Canadian bank earnings season begins this week, with investors watching whether capital markets and wealth management growth can offset sluggish loan demand and rising geopolitical uncertainty.
BNN Bloomberg spoke with Matthew Lee, equity research analyst at Canaccord Genuity, about earnings expectations for Canada’s largest banks, the importance of U.S. exposure and why investors are increasingly focused on return on equity and long-term growth.
Key Takeaways
- Capital markets, investment banking and wealth management are expected to be the largest contributors to earnings growth this quarter as loan demand remains slow.
- U.S. exposure is increasingly viewed as an advantage for Canadian banks because of stronger economic growth and a more stable credit backdrop than other international regions.
- International operations outside the United States could face additional pressure from higher fuel costs, weaker consumer spending and slower loan growth tied to Middle East tensions.
- Investors are placing greater emphasis on return on equity and long-term earnings growth as Canadian bank valuations rise above U.S. peers.
- Analysts expect continued differentiation among Canada’s largest banks based on geographic exposure, trading operations, wealth management performance and credit quality.
Read the full transcript below:
LINDSAY: Second-quarter Canadian bank earnings get underway tomorrow, starting with BMO and Scotiabank. Valuations now surpass their U.S. peers, but is the setup that much better for Canadian banks? Let’s get some perspective now from Matthew Lee, equity research analyst at Canaccord Genuity. It’s great to have you join us.
MATTHEW: Hey, thanks for having me on.
LINDSAY: How do you see the overall environment right now for Canadian banks?
MATTHEW: Yeah, it’s very positive, actually. I mean, if you think about the fundamentals of the business, we’re in a situation where capital markets are excellent, credit is relatively benign, but not improving. Loan growth is still slow, but overall operating leverage is positive. So what you’re getting is a lot of earnings growth on top of buybacks.
LINDSAY: What do you see as the main drivers for the potential earnings growth that we could see coming out this week?
MATTHEW: Yeah, I mean, I think the number one thing you have to think about is capital markets, right? A lot of this geopolitical oscillation helps trading revenues because it creates a lot of movement in the markets. The other side of that, too, is investment banking. Over the last year, year and a half, we’ve had a lot of people sit on their hands and wait to do transactions because they weren’t sure about tariffs and they weren’t sure about geopolitics. I think there’s a lot more demand for M&A and a lot of demand for raising equities, so you’re seeing both of those businesses thrive. Wealth management, as well, has been a very strong part of the business. Obviously, equity markets have been constructive overall. That does help with AUM growth.
LINDSAY: When it comes to M&A expansion in general, do you think Canadian banks should prioritize expanding their U.S. operations over other international markets?
MATTHEW: Yeah, it’s a great question. I would say that overall M&A is probably out of favour right now. There’s a great focus on ROE, return on equity, in the Canadian banks, and I think that’s a great thing to see occurring right now. ROE is fundamentally the basis for better profitability, so to have better ROE is always an improvement. What I’d say right now is that there is definitely a better economic environment in the U.S. versus some of the other international businesses that these banks have. That being said, I don’t think I’m necessarily pushing for additional M&A.
LINDSAY: To what extent is the ongoing conflict in the Middle East a factor here? Is it a key driver of credit provisioning for banks moving forward?
MATTHEW: I think so, and I think specifically for those that have international exposure outside of the United States. If I think about global economies that maybe have lower GDP per capita and import fuel, like Chile for BNS or Cambodia for National, those places are probably a little more challenged. It’s going to happen in two phases, right? First, it’s going to be credit and provisioning, to your point, but also loan growth. Loan growth will be slower if the consumer is more pinched and corporations don’t want to invest.
LINDSAY: Okay, so I do want to go through the banks and get your expectations for each of them. You’ve got Bank of Montreal at a buy at the moment. What do you expect from earnings results from BMO?
MATTHEW: Yeah, I think all the banks across the board are going to report strong earnings again, going back to capital markets. But with BMO specifically, what we’re looking for is more colour on their ROE trajectory. BMO’s great story right now is that they’re going to have this bridge to 15 per cent ROE by the end of 2027 into 2028. If you think about ROE exiting 2025, it was around 12 per cent, so that’s a huge amount of earnings growth just from blocking and tackling and doing the right things. We’re interested in hearing more about that.
LINDSAY: Bank of Nova Scotia is the next one. You’ve got this at a hold at the moment. What about Bank of Nova Scotia? Anything stand out to you?
MATTHEW: Yeah, I mean, look, BNS has executed well, but I think the international exposure, like I talked about before, is a big risk at this point. Not that it’s necessarily going to blow up, but the fact of the matter is you have to be more cautious when you think about BNS because that international exposure could be a challenge.
LINDSAY: Canadian Imperial Bank of Commerce, you’ve got that one at a hold, too.
MATTHEW: Yeah, I mean, I like CIBC. I like what they’ve done. I think in the personal bank and the commercial bank specifically, they’ve done a very good job. My challenge with CIBC is more about valuation versus growth. Where do you find that next leg of growth for CIBC? Where do you find that next ability to push up revenue and earnings? I think that’s the question for CIBC.
LINDSAY: Next up is National Bank. You’ve got this one on hold as well.
MATTHEW: Yeah, I mean, National Bank is very expensive, and for good reason. They’ve done very well in trading and they’ve done very well in wealth. I would say that the two markets they’re most exposed to, Quebec and Alberta, are both very strong. So the fundamentals for National are good, but it is very expensive. It’s the most expensive of the six Canadian banks, and to me that gives me a bit of pause.
LINDSAY: Royal Bank of Canada, what do you think? You’ve got this one at a buy.
MATTHEW: Yeah, I do. Royal has always been a premium valuation-for-premium-ROE story, and I think that’s still going to be the case. Frankly, I think their exposure to the U.S. on the capital markets side gives them a leg up, even against peers in Canada. That being said, I think they still have to figure out another way to add an additional leg of ROE growth. That’s the question for Royal.
LINDSAY: And then last up is TD. You’ve also got that at a buy.
MATTHEW: Yeah, I mean, I really like TD. I think they’re executing well. They went through a lot of trouble with AML a couple of years ago, and they’ve come out of that. They’ve been repositioning their U.S. book and doing a really good job managing the Canadian bank. I talked about this last quarter, too, but they have a massive retail footprint. Converting that retail footprint into wealth relationships, commercial banking relationships, deposits and loans, I just think TD is in an advantaged position on that front.
LINDSAY: It’s interesting. When you look at all six of these banks, there’s really not that much that’s different about them, right? Is there ever going to be a time when we start to see some banks gain more ground or see more growth than others within the category of the Big Six in Canada?
MATTHEW: I would push back on that a little bit. I’d say there’s actually quite a bit of difference between them in terms of how they’re positioned from an earnings perspective. U.S. exposure is a big difference. BMO and TD have large U.S. exposures, while BNS has international exposure outside the U.S. That’s a big difference. The U.S. business isn’t a small piece for BMO either — it’s about 30 per cent of earnings. So there is differentiation. But I would agree that the core business — lending, borrowing, capital markets and wealth — is fundamentally the same. I don’t think you’re ever really going to deviate from that. To take a phrase from sports, it’s a copycat league. As one bank does one thing successfully, the other banks will try to do the same thing. I think we’ll continue to see that probably for decades.
LINDSAY: Okay, we’ll leave it there. Matthew Lee, equity research analyst at Canaccord Genuity. Always good to have you on. Thanks so much.
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This BNN Bloomberg summary and transcript of the May 26, 2026 interview with Matthew Lee are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
