May 29, 2008 / 5:25 PM / 10 years ago

Canada bank profits bruised by credit market blows

TORONTO (Reuters) - Profits at Canada’s big banks were rattled in their second quarter by a slew of factors including higher loan-loss provisions, steep writedowns and tough market conditions, company figures released this week show.

Nobody was expecting to see stellar results from the banks for the February-April quarter due to their exposure to hard-hit U.S. markets, but the extent of the loss at Canadian Imperial Bank of Commerce (CIBC) CM.TO was unforeseen, and the fact that only one bank, Bank of Nova Scotia BNS.TO, raised its dividend was disappointing.

CIBC took home the prize as the worst performer as it fell deep into the red with a C$1.1 billion ($1.1 billion) loss versus a year-before profit.

The bank, the fourth-largest in Canada by market value, said its quarterly loss included a C$2.5 billion pretax hit on structured credit activities and hedge positions.

“CIBC’s quarter was disappointing in that core businesses were less profitable than we expected and writeoffs were larger than we expected, partially offset by a benign quarter from a credit perspective,” Andre-Philippe Hardy, an analyst at RBC Capital Markets, wrote in a note.

Shares of CIBC were dumped after it reported its results on Thursday, falling 2.6 percent to C$69.00 on the Toronto Stock Exchange, their lowest level in just over a month.

The five other big banks managed to stay in the black despite similar challenges, with profits dropping by as much as 29 percent and as little as 3 percent.

“The main themes were increases in credit provisions as banks are seeing some weakness in consumer and commercial markets,” said Darren Dansereau, portfolio manager at investment firm QV Investors in Calgary. “You got guys with exposure to the U.S. market who saw some weakness in terms of greater provisioning because it’s even worse down there.”

Bank of Montreal BMO.TO, which kicked off the earnings period earlier this week, was forced to provide more funds to cover loans that might go bad. It said provisions for credit losses could increase even more due to deterioration in U.S. real estate markets.

CIBC was not alone in being hit by writedowns. Royal Bank of Canada RY.TO, the country’s biggest bank, reported writedowns of C$854 million as its profit dropped 27 percent.

Scotiabank’s profit fell 6 percent in the quarter as it took on higher provisions for credit losses while lower capital markets also played a factor in dragging its profit lower.

And even though the bank said signals pointed to a stronger second half to the year it still said it was unlikely to meet its objective of 7-to-12 percent growth in earnings per share for the year.

Toronto-Dominion Bank TD.TO had a 3 percent drop in its quarterly profit, and even though it was the smallest decrease among all the big banks it still missed expectations and, in the bank’s own words, was disappointing.

National Bank of Canada NA.TO had the largest exposure to the country’s non-bank asset-backed commercial paper market and it blamed that exposure for its profit slide.

Apart from CIBC, National Bank posted the steepest drop in profit with a C$73 million pretax loss.

($1=$0.99 Canadian)

Reporting by Frank Pingue; Editing by Peter Galloway

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