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Bank stocks dip as earnings season kicks off

Although many Big Six bottom lines shrank in the final fiscal quarter from the third quarter, when record profits were the norm, many banks still made more than they did in the same period a year prior.

FRED LUM/The Globe and Mail

Canadian banks continue to report solid core earnings, but investors are clearly worried about future profit potential.

Although many Big Six bottom lines shrank in the final fiscal quarter from the third quarter, when record profits were the norm, many banks still made more than they did in the same period a year prior.

However, there are ominous signs for the coming fiscal year. Canadian loan growth is undoubtedly slowing at a number of the country's biggest banks, and there is more talk about cracking down on costs.

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"While growing volumes in Canadian banking is a priority, we are also committed to improving efficiency and productivity, particularly as we face a slower growth environment," chief executive officer Gord Nixon said on a conference call.

Investors are cashing in some profits from bank stocks accordingly. Since earnings season kicked off on Tuesday, RBC's stock is down 3.1 per cent, Toronto-Dominion Bank's fell 2.7 per cent and Canadian Imperial Bank of Commerce's dropped 3.0 per cent.

Toronto-Dominion Bank

TD's fourth quarter earnings climbed higher, but fell short of analyst estimates and signalled a warning about future growth potential. The bank's profit included higher earnings in personal and commercial banking, and a very strong bottom line in wealth management, but a disappointing profit in wholesale banking.

The bank incurred a $129-million restructuring charge related to "retail branch and real estate optimization initiatives," something TD alluded to during the third quarter.

TD's earnings amounted to $1.62-billion, or $1.69 per share, slightly higher than the $1.60-billion, or $1.67 per share, reported a year earlier. It was aided by a sizable reduction of its loan loss provisions.

After stripping out one-time items, TD made $1.82-billion, or $1.90 a share, shy of analysts' expectations of $1.99 a share.

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The bank also announced a two-for-one stock split, effectively halving TD's stock price, which is nearing $100 and closed at $95.75 on Wednesday. Current shareholders will receive an extra share for every one they currently own.

Canadian Imperial Bank of Commerce

CIBC's profit slipped in the fourth quarter, capping off a year with muted growth, although core earnings were encouraging.

Canada's fifth largest lender reported earnings of $836-million, down slightly from the $852-million it made in the same quarter of 2012. However, on a per share basis, earnings amounted to $2.05 per share, up from $2.02 a year prior.

Despite solid earnings from its core businesses, each of which made more money than during the equivalent period in 2012, CIBC incurred a number of small charges during the fourth quarter, hindering its performance. These include a $39-million hit for restructuring FirstCaribbean International Bank Ltd., a $35-million charge for an impaired equity position and a $24-million expense for marketing credit cards.

CIBC did not raise its dividend, a move that will surprise the investors and analysts who were counting on a hike.

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Over the full fiscal year, CIBC made $3.4-billion, a tad more than the $3.3-billion earned in 2012.

Stripping out the extra charges in the fourth quarter, CIBC made $905-million, or $2.22 per share, beating analyst expectations for adjusted earnings. However, analysts may not have accounted for all of the charges.

Royal Bank of Canada

RBC, Canada's largest bank, made $2.1-billion, or $1.40 per share in the fourth quarter up 11 per cent from $1.9-billion, or $1.25 per share in the same period of 2012.

RBC's earnings growth was just as strong for the full year, climbing 12 per cent to a record profit of $8.4-billion.

Personal and commercial banking growth cooled last quarter, rising 5 per cent from the year prior, but still amounted to $1.1-billion. RBC was affected by rising provisions for credit losses in its Canadian and Caribbean loan portfolios.

Credit provisions also impacted wealth management, where earnings were flat over the year prior.

Capital markets, however, was a bright spot, with profit jumping 15 per cent to $472-million on stronger corporate and investment banking revenues and healthy loan syndication in the United States.

RBC preannounced a hit to its insurance arm last month. The $160-million charge stemmed from proposed federal legislation that will impact the tax treatment of certain types of individual life-insurance policies. The unit made $107-million for the quarter, down 45 per cent from last year.

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