Another year of divergence expected for Canada's banks, but 'nothing too wild,' says Fitch

financialpost.com:

How Canada’s top banks perform in the United States will play a key role in how investors view them in the coming year, say Fitch Ratings Inc. analysts, who expect the recent differences in valuations between the Big Six lenders to continue instead of the sector trading as a group.

Each of the six lenders has pursued a “completely different” approach to succeed in the U.S. market and now is the time to assess whether those strategies are going to achieve the returns the banks expect, Maria-Gabriella Khoury, Fitch’s senior director of North American banks, said at a webinar on Thursday.

“The U.S. is a costly market, both in terms of dollars and in terms of management time,” she said. “We have to wait to see whether these strategies will pan out the way management wants them to pan out.”

Canada’s big banks have traditionally been viewed as “safe and conservative” to invest in, without a “ton of differentiation” among the top five names, Fitch analyst Peter Simon said at the webinar.

But their differences in performance and valuations in the last quarter were much wider than what analysts have become accustomed to seeing, TD Securities analyst Mario Mendonca said in a note in August.

Bank of Montreal missed analysts’ estimates, while Canadian Imperial Bank of Commerce, Royal Bank of Canada and National Bank of Canada comfortably beat them. Bank of Nova Scotia’s results were in line with expectations, but Toronto-Dominion Bank posted a rare loss as it tries to resolve its anti-money laundering issues.

Analysts attribute this divergence to the banks’ performance outside Canada, especially in the U.S.

Khoury said RBC has tried to “double down on what it does best,” which is high-net-worth private banking, while TD “went the