Canadian Western Bank (TSX:CWB) is a difficult bank to analyze for a number of reasons. A regional lender, Canadian Western Bank is exposed to the market forces driving certain geographical areas much more than the largest Canadian banks which tend to be fully diversified across Canada. The bank’s heavy reliance on Alberta, for example, has hurt the company in recent years as a rise in loan losses and diminishing credit quality have hurt the bank’s stock price.
With the Western provinces contributing a large portion of Canadian Western Bank’s overall revenue, investors have been hoping for some time now that an oil rebound and a revitalization of Western Canada’s oil sands industry will cure the woes of CWB. While a rebound in the oil & gas sector may be on the horizon, investors who have chosen to put their faith in Canadian Western Bank have also, implicitly or explicitly, put their faith in a rebound in the commodity price of oil.
My contention is, and has been for some time, that the price of oil is one of the hardest things to predict. That said, even the most astute analysts have pointed to the fact that recent efforts by the Organization of the Petroleum Exporting Countries to cut global production in an attempt to curtail a global surplus which is continuing to grow larger compared with the five-year moving average is concerning.
Many analysts have also pointed to weakness in Canada’s housing sector as cause for alarm for all Canadian banks, including the smaller regional banks. At this point in time, given the headwinds facing regional lenders in Canada, I remain bearish on the prospects of banks such as Canadian Western Bank in the near to medium-term.
