Banks may end 2011, start 2012, with a whimper

Sun Nov 27, 2011 10:31am EST
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By Cameron French

TORONTO (Reuters) - A volatile year for Canadian banking results is likely to end on a soft note, and the outlook for 2012 won't inspire confidence as Europe's debt troubles deepen and Canadian borrowers turn shy.

Analysts expect percentage year-over-year profit gains in the mid-to-high single digits when the country's big banks begin reporting this week. On a quarter-to-quarter basis, profits are expected to drop from the third quarter.

Even so, with bank shares already at year-lows, even modest results could spark buying pressure, particularly if one or more of the banks raise dividends.

Toronto-Dominion Bank (TD.TO: Quote) and Canadian Imperial Bank of Commerce (CM.TO: Quote), the nation's second- and fifth-biggest lenders, are first in line to report for the fourth quarter, with results due early on Thursday.

Volatile financial markets will likely steer the results in the most recent quarter, just as they have so far this year.

"I think it's fair to say the capital market side of the business is going to be lackluster," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier in Toronto.

The S&P/TSX composite index .GSPTSE is down nearly 20 percent from the year-high reached in March, and recent results for U.S. and European banks, whose third quarter overlaps with the August-October fourth quarter of the Canadian lenders, were hurt by weaker capital markets revenues.

Falling trading fees, and weak underwriting and advisory activity should weigh on results, too. Analysts see only slim growth in wealth management income, a growing focus for several of Canada's top six lenders.   Continued...