by: FP Trading Desk posted on: August 20, 2007 | about stocks: BNS / CEF / EWC / RY    

The credit crunch and subprime problems have put Canadian bank stocks in the spotlight. But while they look like they are less vulnerable to the subprime mortgage market than their U.S. counterparts, nobody knows what the spillover effects will be, says RBC Dominion Securities analyst Nadine Eugene.

Nonetheless, she thinks Canadian banks look better than those in the U.S., with return-on-equity and net margins for names in the S&P/TSX composite index showing positive trends and rewarding investors of Canadian names, and S&P 500 banks doing the opposite.

So don’t be fooled by price-earnings ratios, Ms. Eugene warns, pointing out that forward multiples for Canadian and U.S. banks are trading at similar levels.

In Canada, the banks’ net margins – considered a key driver of better profits – are at 20-year highs, she told clients in a note.

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