* Fall in wholesale profit hurts earnings at both banks
* CIBC core profit tops estimates, TD misses
* TD shares fall 2.7 pct, CIBC down 2.2 pct (Adds TD Bank CEO’s comment, updates shares to close)
By Cameron French
TORONTO, Dec 2 (Reuters) - Shares of Toronto-Dominion Bank TD.TO and Canadian Imperial Bank of Commerce CM.TO fell on Thursday after both banks reported weaker quarterly earnings due to higher costs and a drop investment banking income.
Trading fees at both banks fell sharply, which, combined with the higher expenses, overshadowed the impact of lower provisions for bad loans and stronger retail banking revenue.
“For both of them, they had significantly higher expense growth than was anticipated,” said John Aiken, an analyst at Barclays Capital.
Shares of TD, Canada’s No. 2 bank, fell 2.7 percent to C$73.29, while No. 5 bank CIBC dropped 2.2 percent to C$79.31.
Excluding one-time items, TD earned C$1.38 a share, coming in shy of the profit of C$1.46 a share expected by analysts polled by Thomson Reuters I/B/E/S. CIBC’s adjusted profit of C$1.68 a share was slightly ahead of estimates of C$1.64.
The results of both banks were cluttered with one-time items as CIBC took a C$122 million charge as part of a push to exit structured credit investments that contributed to losses during the financial crisis.
On a net basis, TD’s earned C$994 million, or C$1.07 a share, down from C$1 billion, or C$1.12 a share, in the year-earlier quarter. CIBC earned C$500 million, or C$1.17 a share, down from C$644 million, or C$1.59 a share.
TD Chief Executive Ed Clark said the bank’s higher costs were largely one-time items that would not repeat in future quarters. [ID:nN02247457]
“We actually are quite happy with the results,” he said.
Shares of both banks had climbed on Tuesday after National Bank of Canada NA.TO reported a strong profit and became the first major Canadian bank resume dividend increases following the financial crisis.
Unlike many U.S. and European banks, Canadian lenders did not cut their dividends nor require government bailouts during the crisis. Investors are now waiting for more dividend hikes before they push stock prices higher.
“They have to do what National did and that’s raise the dividend to show that that game is on again,” said John Kinsey, a portfolio manager at Toronto-based Caldwell Securities.
CIBC’s Tier 1 capital ratio -- a key measure of capital strength -- was 13.9 percent during the quarter, and company officials said the bank could handily implement 2019 Basel III capital minimums by late 2012.
However, CIBC is not ready to resume dividend increases as it is still near the top end of its 40-50 percent target payout ratio, CEO Gerry McCaughey said on a conference call.
“We’re not there quite yet,” he said. “As we make progress, this topic is something that’s getting a little bit closer.”
TD’s Clark reiterated that the bank will address the dividend issue in the first quarter of 2011, and said it will be earnings and not capital levels that will determine whether the payout rises.
He said TD is also in a position to adopt tighter capital standards easily, and said the bank will not need to issue equity to do so.
However, he said questions remain about how regulations will be implemented and said banks should avoid pushing capital levels too high above global standards. [ID:nN02226236]
Royal Bank of Canada <RY.TO, Canada’s largest bank, and Bank of Nova Scotia BNS.TO report their results on Friday.
$1=$1.00 Canadian Reporting by Cameron French; editing by Rob Wilson