Leafs' Stanley Cup Win More Likely Than Any Bank Slump, NBF Says

(Bloomberg) -- It’s more likely that the Toronto Maple Leafs hockey team will end their 52-year championship drought than Canada’s banks will suffer a spike in loan losses -- as some short-sellers are claiming, according to one Bay Street analyst.

National Bank of Canada was quick to defend bank stocks shortly after Steve Eisman said this week he’s shorting Royal Bank of Canada, Canadian Imperial Bank of Commerce, and Laurentian Bank of Canada. Eisman says the lenders aren’t setting aside enough money for loan losses.

Eisman, the money manager who foresaw the collapse of the U.S. housing market, is now predicting a “20 percent plus" decline for Canadian bank stocks as credit conditions “normalize” and loan losses jump.

"A trend that is making us believe that sector sentiment is becoming too bearish is the re-emergence of a vocal ‘short Canada’ investment crowd," analyst Gabriel Dechaine told clients in a note Wednesday, adding that certain claims have been "bold (and in some cases nonsensical).”

Normalization

Dechaine says the Leafs have a better chance of winning the National Hockey League championship than for Eisman’s call to bear out. Eisman’s forecast for a “normalization” of the sector’s loan-loss ratio to 100 basis points, or 1 percent, would be well above the recent peak of 83 basis points during the financial crisis in 2009, Dechaine said.

Even in that scenario, the banks would remain profitable and could maintain dividend payout ratios, he said.

READ MORE:
Top Bear on Canadian Banks Rings Alarm Again, Cuts BMO to Sell
Great White Short May Be Back for Canadian Lenders With 19% Rise

--With assistance from Doug Alexander.

To contact the reporter on this story: Michael Bellusci in Toronto at mbellusci2@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, David Scanlan, Jacqueline Thorpe

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