Real estate loan losses are expected to be the next bump in the road for Canadian banks, with Bank of Montreal downgraded by an analyst Monday over concerns with its U.S. credit exposure.
Bank of Montreal stands out from domestic rivals due to its large corporate and retail banking operation in the U.S. Midwest – the Harris Financial's footprint is referred to as Chicagoland in banking circles. That region has been hard hit by the U.S. downturn. In knocking down his forecast 2009 earnings for the bank by 10 per cent yesterday, Genuity Capital Markets analyst Mario Mendonca said he anticipated problems in the bank's U.S. home equity line of credit and commercial real estate loan portfolios.
Bank of Montreal stock has outperformed rivals recently and Mr. Mendonca flagged the fact that stock now trades at a modest 3 per cent discount to the peers, up from a 10-12 per cent discount throughout most of 2008. He moved from a 'hold' to an 'underperform' recomendation on the bank.
