The Globe and Mail reports in its Tuesday edition that the operating environment for Canadian banks is looking better. The Globe's David Berman writes that the banks are enjoying surging cash levels that will underpin dividend increases, subsiding credit risks and rising bond yields that will make loans more profitable. Bank of Montreal is first, on Wednesday, to report its financial results. Expectations are high. Bank stocks have rallied to record levels this year, with average gains of 23 per cent year to date. Those are about double the gains for the S&P/TSX Composite Index over the same period. As well, last quarter's profits, released in February, exceeded analysts' estimates by a remarkable average of 26 per cent, raising hopes for another blowout quarter. Analysts, however, remain cautious. "As we get set to enter another Canadian bank earnings season, we have to acknowledge that in many respects [the first quarter] will be a tough act to follow," Meny Grauman, an analyst at Bank of Nova Scotia, said in a note. He expects that second-quarter operating profits for the Big Six will rise just 2 per cent from the first quarter, weighed down by fewer interest-earning days this quarter and slow loan growth.
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