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Investing.com -- On Monday, Bank of America downgraded Bank of Nova Scotia (NYSE:BNS) to Neutral from Buy, citing a “sea change in the operating outlook” driven by trade tensions and economic uncertainty.
The firm also lowered its price target for the stock to C$70 from C$82.
BofA sees a "relatively narrow path for Scotia to outperform", given several challenges.
They state that the bank’s exposure to Mexico and Latin America (13% and 28% of earnings, respectively) is a concern, especially after BofA’s Economics team downgraded its Mexico GDP forecast to zero percent.
Additionally, BofA believes Scotiabank’s CET1 capital ratio of 12.9%—below the 13.5% median for peers—could limit its ability to navigate worsening economic conditions.
BofA also flagged “execution risk tied to management’s turnaround efforts.”
Management teams across Canada’s largest banks appear cautious, with businesses stalling activity as they await clarity on U.S. tariffs and potential policy actions following Canada’s April 28 federal election, says BofA.
The BofA analysts also noted that investor sentiment has remained resilient, partly due to expectations of policy support.
While consumer confidence has turned negative, BofA believes the impact of tariffs may be temporary.
If a truce is reached, it could set the stage for a rebound in late 2025 and 2026. However, given the current uncertainty, BofA prefers Royal Bank of Canada, TD Bank, and CIBC (TSX:CM) over Scotiabank (TSX:BNS).