Weak U.S. housing market should allow Canadian banks to win market share

The troubled U.S. housing market is a growing risk to lending activity and top-line growth for U.S. banks, but it may have a silver lining for Canadian banks doing business south of the border, says Michael Goldberg, an analyst at Desjardins Securities.

"Though lending activity has started to pick up again in Canada, U.S. operations of Canadian banks remain sensitive to the U.S. housing problem, particularly RBC Bank's exposure to some of the cities that have been hardest hit," said Mr. Goldberg in a note to clients.

"However, the issues faced by U.S. banks allow Canadian banks to be more aggressive in gaining market share in the U.S. and become bigger players in those markets."

U.S. single-family home prices fell for the seventh straight month in January, according to the latest S&P/Case Shiller survey.

The 20-city composite index declined 0.2% during the first month of 2011 and has fallen 3.1% over the past year, leaving home prices in these selected metropolitan areas just 1.2% above April 2009 lows.

Mr. Goldberg noted that 18 of the 20 cities experienced declining prices with 11 cities reaching new lows. He said many of the cities are a key part of Royal Bank's southeast U.S. footprint.