Analysts have lowered their profit estimates as Canada's biggest banks release their second-quarter profits this week.Chris Helgren/Reuters
Canada’s biggest banks reported their second-quarter earnings this week, covering the three months ended April 30, as concerns about economic downturn and loan risks continue to threaten the sector.
Only one of the Big Five banks, Canadian Imperial Bank of Commerce, topped analysts’ forecasts. Meanwhile, National Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Royal Bank of Canada fell short of analysts’ expectations. National Bank of Canada is the final lender to report, set to release results next week.
While Canadian banks evaded the turmoil in the United States sparked by the failure of Silicon Valley Bank, analysts have lowered their profit estimates in recent weeks, pointing to a parade of hurdles such as high borrowing costs, liquidity concerns and the onset of a potential recession.
“We do not believe that we will see clear signs of recession in this set of numbers, but what we will see is rising [provision for credit losses] ratios in anticipation of a recession, as well as slowing mortgage growth, pressure from rising funding costs, and a still challenging environment for wealth management and capital markets revenues,” Scotiabank analyst Meny Grauman said in a note to clients.
Big bank earnings wrap up as results disappoint and interest rates, recessionary fears bite
Here’s a breakdown of the big banks’ second-quarter earnings so far.
Bank of Montreal (BMO)
A Bank of Montreal sign in North Vancouver, B.C.JONATHAN HAYWARD/The Canadian Press
- Earnings Q2 2023: $1.06-billion ($1.30 per share)
- Earnings Q2 2022: $4.76-billion ($7.13 per share)
- Adjusted EPS: $2.93
- Analysts’ expectations: $3.16 per share (adjusted)
- Dividend: $1.47 cents per share, up 4 cents from Q1
Bank of Montreal BMO-T reported lower second-quarter profit and missed analysts’ estimates as it integrates its takeover of California-based Bank of the West and increases loan loss provisions. This is also the first quarter that BMO has reported earnings that include results from Bank of the West, as the deal closed on Feb. 1.
BMO earned $1.06-billion, or $1.30 per share, compared with $4.76-billion, or $7.13 per share, in the same quarter last year.
The bank raised its quarterly dividend by 4 cents to $1.47 cents per share.
“Our performance this quarter reflects our highly-diversified business mix and the strength, size and stability of our balance sheet, which has been further enhanced by the successful acquisition of Bank of the West,” BMO chief executive officer Darryl White said in a statement.
In the quarter, BMO set aside $1.02-billion in provisions for credit losses - the funds banks set aside to cover loans that may default - the bulk of that amount inherited from Bank of the West.
Total revenue fell in the quarter to $8.44-billion, including $1.07-billion from its integration of Bank of the West. Expenses of $5.57-billion included $1.58-billion from its latest acquisition.
Bank of Nova Scotia
A branch of Scotiabank in downtown Toronto.Chris Young/The Canadian Press
- Earnings Q2 2023: $2.16-billion ($1.69 per share)
- Earnings Q2 2022: $2.75-billion ($2.16 per share)
- Adjusted EPS: $1.70
- Analysts’ expectations: $1.77 per share (adjusted)
- Dividend: $1.06 per share, up 3 cents from Q1
Bank of Nova Scotia BNS-T reported lower second-quarter profit and missed analysts’ estimates as it set aside more loan loss provisions and a tighter economic environment weighed on growth.
Scotiabank earned $2.16-billion, or $1.69 per share, compared with $2.75-billion, or $2.16 per share, in the same quarter last year.
The bank raised its quarterly dividend by 3 cents to $1.06 per share.
“I am pleased with the bank’s stable operational performance in the quarter and encouraged that our strong capital and liquidity profile positioned us well to manage through the current environment of heightened macroeconomic uncertainty,” Scotiabank chief executive officer Scott Thomson said in a statement.
In the quarter, Scotiabank set aside $709-million in provisions for credit losses. That was higher than analysts anticipated, and included $88-million against loans that are still being repaid, based on models that use economic forecasting to predict future loan losses. In the same quarter last year, Scotiabank had set aside $219-million in provisions.
Total revenue fell slightly in the quarter to $7.93-billion as expenses rose to $4.58-billion.
Canadian Imperial Bank of Commerce (CIBC)
A person using the ATM at a new branch of the CIBC on Queen St. West near Spadina Ave.Fred Lum/the Globe and Mail
- Earnings Q2 2023: $1.69-billion ($1.76 per share)
- Earnings Q2 2022: $1.52-billion ($1.62 per share)
- Adjusted EPS: $1.70
- Analysts’ expectations: $1.62 per share (adjusted)
- Dividend: $0.87 per share, up 2 cents from Q1
Canadian Imperial Bank of Commerce CM-T reported higher second-quarter profit that beat analysts’ estimates as a boost in its domestic personal and business banking unit from higher interest rates offset higher loan loss provisions and slowdowns in other sectors.
CIBC earned $1.69-billion, or $1.76 per share, compared with $1.52-billion, or $1.62 per share, in the same quarter last year.
The bank raised its quarterly dividend to $0.87 per share from $0.85 per share.
“We continued to execute on our client-focused strategy, delivering solid financial results in the second quarter by leveraging the investments we’ve made in high-touch, high-growth markets and furthering our strengths in talent and technology,” said CIBC chief executive officer Victor Dodig.
In the quarter, CIBC set aside $438-million in provisions for credit losses. That was higher than analysts anticipated, and included $59-million against loans that are still being repaid, based on models that use economic forecasting to predict future loan losses. In the same quarter last year, CIBC reserved $303-million in provisions.
Total revenue rose 6 per cent in the quarter, to $5.7-billion, as expenses edged slightly higher to $3.14-billion from $3.11-billion in the same period a year earlier.
Royal Bank of Canada (RBC)
A woman walks past a Royal Bank of Canada sign in the financial district in Toronto.Alex Lupul/The Canadian Press
- Earnings Q2 2023: $3.6-billion ($2.58 per share)
- Earnings Q2 2022: $4.25-billion ($2.96 per share)
- Adjusted EPS: $2.65
- Analysts’ expectations: $2.80 per share (adjusted)
- Dividend: $1.35 per share, up 3 cents from Q1
Royal Bank of Canada RY-T reported a drop second-quarter profit and missed analysts’ estimates as a worsening economic outlook drives costs higher and prompts lenders to set aside more money for loans that could turn sour.
RBC profit fell 14 per cent from a year earlier to $3.6-billion, or $2.58 per share, compared with $4.25-billion, or $2.96 per share, in the same quarter last year.
The bank raised its quarterly dividend by 3 cents to $1.35 per share.
In the quarter, RBC set aside $600-million in provisions for credit losses. That was higher than analysts anticipated, and included $173-million against loans that are still being repaid, based on models that use economic forecasting to predict future loan losses. In the same quarter last year, RBC had a recovery of $342-million in provisions.
Total revenue rose in the quarter, to $13.52-billion from $11.22-billion a year earlier, but expenses also edged higher to $7.49-billion.
Toronto-Dominion Bank (TD Bank)
People walking at TD Centre in Toronto’s Financial District.Fred Lum/the Globe and Mail
- Earnings Q2 2023: $3.35-billion ($1.72 per share)
- Earnings Q2 2022: $3.81-billion ($2.07 per share)
- Adjusted EPS: $1.94
- Analysts’ expectations: $2.08 per share (adjusted)
- Dividend: $0.96 per share, stays the same as Q1
Toronto-Dominion Bank TD-T reported worse-than-expected profit amid the fallout from its cancelled takeover of Tennessee-based First Horizon Corp. and a worsening economic outlook.
TD earned $3.35-billion, or $1.72 per share, compared with $3.81-billion, or $2.07 per share, in the same quarter last year.
“TD’s retail businesses in both Canada and the United States continued to show strong revenue and earnings growth this quarter, with robust customer originations and loan volumes,” TD chief executive officer Bharat Masrani said in a statement. “Investments in differentiated wealth and insurance products and the close of the Cowen acquisition expanded our offerings and strengthened the competitive advantages of these businesses.”
In the quarter, TD set aside $599-million in provisions for credit losses. That was lower than analysts anticipated, and included $48-million against loans that are still being repaid, based on models that use economic forecasting to predict future loan losses. In the same quarter last year, TD set aside $27-million in provisions.
Total revenue rose to $12.36-billion to $11.26-billion from the same quarter a year prior. But expenses also ticked higher to $6.99-billion from $6.03-billion.
The bank added that it plans to repurchase 30-million shares, representing 1.6 per cent of its outstanding shares, to deploy a portion of its sizeable capital cushion that was earmarked for the cancelled deal.
National Bank of Canada
National Bank of Canada raised its quarterly dividend and reported its second-quarter profit.Paul Chiasson/The Canadian Press
- Earnings Q2 2023: $847-million ($2.38 per share)
- Earnings Q2 2022: $889-million ($2.53 per share)
- Adjusted EPS: $2.38
- Analysts’ expectations: $2.39 per share (adjusted)
- Dividend: $1.02 per share, up 5 cents from Q1
National Bank of Canada NA-T reported lower second-quarter profit and narrowly missed analysts’ estimates by a slim margin as higher costs and rising reserves for potentially sour loans weighed on results.
National Bank earned $847-million, or $2.38 per share, compared with $889-million, or $2.53 per share, in the same quarter last year.
The bank raised its quarterly dividend by 5 cents to $1.02 per share for the quarter ending July 31.
In the quarter, National Bank set aside $85-million in provisions for credit losses. That was lower than analysts anticipated, and included $27-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, National Bank booked $3-million in provisions.
Total revenue rose to $2.48-billion in the quarter, up from $2.44-billion in the same period a year earlier. But expenses increased 6 per cent to $1.37-billion, which the bank said was driven by increased hiring last year, wage inflation and technology expenses.
Stefanie Marotta