Bank of Montreal just posted a record quarterly profit and blew past earnings expectations. You'd expect its stock to soar.
The reality: BMO's shares are barely up a blip, climbing less than half of 1 per cent.
Such is the frustration for Canadian bank chiefs these days.
Unlike Canadian life insurers, which are soaring as bond yields rebound (Manulife Financial Corp. is up 57 per cent in one year), or U.S. banks, which have skyrocketed as the U.S. economy recovers (Citigroup Inc. gained 64 per cent in the past 12 months), Canadian bank shares struggle to gain momentum.
At the core, investors seem wary about the threats to future retail growth. The country's housing was long expected to at least cool, and Canadians are supposed to slow their borrowing because they are already so deep in debt.
No matter how often the banks buck the trend – RBC, which reports on Thursday, made roughly $2-billion last quarter – investors never seem satisfied enough. Despite the strong bottom lines, they continue to emphasize the negative news.
Take BMO, for example. Though the bank's $1.14-billion profit is a record, investors have the option to combine the last quarter with the two prior ones. When you do that, you see profits for fiscal 2013 are up just 2 per cent from the same three quarters in 2012.
Fair point. But it seems like the banks are getting less credit for their growth prospects than they are for the things that can hinder their bottom lines.
In some respects, the banks looks like Canadian real estate investment trusts. No matter what profits REITs post, the valuations keep slumping simply because bond yields are rising. (The two typically move in opposite directions.) RioCan REIT's adjusted funds from operations per unit were up 6 per cent in the second quarter from the same period in 2012, and last year they jumped 7 per cent from 2011. But the stock's down roughly 15 per cent in the past year.
But there is one key difference. Lately the banks have started to gain traction. The TSX Bank Index recently bounced off its June lows, and is now near its all-time high. Royal Bank of Canada and Toronto-Dominion Bank also recently set new peaks.
However, the banks have been very close to these levels before. What will it take for them to keep climbing this time around?
(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)
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