Analysts cut targets as new CEO faces housing weakness and credit strains
EQB Inc. shares fell by as much as 13 percent on Thursday, marking the steepest intraday drop since 2020, after the bank set aside 60 percent more for potential loan losses than a year earlier, according to Bloomberg.
The stock closed down 11.21 percent at $90.25 on the Toronto Stock Exchange on Thursday, as reported by Yahoo Finance.
The lender’s adjusted diluted earnings per share came in at $2.07, down from $2.96 a year ago and well below the $2.53 consensus estimate, Yahoo Finance noted.
Adjusted net income fell 32 percent year over year to $80.3m, while adjusted net interest income slipped 6 percent to $254m. Net interest margin narrowed to 1.95 percent.
Provisions for credit losses increased to $34m, ahead of analyst expectations of $27m, as per Yahoo Finance.
Chief Risk Officer Marlene Lenarduzzi told analysts that high unemployment and interest rates have historically driven more defaults, particularly in the Greater Toronto Area, where house prices have dropped 25 to 30 percent.
“We are well aware of those pockets and are monitoring them, and we do have appropriate levels of provisions to account for that,” she said, reported by Bloomberg.
The weaker performance put EQB at odds with the Big Six banks, most of which reported stronger earnings this week due to lower provisions, according to Bloomberg.
National Bank Financial analyst Gabriel Dechaine described EQB’s results as a “big miss.”
Scotia Capital analyst Mike Rizvanovic said they were “weak across key metrics,” pointing to sluggish loan balances, a declining net interest margin, and “elevated” credit provisions across the portfolio, as reported by Yahoo Finance.
Jefferies Financial Group analyst John Aiken downgraded the stock to “Hold” from “Buy” and cut his price target to $107 from $119, warning clients that credit strains and leadership changes cloud the near-term outlook.
“While its business model is far from broken, we do not expect to see any immediate solutions to the pressures it currently faces,” Aiken wrote in a note cited by Yahoo Finance.
CIBC’s Paul Holden noted that EQB’s revised 2025 return-on-equity guidance of 11.5 percent falls short of its 15 to 17 percent target, while Royal Bank of Canada reported 17.3 percent in its latest quarter.
New CEO Chadwick Westlake said the higher target remains a “north star,” but added that restoring profitability will depend on reviving growth in core lending and regaining what he described as the bank’s “traditional best-in-class” efficiency ratio, as reported by Yahoo Finance.
The quarter also marked the leadership transition following the unexpected death of CEO Andrew Moor in June.
Westlake, previously EQB’s CFO before a brief tenure at OpenText, assumed the role on August 25.
EQB appointed Anilisa Sainani, formerly with Royal Bank of Canada, as its new CFO last Wednesday, Bloomberg reported.
Despite the earnings miss, EQB raised its quarterly dividend to 55 cents per share, up 17 percent from last year, as reported by Yahoo Finance.
