Lower interest rates have spurred buying of financial stocks, but declining asset management fees, lower trading and underwriting activity, and deteriorating fundamentals for customers will all throw water on the optimism, Sprott said. The performance of the financial sector looks particularly robust when compared with stocks in contract electronics manufacturers, which also are tied to their clients' welfare, have plunged. Celestica, Solectron and Jabil Circuit have fallen dramatically in recent weeks as analysts slashed earnings targets after the latter two firms confirmed that their customers' weakness would affect their growth. Peter Chandler, a director and senior vice-president at Canaccord Capital Corp., said that while Canadian banks are experiencing revenue erosion, the prospect of mergers outweighs all the negatives. He points to this week's purchase by insurer Manulife Financial Corp. of an 8 percent stake in Canada Life Financial Corp as a small taste of bigger things to come with the legislative changes.
Mergers can help buoy stock prices.
Speculation in BusinessWeek magazine earlier in the week that Citigroup Inc. is poised to buy American Express Co, sent the credit card company's shares up 7 percent on Friday. Furthermore, aging baby boomers demanding wealth management services are helping the banks to outperform the economy, and lower interest rates are good for the group's earnings picture, Chandler said. Sprott, on the other hand, said bank mergers are nothing more than a swapping of paper and the companies' underlying problems will not disappear by joining forces. All Rights Reserved.