September 4, 2008 / 1:11 PM / 9 years ago

Canadian Western profit lags estimates, shares dip

TORONTO (Reuters) - Canadian Western Bank (CWB.TO) shares fell 3 percent on Thursday after it reported a higher quarterly profit that missed estimates and said it may not meet its profit growth targets for the year.

Shares of Canadian Western dropped as much as 73 Canadian cents to C$22.36 on the Toronto Stock Exchange, their lowest level since mid-July, before recovering slightly.

The regional bank, Canada's seventh largest by market value, said it earned C$26.3 million ($24.8 million), or 41 Canadian cents a share, for the third quarter ended July 31.

That was up 9.6 percent from a profit of C$24.0 million, or 37 Canadian cents a share, in the year-ago period, but missed analyst expectations for a profit of 43 Canadian cents a share, according to the mean forecast compiled by Reuters Estimates.

Canadian Western said its profit was crimped by a constrained net interest margin due to increased deposit costs related to disruptions in financial markets, reductions in the prime lending rate and higher liquidity levels.

Net interest margin is a measure of earnings on assets such as loans, minus interest paid on deposits.

"They are a bank that earns roughly three quarters of its revenue from its lending portfolio, so higher funding costs due to the destruction of the market is having a fairly material impact on Canadian Western Bank's bottom line," said John Aiken, an analyst at Dundee Securities.

Canadian Western also said it is doubtful it could meet its 15 percent profit growth target for the year, given increased challenges and moderated economic activity in some areas where it operates.

Aiken said he was not too concerned with the bank's admission that it may not meet its growth targets since none of its peers can come close to a number like that.

"They may not be able to make their guidance but they are still head and shoulders above the other banks when it comes to growing earning," said Aiken.

Edmonton, Alberta-based Canadian Western, which offers banking and trust services in the four western provinces, said its revenues rose 8 percent in the quarter to C$74.9 million while loans were up 3 percent.

Third-quarter return on equity fell to 16.0 percent, from 17.1 percent a year earlier.

"Although the absence of capital market and wealth management business lines has allowed EPS growth at CWB to hang in much better than its large-cap peers, the secondary impact of the shift in market and economic conditions (most notably on funding costs and liquidity) has had a detrimental impact on the earnings power of the company," Merrill Lynch analyst Sumit Malhotra wrote in a note.

($1=$1.06 Canadian)

Reporting by Frank Pingue; editing by Rob Wilson

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