(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 vague.
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 quarter.
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 Aiken.
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 Wilson)