Ahead of the Bell: Canadian banks

An RBC Capital Markets analyst said Monday that three Canadian banks will face more pressure on their profits, and he downgraded shares of Canadian Imperial Bank of Commerce and Toronto Dominion Bank.

Analyst Andre-Philippe Hardy said he holds a cautious view on the sector in light of relatively high stock prices, and believes the banks may have to lower expectations. He downgraded Toronto Dominion Bank shares to "Sector Perform" from "Outperform" and CIBC shares to "Underperform" from "Sector Perform."

Hardy holds a price target of $69 per share on TD Bank shares, which closed at $70.85 Monday. He thinks loan losses in U.S. banking will probably increase, and capital markets revenue may also decline.

He said profits from CIBC's wholesale division will decline as the company reviews that business, where it will look to lower risks. He cut his price target to $64 per share from $67, both below Monday's closing price of $68.73.

Hardy said both banks are suffering due to problems at their Canadian retail banking units, where CIBC has posted weak growth and TD Bank is dealing with expenses that are hurting profits. But Bank of Nova Scotia's Canadian retail business is doing well, and he upgraded that stock to "Sector Perform" from "Underperform."

He wrote that the company's international banking unit is also improving, and raised his target price to $49 from $46. Bank of Nova Scotia shares ended Monday trading at $50.25.