Canadian banks too rich after searing 66% run, Jefferies says

By Stephanie Hughes

(Bloomberg) — Canada’s biggest bank stocks are running out of runway as valuations have fully priced in future growth, according to analysts with Jefferies Securities Inc.

Canadian lenders currently trade at an average of 15.3 times their projected earnings over the next 12 months, 50% above the historical average, analyst John Aiken wrote in a Wednesday note. The ratio eclipses the previous high of 13.5 seen in February 2006.

Banks jumped 66% in the year ended June 30 — led by Toronto-Dominion Bank’s 72% gain — more than double the S&P/TSX Composite’s 30% rise.

Aiken doesn’t see the stocks plunging imminently, but said the current rally can’t last.

“In our view, the Canadian banks are overvaluing future growth and potential upside,” he wrote. “Although near-term growth is currently attractive, we believe these levels are unsustainable in perpetuity, and valuation should eventually revert to historical mean.”

The S&P/TSX Composite Banks subindex was down 2.6% shortly before 11:30 a.m. in Toronto — the biggest intraday drop since April 2025 — amid a broader selloff in North American equities.  

Other metrics point to the historic nature of the banks’ run-up. The banks subindex rose 114% between June 2024 and June 2026, its strongest two-year run between those months since the group gained 145% between 1996 and 1998. 

The sector’s price-to-book ratio has jumped to a heady 2.6 times from about 1.6 times a year ago, according to data compiled by Bloomberg.

Even if the banks meet expectations for earnings per share growth, Aiken said, current valuations imply most bank shares would need to fall about 20% to 30% over the next 12 months to match historical levels, assuming estimates are unchanged.  

The six biggest Canadian banks beat earnings estimates in the second quarter thanks to soaring capital markets profits, with net income growing by 27% on average. Ahead of third-quarter results, analysts have expressed concerns over consumer loan losses and slower loan growth amid economic uncertainty. 

–With assistance from Christine Dobby.

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Last modified: July 8, 2026