‘Expense discipline’ will become a major focus for Bank of Nova Scotia, which has announced plans to cut 1,500 jobs.Darren Calabrese/The Globe and Mail
It only took one quarter for all the fervour around Canadian banks to peter out.
When the Big Six lenders reported third-quarter earnings at the end of August, profits had arguably never looked better, with five banks making record amounts.
Three months later, expense control is all the rage and certain banks are flirting with job cuts. Some chief executives have gone so far as to warn investors that their short-term profit targets won't be met.
Investors got the message. Since the Big Six banks started reporting their earnings on Tuesday, their share prices have fallen an average of 4 per cent. Goldman Sachs Group Inc. reportedly unloaded a $600-million bank-heavy basket of Canadian investments late Thursday.
The new outlook does not apply to all lenders. Royal Bank of Canada believes it can still grow at a fast clip next year. National Bank of Canada has shown that the troubled Quebec economy, to which it is closely tied, can still deliver growth, and management is optimistic about its wealth management opportunities next year.
But the second- and third-largest banks have both expressed caution. Toronto-Dominion Bank stressed the need to "streamline our cost base" on Thursday, and Bank of Nova Scotia reiterated this theme when it reported earnings Friday.
Even though Scotiabank pre-announced $451-million of one-time charges in November, the stock still fell 2 per cent on Friday as investors grappled with the new reality. Chief executive officer Brian Porter described the situation as a "perfect storm" of charges and losses. "In that regard, we're happy that 2014's over," Mr. Porter added on a conference call Friday.
Because the bank is retooling after a multiyear run of acquisitions and expansion, particularly in Latin America, chief financial officer Sean McGuckin said on the call that "expense discipline continues to be a major focus."
Scotiabank has announced plans to cut 1,500 jobs. TD Bank has now foreshadowed a similar fate. Both banks warned that it will be tough to meet their desired earnings growth targets next year.
Bank of Nova Scotia's profit stumbled in the fourth quarter after the bank reported a number of one-time charges, finishing with earnings of $1.4-billion, down 14 per cent from the same period in 2013.
Over the full fiscal year, Scotiabank's profit totalled $7.3-billion, 10 per cent more than 2013. However, one-time items also cloud the full-year earnings, because the bank booked a significant $643-million gain during the third quarter on the sale of its stake in CI Financial Corp.
The bank's international operations remain a major focus for investors because the global economy has shown signs of cooling, hence the need to cut costs abroad.
Over the past year, Scotiabank has closed 55 branches in Latin America, and has plans to shut 120 more.
National Bank of Canada's fourth quarter profit rose to $330-million, up 3 per cent from a year earlier. After stripping out one-time items, the bank reported a 14-per-cent rise in profit, led by its financial markets and wealth management businesses.
National Bank joined RBC as the only other major Canadian bank to have met or exceeded market expectations for fourth-quarter profit; it raised its quarterly dividend by 2 cents to 50 cents a share.
Looking forward, National Bank is keen on the growth potential of its wealth management business. The bank also strives to continue expanding beyond its Quebec base. Next year, more than 40 per cent of revenue is expected to come from outside its home province.
To help achieve this goal, National Bank has been looking for small international acquisitions, such as the investment recently made in Cambodia's ABA Bank. National Bank acquired 30 per cent of the lender for $26-million.
Tim Kiladze