May 26, 2011 / 4:02 PM / 7 years ago

WRAPUP 2-Canada bank profits rise but don't satisfy market

* TD reports strong growth in domestic business lending

* CIBC profit boosted by lower provisions for loan losses

* National Bank to acquire Wellington West; ups dividend

* Bank shares drop as TD, CIBC earnings disappoint (Adds analyst, executive comments; updates share price moves)

By Euan Rocha

TORONTO, May 26 (Reuters) - Three of Canada’s largest banks reported stronger quarterly profits on Thursday, driven largely by growth in lending, but the results fell slightly short of expectations and bank stocks dropped.

While profits were boosted by a decline in provisions for soured loans, the results indicate that Canadian banks may now be entering a more challenging phase in their business cycle.

“There’s a lot of headwinds in the personal and commercial lending business for the banks,” said National Bank analyst Peter Routledge. “You’ll see this reflected in the stock moves today.

“All the net interest margins earned in Canada are coming in lower than we thought and probably lower than what the Street was expecting,” he said.

Profits at Toronto-Dominion Bank (TD.TO) and Canadian Imperial Bank of Commerce (CM.TO) came in slightly shy of analysts’ forecasts, while earnings at National Bank of Canada (NA.TO) just about topped the average prediction.

But National shares also declined, weighed down by the bank’s announcement that it would buy the stake in privately held wealth management firm Wellington West that it does not already own for C$199 million ($203 million).

Shares of TD, Canada’s second-biggest bank, and those of smaller rival CIBC were the biggest drags on the blue-chip S&P TSX 60 index .TSE60. TD shares ended the day down 1.5 percent at C$84.02, while CIBC closed down 3.9 percent at C$81.15 on the Toronto Stock Exchange. Shares of National Bank ended the day down 17 Canadian cents at C$80.70.

Canada's highly conservative banking sector weathered the global financial crisis with relative ease. While U.S. banks have struggled to increase revenues and have seen their stocks tumble this year, shares of Canada's top banks have risen and outpaced the broader Toronto market. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For share performance graphic: For StarMine data on banks: For graphic on CPI/benchmark ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Analysts caution, however, that Canadian banks could now be entering a more difficult phase as interest rates are set to climb and retail lending begins to slow. [ID:nN15208168] [ID:nN15209406]

Bank of Montreal (BMO.TO), which kicked off earnings season for the banks on Wednesday, showed some evidence of this trend as growth in its domestic personal lending business slowed on a sequential basis. [ID:nN24268837]

TD also highlighted this in its second-quarter announcement on Thursday, saying its personal and commercial banking segment in Canada saw a “slowing in personal banking volume growth from exceptional levels seen in 2010.”


TD indicated that although domestic household lending will likely to continue to slow, it expects strong volume growth in business loans to act as an offset. [ID:nN26230622]

However, analysts have noted that while commercial lending is likely to gather steam, the gains are unlikely to offset a slowdown in personal lending, as the household credit market in Canada is about three times larger than the business lending market. [ID:nN20244603]

“Our domestic commercial bank is performing extraordinarily well and our insurance business should provide additional growth,” said TD Chief Executive Ed Clark. “Our U.S. personal and commercial bank is also a fantastic growth story.”

“Overall, we expect to see continued strong growth from TD, but the mix of that growth will likely shift. Clearly there is a risk that revenue growth will slow as we go forward,” he said on a conference call.

TD said that excluding acquisition-related charges, amortization costs and other one-time items, earnings in the quarter ended April 30 were C$1.59 a share. This was just shy of analysts’ average view of C$1.60 a share, according to Thomson Reuters I/B/E/S.


Montreal-based National Bank said a 13 percent increase in its quarterly profit was driven by growth in its lending and wealth management businesses.

National Bank said earnings excluding one-time items rose to C$1.69 a share from C$1.50 in the year-before quarter. Analysts were, on average, expecting earnings of C$1.68.

The bank, which also boosted its quarterly dividend payout by 8 percent, said its move to acquire all of Wellington West is aimed at increasing its scale and presence outside of its home base in Quebec. It already owns about 18 percent of Wellington West.

Toronto-based CIBC said its quarterly profit was lifted by increased lending and lower provisions for loan losses.

The bank reported adjusted cash earnings, which exclude a loss from its structured credit run-off unit, of C$1.75 a share. Analysts on average had forecast earnings of C$1.80 a share, according to Thomson Reuters I/B/E/S.

Royal Bank of Canada (RY.TO), the largest of the country’s big six banks, reports quarterly results on Friday, while Bank of Nova Scotia (BNS.TO) will be the last to report, next Tuesday.

$1=$0.98 Canadian Reporting by Euan Rocha; editing by Peter Galloway and Rob Wilson

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