Three of Canada's big banks posted profits that were below expectations on Thursday, results that will weigh heavy on a sector that was soaring.
Royal Bank of Canada, Toronto-Dominion Bank and CIBC all reported profitable quarters, but all three fell short of analysts' earnings per share estimates. In contrast, Bank of Montreal handily beat expectations when it reported second quarter results on Wednesday.
The relative weakness can be traced in part to a strong Canadian dollar, which undermines earnings from foreign operations. TD Bank has a large U.S. retail branch network, while Royal Bank has massive foreign investment banking and wealth management operations.
Going into these earnings, analysts warned that Canadian banks were priced for perfection. Anything less than profits above what analysts forecast was expected to result in a drop in valuation on these widely-held shares. Strong results from Bank of Montreal on Wednesday only served to increase expectations.
Many money managers shift their holdings among financial institutions depending on relative valuation and earnings momenteum - moving between insurers, Canadian banks and U.S. banks. Portfolio managers who take that approach will have reasons to be trading on Thursday.
Royal Bank's cash earnings per share were 96 cents, when analysts were calling for $1.10.
TD Bank earned $1.36 per share, when analysts were expecting $1.40.
And CIBC reported earnings per share of $1.46, against expectations of a $1.49 profit.