November 23, 2008 / 3:35 PM / in 9 years

RPT-Bay Street Week Ahead-Banks slam the door on 2008

 (Repeats Friday column)
 By Lynne Olver
 TORONTO, Nov 23 (Reuters) - Canadian banks will show some
ugly end-of-year numbers in the next two weeks and the more
interesting bit -- their 2009 outlooks -- are bound to be
 Two bank warnings about fourth-quarter charges this past
week helped to sink the benchmark Toronto Stock Exchange index,
with financial issues logging stunning double-digit percentage
drops on Thursday. The S&P/TSX composite index .GSPTSE fell
9.9 percent in the week to 8,155.33.
 On Tuesday, Bank of Montreal BMO.TO will be first of the
Big Six banks to report results for the August-October
 So are the worst assumptions already priced in to the bank
stocks? Or will the full suite of results send investors
scurrying for cover again?
 "They've all taken such a pummeling here that I think a lot
of bad news is already embedded in the prices," said Bob
Gorman, chief portfolio strategist at TD Waterhouse.
 "Any news has been taken as very bad and an excuse to sell
further. I do think it's excessive."
 Analysts generally expect a 10 percent to 12 percent drop
in quarterly bank profits from the year-earlier period,
excluding one-time items.
 That masks big differences, however. Profit at Royal Bank
of Canada RY.TO is seen rising, while Canadian Imperial Bank
of Commerce's CM.TO core earnings could drop substantially,
based on data from Reuters Estimates.
 Bank of Montreal and CIBC, which reports Dec. 4, are seen
taking writedowns due to the falling value of their complex
credit holdings.
 "On any kind of metrics we're looking at, those two seem to
be the ones that are, for their size, disproportionately larger
exposed," said Chris Lowe, a portfolio manager at fund manager
AIC Ltd in Burlington, Ontario.
 The failure of Lehman Brothers Holdings LEHMQ.PK in
September will have caused "huge stress" in certain indexes the
banks use to gauge prices for securities, Lowe said.
 Writedown estimates for CIBC are as high as C$2.3 billion,
because of the dropping value of its hedges with bond insurers.
CIBC may avoid some writedowns by using new accounting rules
for illiquid securities.
 Lower fees from wealth management and higher provisions for
bad loans took their toll on the banks in the quarter, analysts
say, and there will be market-related trading losses, as shown
this past week by Toronto-Dominion Bank TD.TO and Bank of
Nova Scotia BNS.TO.
 Looking ahead, investors will want to hear how the bank
executives characterize fiscal 2009.
 Just don't expect bold predictions.
 "You're going to see even less guidance than one would
typically expect to see," said Dundee Securities analyst John
 Having been stung by unforeseen losses, it's a brave
executive who would go out on a limb in the face of great
economic and market uncertainty.
 "There are very few people, certainly not us, who could
have contemplated what's happened in September and October and
now, so far in November," Toronto-Dominion Bank Chief Executive
Ed Clark told Reuters on Thursday, after his bank divulged
C$350 million of losses in its credit trading group.
 Clark said he can talk about factors that will influence
TD's results next year, "but the truth is I don't know how deep
the recession is going to be, and I don't know what its impact
is going to be, so it's hard to be precise."
 Banks have a better record of handling recessions, which
are somewhat predictable, than they do of handling credit
crunches, said AIC fund manager Lowe.
 "You'll see the chief executives talking more about putting
2008 behind them and concentrating on grinding out good results
from very solid retail bank franchises," Lowe predicted.
 Estimates for fourth-quarter earnings per share before
exceptional items, versus year-ago results:
 Reporting date  Bank   Reuters Estimate  Year ago
 Nov 25          BMO        C$1.08         C$1.42
 Dec 2           BNS        C$0.91         C$0.95
 Dec 4           NA         C$1.31         C$1.34
 Dec 4           CM         C$1.56         C$2.54
 Dec 4           TD         C$1.28         C$1.40
 Dec 5           RY         C$1.03         C$1.02
 ($1=$1.28 Canadian)
 (Additional reporting by Jennifer Kwan; editing by Rob

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