Canadian banks expect subdued 2020 after dismal quarter wipes $15 billion of value

By Nichola Saminather

(Reuters) - Canadian banks are bracing for another year of muted earnings growth after disappointing quarterly results erased about C$21 billion ($15 billion) from their market values in the past week and closed out the worst year for profit expansion since the financial crisis.

Toronto Dominion Bank, Canada's largest bank by assets, and Canadian Imperial Bank of Commerce were the last of the top six lenders to report on Thursday. Both missed analysts estimates, sending shares sliding.. For stock action.

Canadian banks are facing rising loan loss provisions and limited appetite for dealmaking as economic uncertainties mount. Oil price declines and decade-high consumer insolvencies in Canada are also creating headwinds.

"Certainly, the days of robust growth for banks are over," said Barry Schwartz, chief investment officer at Baskin Asset Management, who forecasts 3% to 5% earnings growth in fiscal year 2020. "A lot of the growth we saw over prior years was really a recovery from such terrible environments coming out of the financial crisis."

Since Bank of Nova Scotia kicked off fourth-quarter reporting on Nov. 26, the Canadian banks index has lost 4%, compared with Toronto stock benchmark's 1.3% decline.

Many banks said they expect 2020 earnings growth to match the 3% to 4% expansion achieved in fiscal 2019, rather than their medium-term growth targets of at least 7%.

Earlier in the year, faster growth in Canadian banks' U.S. units helped offset a slower pace at home, said Bryden Teich, portfolio manager at Avenue Investment Management. But slower U.S. expansion more recently, and challenges in other segments like capital markets, will continue to weigh into 2020, he said.

Pressure on net interest margins in the United States could ease as the Federal Reserve pauses rate cuts following three reductions this year. Canada faces the prospect of lower rates if global trade uncertainties escalate, which could pressure margins at home.

As growth slows, banks are seeking to increase longer-term efficiencies through investments in new technologies, and undertaking restructures, which is lifting short-term costs.

"Banks are in a slow-growth environment but are having to continue making these investments," Teich said.

Despite the challenges, Schwartz said Canadian banks are still worth holding as they are attractively valued.

Canadian banks are trading at between 9.3 and 11.3 times forward earnings, compared with valuations of over 12 times earnings for some of the biggest U.S. banks.

"Where will you find 3-5% dividend (yield and growth in 2020) at 10 times earnings?

(Reporting by Nichola Saminather in Toronto; Additional reporting by Abhishek Manikandan and C Nivedita in Bengaluru; Editing by Vinay Dwivedi and Steve Orlofsky)