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Canadian bank IFRS transition was easy sailing

A calculator with a chewed pencil.

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After all the fanfare and hoopla around Canadian banks' transition to International Financial Reporting Standards, it turns out the change has come and gone quite smoothly.

All of the banks, with the exception of Laurentian, have all now reported their 2011 annual earnings using both Canadian GAAP and IFRS methods, and profits aren't drastically different between the two. On an adjusted earnings per share basis, the IFRS numbers differed within a small range of -3 per cent (Bank of Montreal ) to +2 per cent (Royal Bank of Canada .)

The range wasn't as narrow on a reported basis, with BMO's IFRS numbers coming in 8 per cent lower because of M&I related costs and big securitization volumes, and book values across the board were lower by about 8 per cent. Capital ratios were also about 75 basis points lower, which the banks will phase in over five quarters.

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Going forward, RBC analyst Andre-Philippe Hardy estimates that earnings under IFRS should actually be higher for some banks, because a number of them posted big securitization gains last year. Canadian Imperial Bank of Commerce , for instance, had securitization income of $1.06-billion in 2011, versus $631-million in 2010, and Bank of Nova Scotia posted securitization income of $236-million in 2010 compared with $124-million a year earlier.

Though the earnings differences weren't much, an average 8 per cent drop in book value isn't the easiest thing to swallow. National Bank was worst hit with a 12 per cent drop, and Mr. Hardy noted that the banks mainly took hits from recognizing pension-related cumulative actuarial losses and from reversing cumulative securitization gains.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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