(December 12 – 16:45 ET) – Merrill Lynch is looking forward to an exciting year in Canadian banking in 2001, and taps National Bank as a top pick.

Merrill says that revenue at Canadian banks revenue grew 11% in 2000, with earnings up 24% and stock prices up 40%. Although the earnings picture doesn’t figure to be as rich in the coming year, Merrill says, “2001 should be exciting as investors anticipate passage of merger-enabling legislation. Intra-group mergers and extra-group spinoffs should be highly topical subjects.”

The brokerage firm believes the banks should benefit from improving core loan spreads and operating leverage as well as lower taxes. The risks faced by the banks include the capital markets, credit weakness and possibility of a hard landing in the U.S.

Merrill taps National Bank as a “compelling value”, noting that within Quebec, it has more than 20% market share in retail banking and wealth management, and more than 40% in commercial banking.

Merrill also likes National Bank’s reliance on stable retail revenues, and its strong credit profile thanks to limited U.S. corporate loan exposure. “We have been signaling a clear positive bias for future earnings revision for three reasons — improving retail price discipline in core markets, positive operating leverage, and an aggressive cross-selling campaign.”
-IE Staff