The Big Six banks delivered fourth-quarter results that reflected a challenging environment of low interest rates and a slow Canadian economy: Profits rose, but hardly enough to excite the banks' share prices and push aside widespread concerns that the days of strong growth are over. Still, there were plenty of highlights.
Best beat: Bank of Montreal, by 9.2 per cent. Heading into the earnings season, analysts were cautious about the banking sector, but their worst fears went unrealized as the banks generally delivered better-than-expected results. BMO delivered the biggest surprise: Its fourth-quarter profit was $1.2-billion, or $1.90 a share after making some adjustments – a significant 16 cents a share above the consensus estimate from analysts. Analysts reacted by raising their 12-month target prices on the stock to an average of $81.56, up about a buck. But, generally, they still sound cautious about the banks.
Biggest profit gain: Bank of Montreal, up 17 per cent.
Revenue growth at the big banks has slowed, but cost-cutting and a nice tailwind from the stronger U.S. dollar has pushed profits higher. In the case of BMO, revenue from its Canadian personal and commercial banking operations – the mortgages, lines of credit and business loans that drive the bulk of bank activity – rose just 3 per cent, but profits rose 7 per cent; for its U.S. personal and commercial banking, revenues were flat, but profits jumped 23 per cent.
Biggest annual profit Royal Bank of Canada, $10-billion.
RBC joined the 11-figure profit club in 2015, which, in Canada, has a membership limited to, well, RBC. Though big, round numbers can be meaningless, this one has an important feature: It suggests that even sluggish profit growth can deliver massive results. If RBC's annual profit growth is 5 per cent next year – that's an if, not a forecast – that's $500-million in incremental earnings in 2016. For smaller BMO to report that sort of increase, its annual profit would have to rise twice as fast, at a pace of more than 11 per cent. Put it another way, the big get bigger.
Biggest dividend hike: Canadian Imperial Bank of Commerce, up 11.7 per cent in 2015.
CIBC has been busily refocusing its efforts on customer service and innovation – but it has been enticing investors, and dissuading short-sellers, with an aggressive dividend policy as well. In 2015, the bank raised its dividend every quarter, taking its quarterly payout to $1.15 a share from $1.03. Its goal is to distribute 50 per cent of its profits in the form of dividends, which means more hikes are likely. "We're going to keep going at 3 cents a quarter until we get to the upper end of our range, which is 50 per cent," Victor Dodig, CIBC's chief executive officer, said in a call with analysts. "We're at 45.5 per cent now. So we have room to move up."
Biggest job cuts in 2015: Toronto-Dominion Bank, 1,594 jobs or 1.9 per cent of its work force.
TD has made it well known that this would be a big year for shaking things up. One driver was the bank's heady expansion over the past decade, leaving some tidying up to do. But TD was also reacting to the consumer shift from branches to online and mobile banking, which has pushed the bank to adapt. The actual number of layoffs could be higher: The number above reflects the year-over-year change in full-time employees, meaning that tech-savvy hires may have offset more significant cuts elsewhere. The job cuts came with a price: TD reported a $686-million restructuring charge in 2015.
Best stock performance: CIBC, up 7.3 per cent in the fiscal fourth quarter (not including dividends).
Bank stocks have been struggling in 2015 because of concerns that weak domestic economic conditions will eventually weigh on bank profits. But CIBC, a comeback bank with the most to win and an easy-to-sell dividend story, stands out from the pack.