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The good/bad news: Banks and resources rule Add to ...

The recovery from the worst financial and economic slump since the Great Depression has been long and arduous, not least for insurance companies, traditionally major contributors to Canadian financial sector profits. They didn’t hold up their end in a volatile environment last year, as earnings for the interest-rate-sensitive group plunged 56%. Sun Life Financial slipped all the way to 985th on our list from 16th the year before. Other prominent members of the Biggest Losers’ club include: Air Canada (it’s never good to be the high-cost player in a competitive marketplace), which plummeted to 991 from 147; Thomson Reuters Corp. (internal organizational headaches didn’t make it easier to peddle expensive desktop products to cost-shedding financial customers), whose vertiginous drop took it to 998th from 36th; and Kinross Gold (project delays, soaring costs), which fell down to 999th from 39th. Last-place honours belong to Yellow Media, which ranked 83rd the previous year. Its walking fingers have been trampled by the Internet ad elephants, but perhaps the Yellow folks can derive faint hope from the experience of some previous cellar-dwellers suffering from PDS—profit disappearance syndrome. Bell Aliant, the biggest loser in 2010, climbed back to profitability and 76th place. Barrick Gold finished dead last in 2009, but cracked the top 10 the next year after ditching a hedging program, and climbed two notches to fourth place in 2011.

While the bottom-dwellers struggle to regain their footing, Canada’s banks continue to churn out heady profits after managing to avoid the financial cyclones that cut a swath through the U.S. and Europe. Their much-envied strength has enabled the Canadians to capitalize on opportunities to expand highly profitable businesses in foreign markets, such as wealth management, and to snatch up valuable assets, including the two-legged variety, from faltering competitors. Last year, they proved beyond a doubt that rock-bottom interest rates, a shaky economy and darkening skies are no impediment to solid banking gains—as long as Canadian borrowers are willing to do their part to fuel credit excesses. As they did the previous year, the Big Five banks all placed in the top 10, although there was a notable shuffle at the top. Toronto-Dominion Bank and Bank of Nova Scotia, with their effective consumer marketing blitzes, vaulted ahead of Royal Bank of Canada, the traditional industry leader, while Bank of Montreal and Canadian Imperial Bank of Commerce retained their seventh and eighth slots, respectively. Energy and mining companies claimed the other five spots in the top 10. Joining No. 4 Barrick was Suncor Energy, which slipped a rung to No. 5, and Imperial Oil, which jumped to sixth from 10th. Potash Corp. moved up to ninth from 12th on the strength of foreign demand. Teck Resources rode the same commodity wave to 10th from 13th. Heading in the other direction was BCE, which slid from ninth to 13th, but remains the second most profitable company in Canada that isn’t directly involved in banking, digging or drilling. Canadian National Railway was 12th, down from 11th the year before. For those trainspotters keeping score, Canadian Pacific Railway finished 46th under the outgoing management, down two notches. And embattled former tech darling Research In Motion slid to 29th from its former lofty rank at No. 5.

While RIM searches for ways to regain its lost lustre and win back skeptical investors, the banks have to figure out what to do now that their gravy train is running out of steam. Consumer loan expansion is slowing, perhaps a sign that the nagging of Bank of Canada Governor Mark Carney about household debt management is finally having an impact. The outlook for Canadian profits generally is “mildly positive over the next 12 months, assuming that the global economy stays on a moderate growth path,” says Peter Perkins, global strategist with MRB Partners in Montreal. “In this scenario, the financials plod along and do okay, but definitely the best is behind them.” Rosenberg adds that “it is a little difficult to ascertain in the next several quarters exactly how the banks are going to derive their profit growth.”

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