Two investment banks cut their China GDP forecasts even lower
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The Indo-Pacific Economic Framework: What it is — and why it matters
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China holds an unprecedented, massive videoconference on the economy
National Bank Of Canada Reports $932M Q1 Profit, Beats Expectations
National Bank of Canada beat expectations as it reported a first-quarter profit of $932 million compared with $761 million a year earlier.
The Montreal-based bank says the profit for the quarter ended Jan. 31 totalled $2.65 per diluted share, up from $2.15 per diluted share a year earlier.
Revenue totalled $2.47 billion, up from $2.22 billion.
The quarter included a $2-million reversal of its provisions for credit losses compared with the $81 million it set aside for bad loans in the same quarter last year.
On an adjusted basis, National Bank says it earned $2.65 per diluted share compared with an adjusted profit of $2.15 per diluted share a year earlier.
Analysts on average had expected an adjusted profit of $2.23 per share, according to financial markets data firm Refinitiv.
“The bank is entering fiscal 2022 on a positive note thanks to excellent performance by its business segments, strong regulatory capital, and adequate allowances for credit losses,” National Bank chief executive Laurent Ferreira said in statement.
TD Bank Group Reports $3.8B Q2 Profit, Up From $3.7B A Year Ago
TD Bank Group reported its second-quarter net income totalled $3.81 billion, up from $3.70 billion in the same quarter last year.
The bank says the profit for the quarter ended April 30 totalled $2.07 per diluted share, up from $1.99 per diluted share a year ago.
Revenue in the quarter totalled $11.26 billion, up from $10.23 billion in the same quarter last year.
The results came as TD reported a provision for credit losses of $27 million for the quarter compared with a $377-million recovery of credit losses a year ago.
On an adjusted basis, TD says it earned $2.02 per diluted share, down from an adjusted profit of $2.04 per diluted share in the same quarter last year.
Analysts on average had expected an adjusted profit of $1.93 per share, according to estimates compiled by financial markets data firm Refinitiv.
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.
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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.”
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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.
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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