TORONTO (Reuters) - A strong first quarter for U.S. bank profits should bode well for Canadian lenders when they begin releasing their second-quarter results next month, an analyst said on Friday.
The Canadian banks' second quarter runs from February to April, overlapping the final two months of the U.S. banks January-March quarter.
"While net interest margins remain under pressure amidst a persistent low interest rate environment, asset growth continues to hold steady, and credit quality remains a valuable earnings tailwind for the U.S. banks," Barclays Capital analyst John Aiken said in a note.
"Also underscoring potential distinct positives for the Canadian banks' Q2, capital markets revenue performance strengthened in the quarter, with both advisory and trading coming in better than expected."
Canada's big banks reported strong profits last year, with several posting record full-year results. But narrow interest margins, a cooling housing market and sluggish business lending have lowered expectations for revenue in 2012, meaning bank investors will welcome good news on the markets revenue side.
Aiken noted that Canadian banks may have already benefited from this during January, the final month of their first quarter.
With the U.S. financial sector rebounding from its 2009 post-crisis lows, it's unlikely that even a strong quarter from the Canadian banks will reverse a recent trend that has seen U.S. bank stocks outperforming their Canadian counterparts, he said.
U.S. bank stocks as a group are up 31 percent so far this year, compared with an 8 percent rise for the top 6 Canadian banks.
"We do not expect the Canadian banks' second-quarter earnings to reverse this valuation trend," he said.
The Canadian banks will begin to report second-quarter results in late May.
Reporting By Cameron French; Editing by Peter Galloway