Scotia Capital analyst Mike Rizvanovic upgraded Bank of Montreal to 'sector outperform' from 'sector perform' with a target price of $234, up from $209, while downgrading Canadian Imperial Bank of Commerce to 'sector perform' from 'sector outperform' with a $155 target, falling from $159. According to Rizvanovic's analysis, BMO's upgrade is premised on strong potential lending volume upside in the U.S. with optimization now complete, clear momentum in the bank's ROE trajectory which improved to 13.5% this past quarter, and higher upside potential on EPS growth driven by momentum in the U.S. business. The analyst noted that while he still has a favorable view on CM's medium-term outlook, the bank's roughly 2-year stretch of consistent outperformance relative to peers is set to moderate given diminishing NIM upside and more exposure to the lending market in Canada.
Canada's six largest banks delivered strong second-quarter earnings that comfortably exceeded analyst expectations, but the market response was muted. According to reports from Financial Post, Canadian Imperial Bank of Commerce declined 5.3% and National Bank of Canada fell 4% on earnings day, while shares of the other four banks remained relatively flat. Analysts had anticipated this subdued reaction, as bank share prices have surged significantly over the past year, raising concerns about potential overvaluation. Rizvanovic noted that as of May 28, 2026, the large Canadian banks traded at an average P/E multiple of 14.2 times, which is well above the group's 10-year historical average of 11.2 times, reflecting stretched valuation multiples that limit meaningful share price upside despite favorable current market dynamics.
The market's lukewarm response reflects broader concerns about bank valuations and macroeconomic conditions. As reported by Financial Post, John Aiken, an analyst at Jefferies Inc., explained that "it would have taken a lot to garner any outside positive reaction, just because of where we sit with the macro, as well as the bank valuations." Rizvanovic acknowledges that valuation multiples have become stretched, reflecting a lot of positives in the near-term outlook and suggesting that consensus EPS estimates are still too low. However, he believes current market dynamics remain favorable for the group, making it possible for further upward EPS revisions in the quarters ahead, which will help keep valuation multiples well above historical levels for the time being, particularly with credit costs still looking to be very manageable.
Provisions for credit loss (PCLs) emerged as a key factor in share price movements, particularly affecting CIBC and National Bank of Canada. According to Financial Post, CIBC kept aside a higher amount of money to tackle impaired loans, with PCLs coming in 14% above forecast. Gabriel Dechaine, an analyst at National Bank of Canada, noted that "upward pressure came from the Canadian personal banking segment due mainly to higher losses on cards and unsecured personal loans." The analyst warned that "with increasing scrutiny of Canadian consumer financial health, this quarter's performance could weigh on sentiment for the foreseeable future."
National Bank of Canada faced particular pressure from margin compression, with sequential net interest margin (NIM) declining by eight basis points. As reported by Financial Post, Paul Holden, an analyst at CIBC World Markets Inc., described it as "an overall solid quarter other than the downside surprise on NIM." The bank's expense growth was also elevated during the quarter, which stood out negatively in a period when most banks were generating near record operating leverage.
Despite the overall market reaction, some banks showed resilience. According to Financial Post, Bank of Montreal's share price increased by 0.84% on earnings day, representing the highest gain among the Big Six. However, analysts noted that BMO's reliance on capital markets may still concern some investors. Gabriel Dechaine highlighted positive elements including a rebound in United States loan growth and better-than-expected credit performance, while Mario Mendonca from Toronto-Dominion Bank emphasized CIBC's strong capital position and improving loan growth despite the share price decline.
