By Rita Trichur
TORONTO--Canada's biggest banks report their fiscal
fourth-quarter results this week, with most seen posting
single-digit earnings growth on expectations that moderating loan
growth partially offset sturdy capital-markets results.
Bank of Montreal will report first on Tuesday, followed by Royal
Bank of Canada on Wednesday. Toronto-Dominion Bank and Canadian
Imperial Bank of Commerce both report Thursday, leaving Bank of
Nova Scotia to cap off earnings season on Friday.
Although Canada's "Big Five" banks have posted surprisingly
strong profits for much of fiscal 2014, analysts say the froth has
come off expectations for the August-to-October quarter. In recent
weeks, Scotiabank and RBC have disclosed cost-cutting programs,
while TD previously warned that expenses could blemish its
results.
A "modest, unexciting close to 2014," John Aiken, an analyst
with Barclays Capital Inc., said in a research note to clients.
"Although our expectations for the quarter are modest, in an
environment of uncertainty and volatility, and with an average
dividend yield of 3.5% for the group, we believe Canadian banks
continue to offer an interesting relative safe haven for
investors," he added.
By all accounts, this is unlikely to be a blockbuster quarter.
BMO, Canada's fourth-largest bank by assets, is expected to record
a 2.4% year-over-year increase in earnings per share, according to
analysts polled by Thomson Reuters.
RBC, the country's No. 2 player, is expected to post a 21% rise
in share earnings. TD, CIBC and Scotiabank, ranking first, fifth
and third in the industry, are expected to record
earnings-per-share gains of 11%, 1.4% and 6.9%, respectively.
Banks have already telegraphed the need for tempered
expectations, pointing to moderating mortgage-lending growth and
margin pressure caused by persistently low interest rates.
Against that backdrop, some banks have started to take a knife
to costs. Last month, Scotiabank announced plans to slash 1,500
jobs along with the closure or downsizing of 120 branches outside
Canada. That restructuring will result in slew of fourth-quarter
charges totaling 341 million Canadian dollars ($298 million), the
bank said.
RBC has since confirmed that it, too, is trimming expenses by
exiting some of its international wealth-management businesses, a
move that will result in an unspecified number of job losses. RBC
has said the restructuring would not be material to its financial
results, but left the door open to more cuts.
Turbulent equity markets could also affect the banks'
capital-markets results. Although capital-markets revenue is
expected to dip from the third quarter due to lower trading
revenue, some analysts are still forecasting hearty year-over-year
gains.
"We believe the environment for advisory and underwriting will
remain robust," said Peter Routledge, an analyst with National Bank
Financial.
Tumbling oil prices have also fueled concerns about Western
Canada's energy-based economy and the potential knock-on effects
for banks. Analyst Meny Grauman of Cormark Securities Inc.
estimates that Canadian banks' direct exposure to the oil and gas
sector is limited to 3% of their loan books.
"Of course, the indirect exposure is much broader considering
all the related industries that feed into it," said Mr. Grauman in
a report, noting any slowdown in the Alberta economy could also
hurt mortgage lending.
Analysts, meanwhile, are divided on the potential for dividend
increases this earnings season. Some suggest BMO is best positioned
for a hike.
Write to Rita Trichur at rita.trichur@wsj.com
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