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CIBC Reports Q2 Profit Down From Year Ago, Raises Quarterly Dividend

CIBC raised its quarterly dividend as it reported its second-quarter profit fell compared with a year ago.

The bank says it will now pay a quarterly dividend of 83 cents per share, up from 80.5 cents per share.

CIBC earned $1.52 billion or $1.62 per diluted share in net income for the quarter that ended April 30, down from $1.65 billion or $1.78 per diluted share in the same quarter a year earlier.

Revenue for the quarter totalled $5.38 billion, up from $4.93 billion a year ago, while the bank’s provision for credit losses amounted to $303 million, up from $32 million in the same quarter last year.

On an adjusted basis, CIBC says it earned $1.77 per diluted share in its latest quarter, down from an adjusted profit of $1.79 per diluted share a year earlier.

Analysts on average had expected an adjusted profit of $1.78 per diluted share for the bank’s second quarter, according financial markets data firm Refinitiv.

This report by The Canadian Press was first published May 26, 2022.

RBC hikes dividend, posts profit gain as COVID-19 risks recede

Royal Bank of Canada RY-T +0.15%increase reported higher second-quarter profit and raised its quarterly dividend as the bank sees risks related to the COVID-19 pandemic receding, which allowed it to claw back hundreds of millions of dollars in loan loss provisions.

RBC is the fourth major bank to report earnings for the fiscal second quarter, which ended April 30, joining Bank of Nova Scotia BNS-T +1.23%increase and Bank of Montreal BMO-T +1.93%increase in exceeding analysts’ profit expectations. Canadian Imperial Bank of Commerce CM-T -1.46%decreasefell shy of estimates on Thursday, in part because of costs incurred from an acquisition of a credit card portfolio.

In the quarter, RBC earned $4.25-billion, or $2.96 per share, compared with $4-billion, or $2.76 per share, in the same period last year.

On an adjusted basis, RBC said it earned $2.99 per share, far above the consensus estimate of $2.71, according to Refinitiv.

RBC raised its quarterly dividend by eight cents per share, or 7 per cent, to $1.28.

Provision for credit losses, which are the funds banks set aside to cover loans that could default, played a large role in RBC’s rising earnings. The bank had a net recovery of $342-million in provisions in the second quarter, whereas analysts had estimated it would add $223-million to reserves, according to Refinitiv.

RBC said that was “mainly driven by reduced uncertainty relating to the COVID-19 pandemic.” But it tempered its reserve releases because of what it called “increased downside risk, including rising inflation and interest rates.”

The bank’s revenue fell 3 per cent to $11.22-billion in the quarter, while expenses increased 1 per cent to $6.43-billion.

In RBC’s core personal and commercial banking division, profit of $2.24-billion was up 17 per cent, but driven mainly by lower loan loss provisions.

Wealth management profit rose 10 per cent, as the division increased sales and assets appreciated.

But capital markets profit fell 26 per cent year over year, as lower revenue from fixed income and equity trading was compounded by lower corporate and investment banking revenue and higher provisions for credit losses.

The bank maintained strong capital levels, with a common equity Tier 1 (CET1) ratio of 13.2 per cent – down from 13.5 in the previous quarter but still far above regulatory minimums.

Bankers buck gloomy trend by forecasting growth amid concerns about economic slowdown

Top executives at two major Canadian banks predict they can keep adding new loans and increasing profits in the coming quarters, offering an optimistic outlook for the financial sector that is at odds with economists’ increasingly gloomy forecasts of a downturn ahead.

Bank of Nova Scotia BNS-T and Bank of Montreal BMO-T both reported higher second-quarter profits on Wednesday, underpinned by robust demand for personal and commercial loans as well as lower loan loss reserves than analysts anticipated. Profits increased 12 per cent compared with those in the same quarter a year earlier at Scotiabank, and 4 per cent after adjustments at BMO, as rising interest rates helped increase margins on loans.

Growth slowdown fears temper bullishness on commodity currencies

Canada considers new measures to protect economy from national security threats

That marked a strong start to the major banks’ earnings season, but analysts cautioned those results, which cover the three months ended April 30, already look distant in the rear-view mirror. They pressed senior executives about how the banks are bracing for a deteriorating economic environment marked by war in Ukraine, high inflation, rapid central bank rate hikes and the increasing prospect of a recession that could curb customers’ appetite to borrow.

Bank chief executives and finance chiefs stressed they still expect economies to grow as COVID-19-related headwinds ease. They noted that most households are in good financial health, as many stashed away extra savings during the pandemic, while unemployment remains low in a tight labour market. Businesses are borrowing to bulk up inventories as demand for products outstrips supply, and some sectors, such as commodities, are booming.

“The macroeconomic backdrop for our key geographies remains positive,” said Scotiabank chief executive Brian Porter, on a conference call with analysts on Wednesday. “Despite the macroeconomic and geopolitical uncertainties in recent months, we are encouraged by the resilience of our businesses.”

The mood among economists is much more downbeat as the threat of a global recession mounts, even though few are predicting that is highly likely. The tone has also been sombre as business leaders and policy makers rub elbows at the World Economic Forum’s gathering in Davos. And the former governor of Canada’s central bank, Stephen Poloz, recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.

Yet increases in banks’ loan balances have been broad-based, and BMO chief financial officer Tayfun Tuzun said in an interview that he still expects “high-single-digit loan growth” year over year – the same guidance he gave three months ago.

“All in all our clients are telling us that they’re still interested in investing in their businesses,” said Mr. Tuzun. He added that there are “a lot of good indicators for what’s to come” for the bank.

A particular bright spot is commercial lending in Canada, where loan balances rose 13 per cent at BMO and 19 per cent at Scotiabank in the second quarter. Scotiabank’s chief financial officer, Raj Viswanthan, said corporate clients and consumers have “very strong” balance sheets at the moment, “so we see a lot of pent up demand.”

The disruptions caused by COVID-19 and war in Ukraine have also increased demand in key areas, Mr. Viswanathan said. “It’s supply chain issues, it’s the rise of e-commerce, it’s the demand for food.”

Bankers aren’t blind to the gathering economic storm clouds. BMO chief risk officer Pat Cronin said his bank is giving greater weight to a hypothetical scenario that predicts the impact of a severe downturn, and has lowered expectations for parts of its forecast it considers the base case.

When U.S. banking giant JPMorgan Chase & Co. hosted an investor day this week, chief executive Jamie Dimon summed up the outlook as, “strong economy, big storm clouds,” saying those clouds “may dissipate. If it was a hurricane, I would tell you that.” But he acknowledged “they may not dissipate, so we’re not wishful thinkers.”

The Bank of Canada published a paper this month that suggests the country’s banks are strong enough and well capitalized to withstand even a severe, prolonged downturn in which unemployment peaks at 13.5 per cent and house prices fall 29 per cent.

Gabriel Dechaine, an analyst at National Bank Financial Inc., wrote to clients that, “in a normal environment, such optimism would be met with positive expectations for stock price appreciation,” but he remains “more cautious … as long as the disruptive forces of inflation that heighten recession expectations persist.”

In the fiscal second quarter, Scotiabank earned $2.75-billion, or $2.16 per share, compared with $2.46-billion, or $1.88 per share, in the same quarter last year. Adjusted to exclude certain items, Scotiabank said it earned $2.18 per share, well above the consensus estimate of $1.98 per share among analysts, according to Refinitiv.

In the same quarter, BMO earned $4.76-billion, or $7.13 per share, compared with $1.3-billion, or $1.91 per share, a year earlier. After adjusting to exclude one-time items that include a $2.6-billion gain on a financial instrument tied to BMO’s US$16.3-billion acquisition of California-based Bank of the West, profit was $2.187-billion, or $3.23 per share. On average, analysts expected $3.24 per share on an adjusted basis.

Both banks raised their quarterly dividends, by 3 cents per share to $1.03 at Scotiabank, and by 6 cents per share to $1.39 at BMO.

Two key factors that have supported banks’ rising profits through much of the pandemic – rapidly rising mortgage balances and unusually low losses from defaulting loans – appear to have reached peaks, and are set to return to more normal levels.

Mortgage balances rose 16 per cent year over year at Scotiabank and 8 per cent at BMO, benefitting from the tail end of a red-hot streak for housing markets. But that yearly growth rate is “slowly slowing,” said Dan Rees, Scotiabank’s head of Canadian banking, and is likely to revert to a pace in the range of 6 to 9 per cent in the coming quarters even as some economists are predicting housing prices will fall.

Provisions for credit losses – the funds banks set aside to cover losses in case loans default – “reached the floor this quarter,” said Phil Thomas, Scotiabank’s chief risk officer. He and his BMO counterpart, Mr. Cronin, expect loan loss reserves will gradually drift higher. But with write-offs and delinquencies still very low, neither risk officer is predicting a spike in loan losses, even though it will rapidly get more expensive for consumers to service their debts.

TD Bank’s second-quarter profit tops estimates, boosted by real estate lending and better loan margins

Bank of Canada 50-basis-point June 1 hike a done deal, economists say

The Bank of Canada will hike its overnight rate by 50 basis points on June 1, according to all 30 economists polled by Reuters, who see interest rates at least a half-point higher by year-end than predicted just one month ago.

The BoC seems set to follow an aggressive path similar to that taken by the Federal Reserve to tame soaring inflation, which hit over a three-decade high of 6.8% in April and has now been above the central bank’s 1-3% range for more than a year.

After a 50 basis-point hike in April, its biggest single increase in 22 years, BoC Governor Tiff Macklem said interest rates may need to go above the neutral range – currently estimated to be between 2% and 3% – for a period of time to get inflation back to target.

The BoC was expected to lift its overnight rate by another half a percentage point at its June 1 meeting, taking its lending rate to 1.50%, according to all respondents in a May 20-25 poll. That was in line with money markets pricing.

Just a month back, economists forecasted a 25-basis-point hike in June.

“The BoC is laser-focused on taming inflation but once the overnight rate reaches a more neutral level, it will be more conscious of the potential trade-off between returning inflation expediently to target and prolonging the economic cycle,” said Josh Nye, senior economist at Royal Bank of Canada.

“We don’t expect the BoC will make monetary policy restrictive but if stubbornly high inflation forces it to do so that would amplify recession risk.”

A smaller sample of economists who answered an additional question were nearly split on whether the current tightening campaign would lead to a recession, with seven of 14 saying it would not and the remaining it would trigger one.

Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the pandemic to participate in a red-hot housing market.

Thirteen of 30 respondents in the poll forecasted rates to rise to 2.25% in the third quarter, 10 expected rates to be 2.00% and six expected 2.50%. Only one economist expected rates to be 1.75% by end-September.

After that, 25 of 30 respondents expected rates to rise to 2.50% or more in the fourth quarter, including six predicting them to reach 2.75% and another six expecting rates at 3.00% by end-2022. Only four expected rates to be 2.25% and one predicted rates to be 1.75%.

Poll medians showed rates at 2.25% next quarter and 2.50% in the fourth quarter. The BoC was expected to hike rates to 2.75% in the first quarter of 2023 and stay on the sidelines at least until the end of next year.

Inflation was expected to average 5.9% this quarter before easing to 5.0% and 4.4% in the next two quarters, according to a separate poll.

While inflation was expected to cool significantly next year it was still forecast to stay above the central bank’s target until at least 2024.

“Right now, the BoC’s attention remains firmly focused on inflation. Gov. Macklem hinted that market expectations of a 50-basis-point hike in June would likely be met as he promised to restore price stability ‘forcefully’ if needed,” noted Christian Lawrence, senior cross-asset strategist at Rabobank.

“That said, the dangers of hiking into a recession are not lost on the bank, but dampening demand is the only tool they have to try to slow inflation, and that spending needs to be moderated to try to reach an equilibrium. Rising inflation expectations are a core concern,” Lawrence said.

US GDP contracts further in 1Q

The U.S. economy contracted 1.5% on an annualized basis in the first quarter of 2022, according to revised data released by the Bureau of Labor Statistics on Thursday. Economists surveyed by Refinitiv were expecting a seasonally adjusted annual contraction of 1.3%.https://6ffcdf125ec74efcdac07f5dd6bd72de.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

The new downward revision for gross domestic product, the broadest measure of goods and services produced across the economy, comes after a previously reported 1.4% contraction. It was the first drop in GDP since the second quarter of 2020 – in the depths of the COVID-19 recession – and followed a robust 6.9% expansion in the final three months of 2021.

The contraction was partially attributed to the nation spending more on imports from other countries than it did on U.S. exports. The trade gap slashed first-quarter GDP by 3.2 percentage points. Also contributing to the weakness was a slower restocking of goods in stores and warehouses, which had built up their inventories in the previous quarter for the 2021 holiday shopping season, knocking nearly 1.1 percentage points off the January-March GDP. 

FED MINUTES SUGGEST INTEREST RATE HIKES COULD COME FASTER THAN THE MARKET EXPECTS

The data comes as inflation continues to run near a 40-year high and weigh on growth, with consumer price index, a wide-ranging measure of goods and services, including food, autos, gasoline, health care and rent, rising 8.3% in April from a year ago. Prices jumped 0.3% in the one-month period from March. On a monthly basis, average hourly earnings dropped 0.1% in March, when accounting for the inflation spike. On an annual basis, real earnings dropped 2.6% in April. 

Despite the slowing growth and record-high inflation, consumer spending grew 3.1% on an annual basis from January through March. Employers have also added more than 400,000 jobs for 12 straight months and the unemployment rate is near a half-century low.

The economy is widely believed to have resumed its growth in the current quarter. In a survey released this month, 34 economists told the Federal Reserve Bank of Philadelphia that they expect GDP to grow at a 2.3% annual pace from April through June and 2.5% for all of 2022. Still, their forecast marked a sharp drop from the 4.2% growth estimate for the current quarter in the Philadelphia Fed’s previous survey in February.

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The nonpartisan Congressional Budget Office has projected that GDP will grow 3.1% in 2022, driven by strong consumer spending and demand for services. The budget office expects growth to slow slightly in coming years, forecasting a GDP of 2.2% in 2023 and 1.5% in 2024. 

Meanwhile, the CBO expects inflation will remain elevated in the near-term, with the consumer price index expected to hit 4.7% for the entirety of 2022. While that is down slightly from the 6.7% recorded in 2021 – the highest level in four decades – it’s still significantly higher than the Federal Reserve wants. Inflation is not expected to fall to the Fed’s preferred level of 2% until 2024, according to the CBO. 

Minutes from the U.S. central bank’s May 3-4 meeting released on Wednesday show that policymakers stressed the need to raise interest rates quickly in order to bring consumer prices closer to their 2% goal. Officials voted unanimously to raise the benchmark federal fund rate by 50 basis points earlier this month, and agreed that similarly sized hikes are on the table at upcoming meetings in June and July.

The Fed is banking on its ability to engineer a so-called soft landing: Raising borrowing rates enough to slow growth and cool inflation without causing a recession. Many economists, though, are skeptical that the central bank can pull it off. More than half the economists surveyed by the National Association for Business Economics foresee at least a 25% probability that the U.S. economy will sink into recession within a year.

Earnings In Next 7 Days

Before the Bell: What every Canadian investor needs to know today

Equities

Wall Street futures fell early Tuesday after the previous session’s broad-based rally. Major European markets were also down. TSX futures were steady as markets return to business after a long weekend.

Ahead of the North American open, futures tied to the three key U.S. indexes were all in the red, with Nasdaq futures falling nearly 2 per cent at one point. On Monday, the Nasdaq jumped 1.59 per cent while the Dow gained 1.98 per cent and the S&P/500 rose 1.86 per cent. The S&P/TSX Composite Index was closed for the Victoria Day holiday weekend.

“The equity downtrend which started in late April remains well-entrenched,” Elsa Lignos, global head of FX strategy with RBC, said.

“While days like Monday offer some relief, overnight futures are lower, this time being pinned on weaker guidance from Snap, hitting all social media stocks.”

Shares of Snapchat-owner Snap saw its shares fall 28 per cent in premarket trading at the company warned in a note to employees that the company expects to miss targets for adjusted profit and revenue in the current quarter.

In this country, investors will be awaiting earnings from Canada’s biggest banks this week. Bank of Nova Scotia and Bank of Montreal report on Wednesday. CIBC, TD Bank and RBC follow on Thursday. National Bank releases its latest results on Friday.

The Globe’s James Bradshaw reports that investors are expecting a strong quarter from the banks, but attention will be focused on the impact of rising rates as the Bank of Canada looks to continue raising borrowing costs to head off high inflation. Analysts are looking ahead for signs the rate of growth in banks’ lending could be starting to slow as rising interest rates and economic turmoil begin to eat into demand for mortgages and other new loans.

Overseas, the pan-European STOXX 600 fell 0.64 per cent by midday, off early morning lows. Britain’s FTSE 100 slid 0.14 per cent. Germany’s DAX and France’s CAC 40 were down 0.89 per cent and 0.90 per cent.

In Asia, Japan’s Nikkei finished off 0.94 per cent. Hong Kong’s Hang Seng lost 1.75 per cent.

TSX 60 FUTURES

1,228.00+8.10 (0.66%)

DOW FUTURES

31,647.00-187.00 (-0.59%)

S&P 500 FUTURES

3,930.25-40.50 (-1.02%)

PAST DAY

0.66%-0.60%-1.04%

CLOSE, MAY 20

8:03 A.M., MAY 24

SOURCE: BARCHART

Commodities

Crude prices steadied in early going as economic concerns and worries about the impact of COVID-19 restrictions in China offset tight global supply.

The day range on Brent is US$111.70 to US$113.30. The range on West Texas Intermediate is US$108.61 to US$110.54. Brent saw a modest gain on Monday while WTI was flat on the session.

“Oil prices moved sideways once again overnight, trading in relatively narrow ranges as China growth fears cap the upside of prices, while the Ukraine conflict and the refined petroleum product supply squeeze in the U.S. support the downside,” OANDA senior analyst Jeffrey Halley said in an early note.

Fears of a global recession continue to spark concern among traders. International Monetary Fund Managing Director Kristalina Georgieva said she did not expect a recession but the prospect also wasn’t off the table.

Asked at a panel at the World Economic Forum whether she expected a recession, Ms. Georgieva said: “No, not at this point. It doesn’t mean it is out of the question.”

Prices, meanwhile, were underpinned by expectations of strong demand as the U.S. heads toward the Memorial Day weekend and the likelihood of increased travel.

In other commodities, gold prices were higher as the U.S. dollar pulled back.

Spot gold was up 0.3 per cent at US$1,858.19 per ounce by early Tuesday morning, after rising to its highest since May 9 of $1,865.29 on Monday.

U.S. gold futures rose 0.4 per cent to US$1,854.40.

“The technical picture continues to remain supportive, and it seems only a marked U.S. dollar recovery will cap gold’s rally,” Mr. Halley said.

SPOT GOLD

US$1,859.40+11.60 (0.63%)

WTI

US$110.04-0.19 (-0.17%)

HIGH GRADE COPPER

US$4.29-0.06 (-1.38%)

PAST DAY

0.63%-0.23%-1.38%

CLOSE, MAY 23

8:04 A.M., MAY 24

SOURCE: BARCHART

Currencies

The Canadian dollar was lower amid tentative global risk sentiment while its U.S. counterpart hit its weakest level against a group of currencies in nearly a month.

The day range on the loonie is 78.04 US cents to 78.40 US cents.

There were no major Canadian economic releases on Monday’s calendar. Investors will get a reading on March retail sales from Statistics Canada on Thursday. Early estimates suggest a gain of 1.4 per cent for the month.

On world markets, the U.S. dollar index fell 0.3 per cent to 101.79, its lowest level since April 26, according to figures from Reuters.

The euro was up 0.4 per cent at US$1.0729 in early London trading after ECB chief Christine Lagarde said interest rates were likely to be in positive territory by the end of the third quarter.

In bonds, the yield on the U.S. 10-year note was down at 2.81 per cent in the predawn period.

CANADIAN DOLLAR/U.S. DOLLAR

US$0.7814-0.0017 (-0.2196%)

PAST DAY

PREV. CLOSE1:29 A.M., MAY 24

0:00 A.M., MAY 24

US$0.7806

8:04 A.M., MAY 24

US$0.7814

SOURCE: BARCHART

More company news

Zoom Video Communications Inc raised its full-year adjusted profit forecast on Monday, betting on robust demand from large businesses in a hybrid work environment. Revenue from Zoom’s high-paying enterprise customers jumped 31 per cent in the first quarter, representing 52 per cent of its total revenue, the company said.

Broadcom Inc is in talks to acquire cloud service provider VMware Inc in a US$60-billion deal which would further diversify the chip manufacturer’s business into enterprise software, people familiar with the matter told Reuters. Broadcom is in discussions to pay about US$140 per share in cash and stock for VMware, the sources said.

Vacation rental company Airbnb Inc will shut down all listings and experiences in mainland China from July 30, it said on Tuesday, joining a long list of Western internet platforms that have opted out of the Chinese market. The company made the announcement on its official WeChat account without elaborating on the reasons behind the decision. The San Francisco-based company said Chinese users would still be allowed to book listings and experiences abroad.

Best Buy Co Inc cut its full-year profit forecast on Tuesday, joining other major U.S. retailers to warn of an inflation hit, even as the electronics seller reported better than feared sales in the early part of the year. “Macro conditions worsened since we provided our guidance in early March which resulted in our sales being slightly lower than our expectations. Those trends have continued into Q2 and, as a result, we are revising our sales and profitability expectations for the year,” Best Buy CEO Corie Barry said.

Economic news

(9:45 a.m. ET) S&P Global PMIs for May.

(10 a.m. ET) U.S. new home sales for April. The Street is forecasting an annualized rate decline of 1.7 per cent.

(12:20 p.m. ET) U.S. Fed Chair Jerome Powell makes welcoming remarks to the National Center for American Indian Enterprise Development 2022 Reservation Economic Summit

With Reuters and The Canadian Press

A glimmer of hope for food prices? Indonesia lifts palm oil export ban

London (CNN Business)Indonesia will lift a ban on exports of palm oil starting next week, a move that could ease a tight global market and relieve some of the pressure on food prices.President Joko Widodo said in a statement on Thursday that he had made the decision “based on the current supply and price of cooking oil” and in consideration of the 17 million workers employed in the Indonesian palm oil industry.Indonesia accounts for nearly 60% of global palm oil production. It banned exports late last month in a bid to maintain domestic supplies and keep prices of its staple cooking oil down. News of the ban sent Malaysian crude palm oil futures prices — the global benchmark — soaring.

Prices fell back 1% Thursday after Widodo’s announcement, according to the Malaysia stock exchange.

Higher prices have squeezed global consumers at the worst possible time. Palm oil is a key ingredient in food and cosmetics. WWF estimates that it’s used in nearly 50% of all packaged products in supermarkets.

As well as being a major producer of wheat, Ukraine is one of the world’s biggest exporters of sunflower oil — a common substitute for palm oil — but Russia’s invasion has disrupted production, according to consultancy LMC International.Droughts in South America and Canada, have also constrained supplies of soybean oil and canola oil, respectively.Spiraling global inflation and shortages of key goods have increased levels of global food insecurity.World food prices jumped to their highest levels ever in March, the Food and Agriculture Organization of the United Nations (FAO) said last month. According to its report, “war in the Black Sea region spread shocks through markets for staple grains and vegetable oils.”The FAO Food Price Index — which measures the monthly change in international prices of a basket of food commodities — was 33.6% higher than in March 2021.Prices fell back slightly in April, but the risk of a global food crisis hasn’t gone away. World Food Programme chief David Beasley said on Wednesday that failure to open the closed ports in Ukraine to get grains moving out will bring millions of people to the brink of starvation.

UN Secretary General Antonio Guterres said on Wednesday that the war in Ukraine, on top of all the other global crises, “threatens tens of millions of people with food insecurity, malnutrition, mass hunger & famine.”