Investors wary of Canada banks' outlook even after profits beat

Thu Dec 3, 2015 3:53pm EST
 
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By John Tilak

TORONTO (Reuters) - Investors are overlooking forecast-topping profits reported by Canadian banks this week and choosing instead to focus on the lenders' ability to grow in a weak economy that is feeling the heat of depressed oil prices.

The banks variously benefited from cost cutting and from lower tax rates, gains analysts said may not last. Canadian banks are also trying to counter slow domestic growth by expanding to new markets, potentially adding risk.

Investors are also worrying about lackluster loan growth, pressure on net interest margins and a challenging housing market.

"It's going to be harder to drive growth year after year. The big unknown is how they're going to continue to grow,” said Kevin Headland, director, capital markets and strategy, at Manulife Asset Management, which manages about US$294 billion and owns several Canadian bank stocks.

"If expectations remain elevated, they're eventually are going to have some missteps," he added.

Shares of the country’s five biggest banks slipped on Thursday, even as Toronto Dominion Bank TD.TO and Canadian Imperial Bank of Commerce CM.TO reported fiscal fourth-quarter earnings per share close to or better than expectations.

Profits at both TD, Canada’s biggest lender by assets, and CIBC were driven by their domestic retail and capital markets divisions. CIBC, the No. 5 bank, also raised its dividend.

On Wednesday, Royal Bank of Canada (RY.TO: Quote) topped C$10 billion (US$7.48 billion) in annual profit for the first time in Canadian history, following reports earlier in the week from Bank of Nova Scotia (BNS.TO: Quote) and Bank of Montreal BMO.TO.   Continued...

 
A logo of Toronto Dominion Bank (TD) is seen at a branch location in Toronto, March 6, 2014. REUTERS/Aaron Harris