TORONTO (Reuters) - Three of Canada's largest banks reported quarterly profits on Thursday that were hit hard by market-related charges, but their shares rallied as underlying results excluding one-time items beat street expectations.
Royal Bank of Canada, the country's biggest lender, posted a 15 percent drop in quarterly profit as writedowns related to seized-up credit markets and other items cut earnings by C$646 million ($517 million).
Canadian Imperial Bank of Commerce said it returned to profit in its first quarter, even as it was hit by C$1.36 a share in losses, including a C$708 million loss tied to structured credit activities.
National Bank of Canada said its first-quarter profit fell 73 percent as it took charges of C$184 million related to the asset-backed commercial paper market, another victim of the global credit crunch.
"These were pretty messy quarters for them. There is some positivity that can be gleaned from this, and it's kind of a runoff of what we saw from TD yesterday, which is the banking franchises are still operating pretty well," said Craig Fehr, a financial services analyst at Edward Jones.
Toronto-Dominion Bank kicked off Canada's bank reporting season on Wednesday with stronger-than-expected results that boosted its stock and shares of other banks.
The World Economic Forum last year ranked Canada's banking system as the world's soundest. Conservative lending practices have helped it avoid the massive writedowns and losses that have driven many U.S. and European banks into insolvency.
"Market conditions continue to create opportunities for RBC given what has happened to a number of competitors around the world. We will continue to capitalize on our growing global reputation for strength and stability," Royal Chief Executive Gordon Nixon said during a conference call.
With the shares of its global peers tumbling, RBC now ranks as one of the world's top 10 banks by market capitalization.
Shares of Thursday's three reporting banks rallied, with Royal rising 4.8 percent to C$31.43. CIBC rose 3.9 percent to C$44.97 and National Bank rose 6.4 percent to C$36.56. As a result, the bank-heavy financials index on the Toronto Stock Exchange rose more than 5 percent and helped drive the broader market higher.
Royal said net income fell to C$1.05 billion ($845 million), or 73 Canadian cents a share, in the first quarter, ended January 31, from $1.25 billion, or 95 Canadian cents a share, a year earlier.
The bank said that excluding market-related losses and other items earnings per share were C$1.14. Analysts had expected a profit of 94 Canadian cents a share before items, according to Reuters Estimates.
CIBC, Canada's fifth-largest bank, reported a first-quarter profit of C$147 million, or 29 Canadian cents a share, compared with a year-earlier loss of $1.45 billion, or C$4.39 a share.
The results included C$92 million in mark-to-market losses on hedges related to leveraged leases, C$87 million in losses from merchant banking and C$48 million in foreign exchange losses. There was a C$94 million gain on changes in credit spreads on credit derivatives.
Analysts had expected a profit C$1.49 a share before items, according to Reuters Estimates.
"When you back out all the charges for securities ... both Royal and CIBC exceeded expectations and rather materially. Again, like TD yesterday, this is very impressive because both were able to earn through provision increases," said John Aiken, an analyst at Dundee Capital Markets.
Montreal-based National Bank said first-quarter profit fell to C$69 million, or 36 Canadian cents a share, from C$255 million, or C$1.58, a year earlier.
Excluding unusual items, the bank said it earned C$253 million, or C$1.51 a share. Analysts had expected, on average, a profit of C$1.26 a share before exceptional items.
Following the results, both Royal and CIBC announced preferred share offerings. Royal said it would issue C$200 million of preferred shares into the domestic market. CIBC's offering was also set to raise gross proceeds of C$200 million, which could be increased to C$275 million if demand is strong.
The move follows a preferred share deal announced by TD on Wednesday and similar offerings by Royal, CIBC and other banks last month.
The offerings are designed reinforce the Tier 1 capital positions of the banks as the financial crisis continues to hammer the industry globally.
With additional reporting by Susan Taylor; Editing by Frank McGurty