BY ROBERT LAM , CFA , CPA , C A
Q: WHAT HAS BEEN DRIVING STRONG CANADIAN BANK PERFORMANCE?
A: The five Canadian banks held in Cardinal’s portfolios have returned an average of 70% for the one year period ended June 30, 2026. The exceptional performance of the group has been due to a combination of strong earnings growth and an expansion in the group trading multiple.
The five banks averaged 16% earnings growth in fiscal 2025 with a similar level of earnings growth expected in fiscal 2026 supported by improving margins, robust capital markets activity, and record wealth management results helped by buoyant equity markets.
Optimism around the economic outlook for Canada from national infrastructure projects are lifting expectations for economic growth that should, in turn, support an acceleration in lending and better credit results for the group. OSFI, the banking regulator, also provided good news to the group in lowering capital requirements giving rise to optimism for deployment of capital levels currently sitting near all-time highs for the group.
In aggregate, the positive elements all come together to provide a constructive outlook for the fundamentals and growth for the banking group, which has led to an expansion in the group multiple that currently sits at 15.4x expected fiscal 2027 earnings – the highest level the group has traded at in its history.
Overall, while we remain confident in the outlook for Canadian bank operations, we have been opportunistically trimming our bank positions at current valuations to diversify some of the concentration and to allocate to other areas that we see good opportunities in for upside.
