* CIBC core cash EPS C$1.65 vs estimates of C$1.41
* National Bank core C$1.55 vs estimates of C$1.45
* Toronto financial services shares rise 0.8 percent (Writes through with analysts’ comments, background)
By Andrea Hopkins
TORONTO, Feb 25 (Reuters) - Two of Canada’s big banks reported stronger than expected growth in quarterly profits on Thursday, sending bank shares higher and upping the ante for rivals that will post results over the next week and a half.
Canadian Imperial Bank of Commerce (CM.TO), the country’s fifth-largest bank, and National Bank of Canada (NA.TO), the No. 6, benefited from a strengthening Canadian economy and milder loan losses than expected, suggesting the worst of credit problems may be over for the nation’s big lenders.
“The implication is that the trend is at least stabilizing within domestic credit, which provides a better outlook as we move forward through the year,” Edward Jones analyst Craig Fehr said of the results.
“Credit quality may continue to improve, which would be a nice momentum boost for earnings growth in 2010.”
The hint of healthier loan books pushed CIBC shares 2.5 percent higher to C$69.51 in midday trade on the Toronto Stock Exchange, while National Bank rose 0.9 percent to C$59.13. Shares of rival banks also swung higher, with the overall financial services sector up 0.8 percent.
Consumers and businesses have struggled to repay debts in the recession, costing the lenders millions of dollars, and analysts had expected another rough quarter of loan losses that would push bank earnings to their lowest point in the cycle.
But provisions for bad loans at the two banks were milder than expected, suggesting Canadian banks — which weathered the financial crisis far better than global peers, with neither bailouts nor bankruptcies — may have rounded the corner in what is expected to be a transition year from recession to full recovery.
CIBC said net profit more than quadrupled in its first quarter ended Jan. 31, handily beating market estimates, helped by strength in both consumer and investment banking.
National Bank of Canada (NA.TO) saw profit grow 6 percent, boosted by stronger loan growth and the sort of plain vanilla domestic banking that traditionally powers all of the Big Six Canadian banks.
While loan growth is not nearly at the level it was before the credit crisis, interest rate spreads are expected to continue to improve, boosting profit margins on loans. In a slower growth environment, a stronger stream of interest income will be welcome at the banks as investment banking and trading revenues fall back from record levels hit in 2009.
Canada’s strong housing market, considered by some to be a bubble, has boosted mortgage lending.
Both CIBC and National Bank are exposed mainly to the domestic economy but some their bigger rivals in the Canadian banking group, Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO), for instance, have more exposure to the U.S. economy, which has higher unemployment and more risk. Still analysts have ramped up expectations for the sector as a whole based on Thursday’s better-than-expected profits.
“Starting out the quarter, it appears that provision levels (if not gross impaired loans) will be more positive than even we had anticipated,” Barclays Capital analyst John Aiken said in a note to clients.
“Therefore, lower provisions, coupled with potential net interest margin expansion could fuel additional earnings beats over the coming week and a half.”
By the numbers, CIBC said net profit rose to C$652 million ($615 million), or C$1.58 a share, up from C$147 million, or 29 Canadian cents a share, in the year-before quarter, when CIBC took charges on structured credit run-off activities and had mark-to-market losses on hedges related to leveraged leases.
Core cash earnings were C$1.65 a share, according to one analyst. This was well above analysts’ average expectations of C$1.41 a share as compiled by Thomson Reuters I/B/E/S.
Provisions for credit losses were C$365 million, up from C$278 million a year earlier but down from the fourth quarter.
Quebec-based regional lender National Bank said its profit after extraordinary items rose 6 percent in the first quarter to C$268 million, or C$1.55 a share. Analysts on average had expected earnings of C$1.45 a share, according to Thomson Reuters I/B/E/S.
Canada’s remaining big banks are due to release first-quarter results in the coming weeks, with No. 4 Bank of Montreal (BMO.TO) scheduled for March 2, No. 1 Royal Bank of Canada set for March 3, No. 2 Toronto-Dominion Bank on March 4, and No. 3 Bank of Nova Scotia (BNS.TO) wrapping things up on March 9.
Canadian bank shares rallied strongly in mid-2009 from lows reached early in the year but have traded mostly in line with the broader market in recent months. Analysts have said a big surprise would be needed to break the range-bound trading.
$1=$1.06 Canadian Reporting by Andrea Hopkins, editing by Peter Galloway