With earnings reports in from four of Canada's Big Six banks, the dominant theme has been the decline of capital markets profits. Amid global uncertainty, dealmaking just wasn't as lucrative last quarter.
But cast a glance at the performance of the personal and commercial banking divisions, and it becomes quite clear that not all hope is lost. In fact, these units allowed the banks that already reported to beat earnings estimates by 8 per cent.
"The performance this quarter speaks to the underlying earnings power of the Canadian banking oligopoly," National Bank Financial Peter Routledge wrote in a research note.
Instead of relying on boosting revenues, the banks' strength stemmed from cutting costs. In particular, Toronto-Dominion Bank, National Bank of Canada and Royal Bank of Canada all improved their efficiency by 3.3 per cent, 1.9 per cent and 0.9 per cent, respectively. "As a result, these banks overcame relatively flat net interest margin and slower loan growth this quarter."
That RBC and TD became more efficient isn't a big surprise because the country's two largest banks have scale -- something Mr. Routledge believes will be a key advantage in an environment with low margins and slow loan growth. As for National, though the bank certainly doesn't have scale country-wide, it does in its home market of Quebec.
Both Bank of Nova Scotia and Canadian Imperial Bank of Commerce have yet to report, and Mr. Routledge noted that there's a chance their personal and commercial divisions may not do as well as their peers. CIBC, especially, isn't known for its retail operations. But only time will tell, and Scotia kicks things off tomorrow.