Royal Bank of Canada and Bank of Montreal both rose more than 2 per cent in early trading after releasing disappointing quarterly results. Investors appear to be looking past the results, encouraged by signs global economies are starting to reopen and hoping that a vaccine will arrive sooner than later for the coronavirus.
Quarterly profits from both banks more than halved from a year earlier as they set aside billions of dollars to cover future loan losses driven by the coronavirus pandemic.
Both lenders posted more than six-fold increases in loan-loss provisions, driving earnings across most of their businesses lower, and sending their returns on equity into the single digits.
Royal Bank, the nation’s biggest lender, reported adjusted earnings of C$1.03 per share for the three months ended April 30, missing estimates for C$1.58, as provisions jumped to C$2.8 billion, from C$426 million a year earlier.
BMO, the fourth-biggest bank, posted adjusted profit of C$1.04 per share, compared with expectations for C$1.22.
The spike in provisions points to banks’ expectations for a surge in loan losses triggered by the economic hit from the novel coronavirus outbreak. On Tuesday, Bank of Nova Scotia and National Bank of Canada also reported steep declines in profits, but beat expectations.
Royal Bank posted profit declines across most of its major business lines, including personal and commercial, wealth management and capital markets, while BMO said its trading and investment banking division swung to a loss.
National Bank of Canada was up more than 5 per cent in morning trade after releasing its quarterly results after the bell on Tuesday.
National Bank of Canada’s net income plunged 32 per cent in its second quarter as it put aside five times the provisions for credit losses than it did a year ago due to the economic storm triggered by the COVID-19 pandemic.
The Montreal-based bank said after markets closed that its net income amounted to $379 million for the period ended April 30, compared with $558 million in the same quarter last year.
But after the trough observed in April, the gradual reopening of Quebec — the main market of the sixth-largest bank in the country — suggests better days are ahead, said president and chief executive officer Louis Vachon.
“If we look forward, the economic outlook for the province remains favourable, with its healthy public finances, its diversified economy, less indebted consumers and a well-developed financial support system for local businesses,” he said Tuesday during a conference call.
The bank says its diluted earnings per share for the period ended April 30 stood at $1.01, down from $1.51 at the same time last year. Operating revenues increased 15 per cent to $2.04 billion, with increases coming from all sectors.
Analysts expected the bank would report diluted earnings per share of 94 cents on $1.99 billion of revenues, according to financial markets data firm Refinitiv.
RBC analyst Darko Mihelic reiterated an “outperform” rating on the stock after reviewing the results, and raised his price target to $60 from $55.
“Our point is that we believe NA has seen the worst of credit losses and capital declines are not likely to be worrisome (on a relative basis) from here on in,” he said in a note.
Several other analysts also raised their price targets.
Shopify shares were down 8 per cent in late morning trading, after a more than 10 per cent drop on Tuesday. The decline came alongside a pullback in the large tech stocks on Wall Street, as investors rotate some money out of the growth names that have led the rally off of the March lows.
Air Canada shares are down 5 per cent in early trading after announcing plans after the bell on Tuesday to raise more than $1 billion in share and debt offerings to bolster its cash position amid the financial devastation of the COVID-19 pandemic.
The airline says it has launched a public offering for about $500 million worth of Class A and Class B voting shares.
It has also started a private placement of unsecured convertible notes — a debt security that allows the owner to convert it into a shares — for a total of US$400 million, or about C$550 million.
The stock and debt offerings include an over-allotment allowing the underwriters to buy an additional 15 per cent of the shares or convertible notes.
Air Canada says the net proceeds will bolster its cash position and provide it greater “flexibility” to manage the impact of the health crisis.
Shares of Torstar Corp. jumped more than 50 per cent in early trading after the media giant struck a $52-million deal to be bought by a firm operated by two Canadian businessmen.
The owner of the Toronto Star newspaper, and numerous other local media outlets, announced late Tuesday it would be taken private by NordStar Capital LP, owned by Paul Rivett and Jordan Bitove.
Shortly after markets opened, the company’s shares were 22 cents higher at 62 cents per share on the Toronto Stock Exchange.
The NordStar offer is 63 cents per share for all of Torstar’s outstanding class A shares and class B non-voting shares.
With files from Reuters and The Canadian Press