December 1, 2011 / 12:07 PM / in 6 years

TD, CIBC top estimates, but outlook pressures shares

TORONTO (Reuters) - Quarterly results from Canadian Imperial Bank of Commerce (CM.TO) and Toronto-Dominion Bank (TD.TO) gave Canadian bank earnings season a strong start on Thursday, but the shares of the two banks fell on concerns that their healthy lending and trading revenues could soon dwindle.

Both TD and CIBC handily topped analysts’ earnings forecasts for the August-October quarter due largely to their surprisingly big trading and investment banking revenues. Analysts said the results suggest Canada’s other big banks may also report stronger-than-expected profits.

“With the both of them doing very well on trading, it actually does bode well for others,” said John Aiken, an analyst at Barclays Capital.

“That being said, we wouldn’t necessarily believe that it’s going to ignite anybody’s (stock) valuation because the market will discount this with the current pessimism.”

The pessimism stems from dour predictions for 2012 that reflect already high consumer indebtedness and concerns that Europe’s sovereign debt crisis could balloon into a freeze-up in lending reminiscent of 2008.

“Looking forward, the external environment remains very uncertain,” CIBC Chief Executive Gerry McCaughey said on a conference call.

“Interest rates are expected to remain low and growth rates in consumer credit are expected to slow down slightly.”

At midday, CIBC’s shares were down 1.3 percent at C$71.96 on the Toronto Stock Exchange, while TD was down 2.3 percent at C$71.79.


CIBC, Canada’s No. 5 bank, earned a net C$794 million ($778 million), or C$1.89 a share, in the quarter, up from a year-before profit of C$500 million, or C$1.17 a share.

Excluding one-time items, the bank earned C$1.87 a share, topping analysts’ estimates of C$1.81.

“Core revenues were 3 percent higher than our expectations,” RBC Capital Markets analyst Andre-Philippe Hardy said in a note.

Capital markets income, which has been unpredictable throughout the year, rebounded from a year-earlier loss to a better-than-expected C$172 million due to strong trading fees.

Retail lending profit, the bank’s core business, rose 15 percent to C$580 million as stronger loan volumes more than offset narrower interest margins.

Bank officials said pressure on margins could get worse as loans that were priced at higher rates are renewed at lower rates.

TD, Canada’s No. 2 bank, earned record net income of C$1.57 billion, or C$1.69 a share, up from C$994 million, or C$1.07 a share, in the year-before quarter.

Excluding items, the bank earned C$1.77 a share, ahead of analysts’ estimates of C$1.53.

Profit at TD’s Canadian retail bank rose 15 percent to C$580 million due to higher mortgage lending, insurance, and business lending, the bank said.

TD Canadian Banking Group chief Tim Hockey said in a statement that earnings growth for the group would likely moderate in 2012.

Wholesale banking income more than doubled to C$288 million on higher stock and foreign exchange trading, and lower loan-loss provisions.

Royal Bank of Canada (RY.TO) and Bank of Nova Scotia (BNS.TO) will report results on Friday.

($1=$1.02 Canadian)

Reporting By Cameron French; Editing by Peter Galloway

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