. comp group: Y/Y growth in net interest income11.5%11.2%9.9%10.1%8.1%7.5%6.5%4.1%5.6%5.7%5.7%2.1%2.7%-1.4%14%12%10%8%6%4%2%0%-2%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupTD U.S. Retail segmentNote: U.S. comps include BAC, C, JPM, PNC, USB, and WFCNote: Figures for the U.S. comps are

25、based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesNet interest margins (NIM) declined meaningfully in Q3-19 for both BMOs and TD

26、s respective comp groups. BMOs comp group saw an average sequential decline of 7bps (consistent with BMOs guidance for Q4-F19), while TDs comp group averaged an 11bps decline (Figures 3 and 4). With respect to the near-term outlook, several of the U.S. banks among the comps guided to further NIM com

27、pression in calendar Q4 (Figure 5). The regional banks generally had a more negative outlook on NIMs, which we believe suggests more risk for BMOs smaller business in the U.S. (relative to TD).Figure 3: BMO U.S. P&C Banking vs U.S. comp group: Net interest marginFigure 4: TD U.S. Retail Banking vs U

28、.S. comp group: Net interest margin3.30%3.25%3.20%3.15%3.10%3.80%3.77%3.71%3.71%3.69%3.26%3.26%3.24%3.25%3.21%3.61%3.21%3.46%3.14%3.37%3.70%3.60%3.50%3.40%3.30%5.00%4.95%4.90%4.85%4.80%4.75%4.70%3.33% 3.33%4.79%4.76%3.22%3.41%4.91%3.38%4.85%4.96%4.88%3.27%3.45%3.40%3.35%3.30%4.77%3.25%3.23%3.20%Q1-1

29、8Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segment (RHS)Note: U.S. comps include PNC, USB, FITB, KEY, RF, STI, BBT, and CFG Note: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Not

30、e: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesQ1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupTD U.S. Retail segment (RHS)Note: U.S. comps include BAC, C, JPM, PNC, USB, and WFCNote: Figures for the U.S. comps are based on a calendar quarter; for the Ca

31、nadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesFigure 5: Select U.S. banks NIM guidance for Q4-19BankGuidance for Q4-F19CFG FITB KEY PNC RF USBWFCNIM contraction ex

32、pected at a low er level relative to Q3-F19 NIM decline of 4-5bpsNIM to remain stableSome degree of margin compression expectedPressure on NIM expected (From current 3.44 to low 3.3s) NIM decline of 7-8bpsNIM degregation expectedSource: Bank management commentaryWith respect to the longer-term outlo

33、ok we continue to see risk of further margin compression as the forward rate curve is currently suggesting a relatively high 80% probability that the Federal Reserve will cut its benchmark target range at least twice by its December 2020 meeting and a 40% probability for at least 3 rate cuts by that

34、 time (Figure 6).Figure 6: U.S. Federal Reserve benchmark interest rate target range probabilities by the December 2020 meeting35.1%27.8%12.1%3.8%1.7%19.5%40%35%30%25%20%15%10%5%0%1.75% - 2.00%(current)1.50% - 1.75%(1 cut)1.25% - 1.50%(2 cuts)1.00% - 1.50%(3 cuts)0.75% - 1.00%(4 cuts)OtherSource: Co

35、mpany data, Credit Suisse estimatesAggregate loan growth for both U.S. comp groups was little-changed in Q3-19 (see Figures 7 to 12). Growth for BMOs comps was 6% Y/Y in the quarter or slightly lower than 5% if we exclude FITB, which benefitted from its recent acquisition. Growth for TDs comp group

36、remained in the 2.5% range, in aggregate, but was a slightly better 4% if we exclude JPM, which sold parts of its loan book. Commercial lending continues to outpace consumer loans for both BMOs and TDs respective comp group.We have slightly tweaked our U.S. loan growth estimates for both BMO and TD,

37、 although we continue to expect both banks to outpace industry peers in the near-term (more so for BMO as the bank sees further market share gains beyond its traditional footprint). While that is a clear positive, we also note the increased risk that outsized loan growth can bring to NIMs, which cou

38、ld potentially underperform U.S. peers in the coming quarters.Figure 7: BMO U.S. P&C Banking vs U.S. comp group: Y/Y growth in total average loans13.3%12.0%12.5%10.9%9.8%8.5%7.3%6.5%5.9%4.7%3.2%1.8%1.5%1.8%14.0%12.0%10.0%Figure 8: TD U.S. Retail Banking vs U.S. comp group: Y/Y growth in total averag

39、e loans6.1%5.8%4.8%4.7%4.2%3.1%2.4%2.6%2.2%2.3%2.4%1.9%1.8%1.9%7.0%6.0%5.0%8.0%6.0%4.0%2.0%4.0%3.0%2.0%1.0%0.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-190.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segmentU.S. comp groupTD U.S. Retail segmentNote: U.S. comps include PNC, USB,

40、FITB, KEY, RF, STI, BBT, and CFG Note: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesNote: U.S. comps include

41、 BAC, C, JPM, PNC, USB, and WFCNote: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesFigure 9:

42、BMO U.S. P&C Banking vs U.S. comp group: Y/Y growth in average consumer loans5.7%5.0%4.5%4.1%3.5%3.5%3.7%3.2%2.1%1.4%1.4%0.7%2.6%1.7%6.0%5.0%4.0%3.0%2.0%1.0%Figure 10: TD U.S. Retail Banking vs U.S. comp group: Y/Y growth in average consumer loans7.3%6.6%4.9%4.8%2.4%1.4%0.9%1.1%0.8%1.7%1.6%2.6%3.4%3

43、.4%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-190.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segmentU.S. comp groupTD U.S. Retail segmentNote: U.S. comps include PNC, USB, FITB, KEY, RF, STI, BBT, and CFG Note: Figures for the U.S. comps are ba

44、sed on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesNote: U.S. comps include BAC, C, JPM, PNC, USB, and WFCNote: Figures for the U.S. comps are base

45、d on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesFigure 11: BMO U.S. P&C Banking vs U.S. comp group: Y/Y growth in average commerci

46、al loans15.5%14.6%14.5%12.6%11.4%9.0%9.1%7.8%7.1%5.9%3.6%1.4%1.5%1.9%18.0%16.0%14.0%12.0%10.0%8.0%6.0%4.0%2.0%0.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segmentNote: U.S. comps include PNC, USB, FITB, KEY, RF, STI, BBT, and CFG Note: Figures for the U.S. comps are bas

47、ed on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesFigure 12: TD U.S. Retail Banking vs U.S. comp group: Y/Y growth in average commercial loans7.1%6

48、.7%5.9%3.8%4.1%3.5%3.7%2.9%2.5%2.4%2.1%2.6%1.9%2.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupTD U.S. Retail segmentNote: U.S. comps include BAC, C, JPM, PNC, USB, and WFCNote: Figures for the U.S. comps are based on a calendar quarter; for the Canadian ban

49、ks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesOverall credit trends remained stable in Q3Credit quality appeared stable for both U.S. comp groups overall, with loss ratios l

50、ittle-changed sequentially (Figures 13 and 14) and generally being reported in-line with consensus expectations. We also note that management commentary on credit was positive (“stability” was the word often cited as far as guidance). That is a modest positive and should translate into less noise fo

51、r TD and BMO in their respective U.S. lending segments when they report their Q4 results (Figures 13 and 14).Figure 13: PCL Ratio (BMO Peer Group)Figure 14: PCL Ratio (TD Peer Group)0.50%0.73%0.68%0.64%0.64%0.59%0.59%0.55%0.59%0.52%0.49%0.48%0.44%0.45%0.45%0.80%0.40%0.30%0.70%0.60%0.20%0.10%0.50%0.4

52、0%0.00%0.40%0.39%0.39%0.36%0.32%0.27%0.28%0.33%0.30%0.25%0.23%0.16%0.08%0.02%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupBMO U.S. P&C Banking segment0.30%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19U.S. comp groupTD U.S. Retail segmentNote: U.S. comps include PNC, USB, FITB, KEY, RF, STI, BBT, and CFG

53、Note: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For BMOs comps we use consolidated figures.Source: Company data, Credit Suisse estimatesNote: U.S. comps include BAC, C, JPM, PNC, USB, and WFCNo

54、te: Figures for the U.S. comps are based on a calendar quarter; for the Canadian banks calendar Q3-19 in the chart represents our Q4-F19 estimate. Note: For TDs comps we use U.S. segment figures, where available.Source: Company data, Credit Suisse estimatesWe do note, however, the potential for cred

55、it-related noise over the medium-term emanating from the Canadian banks U.S. exposure related to the oil and gas sector given the rising number of insolvencies being reported year-to-date (Figure 15).Figure 15: Number of bankruptcies declared by oil and gas companies in the U.S.372925211810403530252

56、0151050201420152016201720182019 YTDSource: Bloomberg, Credit Suisse estimatesU.S. Capital Markets stability could be a modest positive for the Canadian banks, particularly RYTotal revenue growth (core sales & trading and investment banking fees combined), in aggregate, for the large U.S. banks was j

57、ust shy of 6% in Q3-19, marking a strong improvement from the previous three quarters (Figure 16). Growth rates were a similar mid- single-digit range for both total core trading revenue and investment banking fees (Figures 17 and 18).Figure 16: U.S. large-cap banks Aggregate Y/Y growth in Capital M

58、arkets revenue 9.1%7.7%5.7%0.9%-5.1%-6.0%-10.9%15%10%5%0%-5%-10%-15%Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Note: Group includes BAC, C, JPM, GS, and MS.Note: Represents core sales & trading revenue and investment banking fees. Source: Company data, Credit Suisse estimates12.0%9.7%6.5%1.4%-4.3%-6.4%-14.0

59、%Figure 17: U.S. large-cap banks Aggregate Y/Y growth in core Equity and FICC trading revenue7.9%4.0%-0.3%-1.1%-2.8%-4.2%-10.0%Figure 18: U.S. large-cap banks Aggregate Y/Y growth in Investment Banking revenue15%10%5%0%-5%-10%-15%-20%Q118Q218Q318Q418Q119Q219Q31910%8%6%4%2%0%-2%-4%-6%-8%-10%-12%Q118Q

60、218Q318Q418Q119Q219Q319Note: Group includes BAC, C, JPM, GS, and MS. Source: Company data, Credit Suisse estimatesNote: Group includes BAC, C, JPM, GS, and MS. Source: Company data, Credit Suisse estimatesFor trading revenue specifically, the FICC category (fixed income, currencies, and commodities)