Barclays downgrades 4 Canadian banks: BMO, Laurentian, RBC, TD

Barclays has downgraded its outlook on four of Canadas big banks, saying the countrys slowing economy leaves little upside potential for the banks.

Analyst John Aiken of Barclays has downgraded stock to underweight for Bank of Montreal, Laurentian Bank, Royal Bank and TD Bank.

In a report released Friday, Aiken said the Bank of Canadas guidance indicates even lower economic growth for Canada than is currently reflected in the market.

"From our standpoint, the surprise reduction in the overnight rate by the Bank of Canada is a net negative for the banks," the report said.

Barclays predicts the lower consumer borrowing and the economic impact of lower oil prices will eat into bank earnings over the coming year.

It said there is a risk of recession in Alberta because of falling oil prices, which would ripple through the entire economy.

"Although lower gasoline prices should support consumption in other regions, it is not expected to be a full offset," the report said.

"And, while the decline in the Canadian dollar and increasing demand out of the U.S. should foster growth in manufacturing in Ontario and Quebec, the transition of economic growth from the West back to Central Canada will not likely be a smooth one, until there is a clear resurgence in the U.S. economy.

Barclays said it is prepared to revise its downgrade depending on bank earnings in the first quarter.

Bank stocks were falling on the TSX today in response to the outlook for Canadian banks.

Canadian banks have lowered their prime lending rate in response to the Bank of Canada rate cut, but kept their cut substantially smaller than the 0.25 per cent dip at the central bank. That move is meant to help their bottom line.

And some banks have also started to reducetheir workforcesin a cost-cutting measure.