Canada bank profits seen rising despite housing woes

Sun Nov 25, 2012 10:32am EST
 
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By Cameron French

TORONTO (Reuters) - Slowing housing activity and uncertain financial markets will not stop Canada's banks from reporting solid increases in quarterly profit starting this week, although recent gains in their shares mean it might take blockbuster results to push the stocks much higher.

Blockbuster earnings are plausible, given that Canada's big banks all topped estimates in the previous August reporting period. But few see that happening again in the banks' fiscal fourth quarter, due to an expected decline in trading revenue and higher expenses.

"They won't' be as good as the third quarter," said John Kinsey, a portfolio manager at Caldwell Securities in Toronto.

Royal Bank of Canada RY.TO, the country's largest bank, will kick off the two-week reporting period on Thursday, with an expected core profit of C$1.26 a share, up from a year-before profit of C$1.09 per share.

Considered the world's soundest banks, Canada's big lenders have been bracing for a likely slowdown in consumer lending as tighter government mortgage rules cool the hot housing sector.

But analysts say it will be the banks sizeable brokerage businesses that will have the most sway on earnings growth this quarter as recently strong equity markets drive up advisory and trading revenues, providing a stark contrast to weakness in those revenues in the fourth quarter of 2011.

"Capital markets should actually be fairly good, mimicking what we saw with the U.S. and European banks," said John Aiken, an analyst at Barclays Capital.

The fiscal year for Canadian banks runs from November to October, meaning the fourth quarter of August-October overlaps with the third quarter of U.S. and European banks.   Continued...

 
A Royal Bank of Canada (RBC) sign is seen in downtown Toronto, March 3, 2011. REUTERS/Mark Blinch