over the coming months as investors look past the benefit of higher net interest income and look ahead to the possibility of slowing economic growth and elevated credit risk in a rising rate environment,” D’Souza wrote. Although the analyst recommended clients to buy shares in the Bank of Montreal, he trimmed his price target from the previous $170 to $159 per share.
According to D’Souza, considering past experience, banks could be heading for an “inflection point” following an intimal bid up of shares by investors as central banks signalled the end of rock-bottom interest rates. He pointed to how forward price-to-earnings multiple of Canadian banks reached about 12.0x before slumping back to 9.0x before the Bank of Canada started raising its main policy rate in 2017. A similar story is expected to play out this time, he said. “While the rally may continue in the short-term, the sector is likely approaching an inflection point where economic and credit risks related to rising rates outweigh benefits,” he added.
