Canadian banks' shares rise as profits top estimates

Thu Aug 29, 2013 5:49pm EDT
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By Cameron French

TORONTO (Reuters) - Three of Canada's biggest banks posted better than expected quarterly results on Thursday, pushing their shares higher as surprisingly strong retail lending and wealth-management income offset weakness in trading and investment banking.

Royal Bank of Canada (RY.TO: Quote) and Toronto-Dominion Bank (TD.TO: Quote), the country's top two banks, both announced dividend hikes, while No. 5 lender Canadian Imperial Bank of Commerce (CM.TO: Quote) said it would buy back as much as 2 percent of its stock over the next 12 months.

The results close out a financial third-quarter reporting season in which Canada's top six banks all exceeded market earnings estimates on the back of domestic lending profits that churned higher despite predictions that a cooling housing market would slow growth to a trickle.

"These aren't 'knocking out of the park' numbers, but they are better than my expectations," said Tom Lewandowski, a St. Louis-based analyst for Edward Jones.

While loan growth has slowed slightly over the past year as the country's housing market has begun to cool, it has not slowed to the extent feared by many analysts.

And while rock-bottom mortgage rates have pressured lending margins, the banks have been able to blunt the impact by refocusing on higher-margin businesses, such as credit cards and auto lending.

The results also affirm the wisdom of recent efforts by the banks to diversify their revenue bases. TD, for instance, had a profit surge at its U.S. retail banking unit, while RBC was buoyed by strong results from its wealth management division, which it has been expanding, particularly in Europe.


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