male hand businessman inserts credit card into the ATM and withdraws moneyPhotographer: Denys Prykhodov
The big banks' second-quarter financial results were supposed to be imbued with concerns about the impact from a slow economy and weak oil prices. Instead, we got optimism.
While the banks set aside more money to cover bad loans to the energy sector, many bankers assured us that this quarter saw the worst of it – and things would get better from here. As well, although the national economy is plodding, some regions are benefiting from the lower Canadian dollar and the banks are benefiting from their geographic diversification.
Most optimistic statement on energy-related loan losses
Sean McGuckin, chief financial officer at Bank of Nova Scotia: "We're in the bottom of the fifth." Most of the big banks acknowledged that the price of crude oil near $50 (U.S.) a barrel is a lot more promising for energy companies than oil below $30 a barrel, where it traded earlier this year.
What's more, banks are becoming more comfortable with their loans books after making a company-by-company assessment of their ability to meet debt obligations. Most banks suggested that the worst may be over, in terms of provisioning for bad loans to energy companies, but Scotiabank was the most direct, even if it resorted to a baseball analogy.
Best dividend streak
Canadian Imperial Bank of Commerce raised its quarterly dividend again, marking its seventh straight quarterly bump. But the big question now is, can the bank make it eight? We'll have to wait a few months for the answer, but a dividend increase in the third quarter is by no means a sure thing.
The driving factor behind the increases was CIBC's goal to pay out up to 50 per cent of its quarterly profit in the form of dividends. In the second quarter, this payout ratio rose to 49.1 per cent, up from 44.6 per cent when the hiking streak began.
Victor Dodig, CIBC's chief executive officer, said the bank had now achieved its goal, leaving future hikes more dependent upon financial performance than simply opening the coffers.
"Going forward, our intention is to remain near the 50-per-cent payout level by aligning our dividend increases with our earnings growth," he said.
Most worried workers
These are difficult times for anyone working in traditional branches, where transactions have been falling sharply as consumers move online and over to their smartphones. While most of the banks have been cutting head counts in this area in recent quarters, Scotiabank made the deepest cuts in the second quarter.
Over all, the bank's number of employees actually rose slightly in the quarter, from the previous quarter. But in its Canadian banking division, where branches reside, the employee count fell by nearly 650. The bank is also saying that it likely will cut its branch count by up to 5 per cent, or about 50 branches.
Biggest profit adjustment
We knew this one was coming: National Bank of Canada announced in May that it was taking a $250-million provision against bad loans, raising all sorts of alarm bells about how the banking sector was dealing with the struggling energy sector.
When the bank released its quarterly results this week, the provision weighed heavily: The bank, the smallest of the Big Six, said that its profit fell 48 per cent from last year, to $210-million.
But, hey, let's assume that that provision is a one-time thing and that the price of oil is bounding higher and that fewer energy companies are going to be making awkward calls to their banks in subsequent quarters. In other words, without that $250-million provision, National Bank's so-called adjusted profit would have been $420-million – up 2 per cent.
David Berman