May 28, 2009 / 2:18 PM / in 8 years

WRAPUP 2-Canada banks beat expectations, but bad loans rise

* Four big banks top forecasts, after charges

* All increase provisions for bad loans

* Analysts question sustainability of revenue growth

* Shares of TD, Scotiabank, National rise; CIBC drops (Recasts with Scotiabank results)

By Andrea Hopkins

TORONTO, May 28 (Reuters) - Four of Canada’s largest banks reported stronger-than-expected results on Thursday even as they set aside more money to cover bad loans, sending shares for three of the four higher.

Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO) and National Bank of Canada (NA.TO) all notched results that were slightly higher than analysts had expected, and their shares climbed in early afternoon trade.

Core earnings at Canadian Imperial Bank of Commerce (CM.TO) also beat estimates, but its results were marred by a raft of writedowns and observers worried the nation’s fifth-largest bank had lost momentum in its key retail operations.

Overall, analysts said the banks continued to outshine global competitors, with strong capital cushions and success in the kind of “plain vanilla” consumer and business banking the lenders are counting on to overcome rising loan problems.

“Each bank had their area of strength or weakness in the quarter, but overall I think the bar was set very low, based on expectations for sharp increases in provisions to loan losses,” said Edward Jones analyst Craig Fehr.

The amount of money set aside to cover bad loans surged at all four banks -- as well as at the Bank of Montreal, which reported its results on Wednesday -- and the credit losses are expected to be a headwind for the rest of 2009 as consumers struggle to pay bills amid rising unemployment.

TD, National and CIBC all reported long lists of one-time charges on credit and market losses in the second quarter, which ended April 30.

While the writedowns were not unexpected, given market volatility early in the year, which reduced the value of investments and assets, Dundee Securities analyst John Aiken said the volume and size of the charges were a little surprising.

And he cautioned that the underlying profits at the big banks should be taken with a grain of salt.

“The problem hinges on the quality of earnings, because we’ve seen a lot of revenues this quarter which may not necessarily be repeatable,” Aiken said.

Shares of TD Bank rose 4.3 percent to C$52.42 by early afternoon in Toronto, while Scotiabank climbed 0.9 percent to C$38.10 and National was up 3.1 percent at C$51.05. CIBC bucked the trend, falling 4.4 percent to C$54.52.

LOAN PROVISIONS CLIMB

TD Bank, Canada’s second-largest, said profit fell in the second quarter as provisions for bad loans nearly tripled to C$656 million from C$232 million a year earlier.

Excluding one-time charges, TD had earnings of C$1.23 a share, above analyst expectations of C$1.13, according to Reuters Estimates.

“We’re feeling quite good about these results,” TD Chief Executive Ed Clark said in a statement. “All TD businesses are holding up very well under the weight of the recession in Canada and the United States.”

Canada’s third-largest lender, Bank of Nova Scotia, said profit fell 11 percent to C$872 million as record revenues and strong investment banking were offset by loan losses.

Its earnings of 81 Canadian cents a share were down from last year’s 97 Canadian cents, but above the 77 cents expected by analysts, according to Reuters Estimates.

Results were a bit grimmer at CIBC, where Canada’s fifth-largest bank reported a net loss of C$51 million, or 24 cents a share. The loss was narrower than the C$1.11 billion loss a year earlier, but the Toronto-based bank posted C$475 million in pretax debt writedowns.

Excluding the charges and special items, CIBC said cash earnings were C$1.44 a share, above analysts’ average forecast of a profit of C$1.39 a share, according to Reuters Estimates.

“Writedowns were greater than we had anticipated and retail banking continues to lack revenue momentum,” RBC Capital Markets analyst Andre-Philippe Hardy said in a research note.

CIBC set aside C$394 million to cover credit losses, up from C$176 million. The bank’s large credit card portfolio has been hit as consumers fall behind on payments.

CIBC Chief Executive Gerald McCaughey said losses in structured credit had hurt results, but noted that the losses occurred early in the quarter before the market improved.

Canada’s sixth-largest bank, National Bank of Canada, said its profit jumped 46 percent in the second-quarter, helped by a strong performance from its financial markets division.

Excluding writedowns, the bank earned C$261 million, or C$1.53 a share, up from C$229 million, or C$1.41.

Analysts had expected a profit of C$1.21 a share, according to Reuters Estimates.

Canada’s largest bank, Royal Bank of Canada (RY.TO), will close out the group’s earnings season on Friday.

$1=$1.12 Canadian Additional reporting by Scott Anderson; editing by Rob Wilson

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