BNS and RBC expected to be winners in next decade
November 16, 2010
Canadian banks are at a crossroads. Faced with tougher regulatory rules, a difficult economy and a host of other challenges, players are scrutinizing their crystal balls as they plot their way forward in an environment quite unlike anything they have experienced.
According to UBS analyst Peter Rozenberg, the best way to pick winners of the coming decade is with traditional yardsticks of past performance.
After reviewing 10 years of historical data, Mr. Rozenberg found that while its helpful to look at measures such as provisions for credit losses and product mix, more important contributors to future performance are likely to be growth in earnings per share and return on equity.
“We also used ‘reported’ data as opposed to our usual convention of ‘core’ data, which excludes one-time items,” he said in a note to clients. “While core data is better for establishing trend earnings and valuation, we think reported data provides a better measure of real returns and capital management, over a long period of time.”
The winners? Bank of Nova Scotia and Royal Bank of Canada are best positioned to come out on top, Mr. Rozenberg said.
BNS is at the top of the list because of its geographic diversification and focus on emerging markets in Asia and South America, providing “the best opportunities for capital deployment.”
The Royal comes a close second due to its track record of “superior organic growth,” lower costs and dominant business position.
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