Bay Street Week Ahead-Big banks may get bruised again

By Lynne Olver

TORONTO, May 9 (Reuters) - Most Canadian banks will show further bruises from the credit-market crunch when they issue quarterly reports in two weeks' time, and even solid results from their domestic banking units may not be enough to match last year's stellar earnings.

Canadian banks are widely seen as able to handle additional writedowns for U.S. structured finance investments or exposure to U.S. bond insurers, but other pressures will erode second-quarter earnings.

"Our thesis is that we're approaching the later innings of the asset-writedown stage, and the next big headwind for the banks as a whole is going to be loan-loss provisions," said Craig Fehr, an analyst with Edward Jones.

Concerns about further asset writedowns are already priced in to bank stocks, Fehr said, but all of the banks will have to increase the amounts they set aside for loan losses.

In retail banking, loan originations and margins likely declined, he said in an interview.

The big Canadian banks start reporting results for the February-April quarter on May 27, with Bank of Montreal (BMO.TO: Quote, Profile, Research) and Bank of Nova Scotia (BNS.TO: Quote, Profile, Research) kicking off this round.

Genuity Capital Markets analyst Mario Mendonca took some heart from first-quarter results posted this week by HSBC Bank Canada, a unit of HSBC Holdings Plc (HSBA.L: Quote, Profile, Research).

Its provisions for credit losses, although up significantly from a year ago, were little changed from the previous quarter. Not surprisingly, capital market fees declined, Mendonca noted.  Continued...