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Toronto's financial district is seen in this file photo. (Galit Rodan For The Globe and Mail)
Toronto's financial district is seen in this file photo. (Galit Rodan For The Globe and Mail)

TD, CIBC extend strong performance by Canada’s banks Add to ...

Canadian Imperial Bank of Commerce and Toronto-Dominion Bank reported third-quarter profits that surpassed expectations on Thursday, continuing a trend that has seen the country’s major lenders sidestep the fallout from slumping commodity prices and sluggish economic growth.

Bank of Montreal and Royal Bank of Canada also posted robust results for the May-to-July quarter earlier this week. That string of stronger-than-expected profits is setting a high watermark for the banks that will wrap up earnings season next week.

Bank of Nova Scotia and National Bank of Canada, which report Tuesday and Wednesday, respectively, have among the biggest direct exposures to the struggling energy sector. But so far, big banks appear to be faring well despite a two-year rout in oil prices that has hurt Canada’s resource-dependent economy.

“We’re very pleased with our performance this quarter, which was achieved against a backdrop of an economic environment that remains challenging and the volatile market conditions coming out of the Brexit vote,” CIBC CEO Victor Dodig said on a conference call on Thursday.

“Although we can’t control the economy or the interest-rate environment, what our team at CIBC can do is control our strategy to remain profitable and to continue to grow under these conditions,” he added.

CIBC, Canada’s fifth-largest bank by assets, reported a profit of $1.4-billion in its fiscal third quarter, up 47 per cent from last year. However, after deducting the substantial gain from its sale of American Century Investments, CIBC’s adjusted profit was nearly $1.1-billion or $2.67 a share, up 9 per cent.

The result was well above analysts’ expectations for a profit of just $2.35 a share, as the lender reported lower-than-expected loan losses and strong domestic lending.

CIBC set aside $203-million to cover bad loans during the quarter, up 7 per cent from last year but down nearly 29 per cent from the second quarter. Loan losses relating to the struggling oil and gas sector were just $2-million.

TD, the country’s No. 2 bank, reported a profit of nearly $2.4-billion, up 4.1 per cent from last year, helped by growth in its U.S. retail and wholesale banking business.

Its adjusted profit was slightly above $2.4-billion or $1.27 a share, up 5.8 per cent – and also topping analysts’ projections with strong activity in capital markets and lower-than-expected loan losses.

“TD came in ahead of expectations, making it four out of four in terms of beats so far in the quarter,” Barclays analyst John Aiken said, referring to results posted by the quartet of major Canadian banks this week.

Funds set aside by the bank to cover bad loans fell to $556-million or 0.38 per cent of total loans, compared with $584-million or 0.42 per cent in the second quarter. Like other Canadian and U.S. banks, TD had seen an increase in loans to clients in the energy sector turning bad due to the slump in oil prices that hit a 13-year low earlier this year. However, industry analysts say a crude price rebound in the Canadian banks’ latest quarter helped some of these debtors pay back loans.

Profit at TD’s U.S. retail bank rose to $788-million from $650-million a year ago. Its wholesale banking unit’s profit was $302-million, up 26 per cent from the third quarter last year.

At the bank’s Canadian retail business, profit fell 3 per cent to $1.51-billion, weighed by a 15-per-cent increase in insurance claims and related expenses to $692-million following the wildfires in Fort McMurray, Alta., where TD has a significant market share.

CEO Bharat Masrani reiterated the bank’s intention to expand further in the United States, potentially through acquisitions.

“We have a stated strategy of looking at acquisitions in the U.S. In the southeast of the U.S., if there are tuck-ins available, we would certainly be interested and look at them seriously,” he said.

With files from Reuters

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