12:01 PM EDT, 05/13/2025 (MT Newswires) -- The Big Six Banks begin reporting fiscal second quarter earnings on May 22. With tariff risks, concerns of economic slowing and geopolitical undercurrents, credit quality performance and the forward look will be of utmost importance to investors. Heightened macro and political uncertainties remain a bit of an overhang on the group which has underperformed the TSX by ~325 bps year-to-date, UBS notes.

The brokerage is expecting second-quarter adjusted cash EPS to be 2% lower year-over-year. Pre-provision pre-tax earnings (PTPP) is expected to rise by ~15% year-over-year, and decline by ~3% sequentially.

UBS estimates are slightly above second-quarter EPS consensus on CIBC, RBC and TD; roughly in line on National Bank, and slightly below consensus on Scotiabank and BMO.

The analysts expect strong results from RBC highlighting strength across NII and fees and the expectation that credit quality remains resilient which will support to its premium valuation.

On CIBC, UBS expect PPPT and credit quality resilience with shares reflecting relative strength (trading at 11.2x or a 2% discount to the group and better than its 10-year average 10% discount).

TD is expected to have a good quarter with actions taken in U.S. Retail a positive, while expectations for good results across business segments, including Wholesale Banking--coupled with healthy buyback activity although this in context that TD has been the best performer in the group year-to-date (+16% YTD vs. down 3% for its peers).

National Bank's PPPT strength will be helped by Financial Markets, but UBS expects eyes will be on credit quality (GILs and PCLs). Later this year, UBS anticipates details on CWB revenue synergies and capital optionality which will provide additional EPS and valuation support for National Bank.

BMO has modestly outperformed the group YTD and trades at 11.9x P/E (4% premium and above its 1% 10-year average); valuation in context of its trajectory on credit quality (tariff and macro uncertainty likely pushes out a more meaningful PCL inflection) and loan growth commentary which called for acceleration in H2 2025 (likely softer) perhaps suggests a more challenging setup into the quarter.

Lastly, Scotiabank has been the worst performer in the group (-8% year-to-date) and trades at the widest P/E discount to the peer average (16% discount versus its historical discount of 5%) amidst tariff threats and its presence in both Canada and Mexico, notes UBS. Manageable credit quality trends, resilience in PPPT trends and constructive forward look despite macro headwinds would be supportive of the shares and serve to close the meaningful valuation discount.

With credit quality uncertainty and slowing loan growth; and any earnings beat likely driven by better trading revenues and viewed as less 'repeatable, valuations for the group look relatively full at 11.5x NTM P/E and above the 10-yr average of 10.7x, writes UBS. "While we are bit more cautious on the outlook for the stocks presuming credit costs are rising near-term, we recognise the relative sturdiness of PPPT and strength of balance sheets (allowances bolstered and CET1 ratios >13%) which keeps these stocks in a range."

UBS sees ~10% total return potential on average across the Big Six banks; more significant upside relies on credit quality resilience first and foremost, followed by revenue momentum, efficiency gains and capital return.

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