CANADA STOCKS-TSX drops as strong earnings fail to banish doubts about banks

Thu May 28, 2015 11:12am EDT
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TORONTO May 28 (Reuters) - Canada's main stock index pulled back on Thursday as stronger-than-expected earnings from three of the country's biggest lenders early in the day failed to dispel market doubts about bank performance in the future.

Among the three banks that reported on Thursday, Canadian Imperial Bank of Commerce also raised its dividend, joining two of Canada's Big Six banks that hiked their payouts earlier this week.

While increased dividends will help them win favor, the question for Canada's banks now is how they will deal with a higher interest rate environment, said John Ing, president of Maison Placements Canada.

"A lot of portfolio managers have been backing away from the banks," he said. "For a long time it was a profitable trade but the outlook is a lot more difficult."

Among the Big Six, only Bank of Nova Scotia is left to report quarterly earnings, on Friday.

Of those that reported on Thursday, shares of Royal Bank of Canada were down 0.7 percent at C$79.35, Toronto-Dominion Bank gave back 1.3 percent to C$55.25, and Canadian Imperial Bank of Commerce slipped 0.7 percent to C$94.38.

The Toronto Stock Exchange's S&P/TSX composite index fell 99.41 points, or 0.66 percent, to 15,011.06.

With oil and gas stocks, another major component of the index, also lacking clear buy signals, Ing said he would not be surprised to see the benchmark index continue to fall in coming weeks.

Oil prices steadied on Thursday after a two-day slide as investors awaited data from the U.S. Energy Information Administration (EIA) to see how U.S. oil production was responding to a recent surge in prices.

Among oil shares, Suncor Energy Inc slipped 0.6 percent to C$36.12, while Canadian Natural Resources was up 0.2 percent at C$38.02.

($1=$1.25 Canadian) (Reporting by Alastair Sharp; Editing by Chizu Nomiyama; and Peter Galloway)