Can earnings get any better for big banks?
Reviews of the latest earnings season for Canadian banks have been a mixed bag, with high expectations making beats tougher to come by for the Big Five.
Bank of Nova Scotia, Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce had all reported their most recent results by Thursday.
The sixth-largest bank in Canada, National Bank of Canada, reported earnings Friday, recording a 71-per-cent increase in quarterly net income, to a better-than-expected $525 million.
Bank of Montreal is due to report results on Tuesday and it is expected to post earnings per share of $2, according to National Bank Financial. National noted that BMO’s results would be the first under the watch of new chief executive Darryl White, allowing for some insight into his plans.
On the whole, banks have performed so well this past year compared to other sectors they’ve created a tough act to follow. As of Thursday’s close, the S&P/TSX Composite Index was up five per cent for the year, but it had been outpaced by the S&P/TSX Capped Financial Index, up nine per cent.
“As it relates to the Q4/17 ‘setup’, banks have outperformed the broader index by ~450 (basis points) since the end of Q3/17 reporting period,” National Bank Financial said in its preview of the earnings season. “While we are generally positive on the group, this level of outperformance into the quarter suggests limited upside to the stocks on results, even in the event of EPS ‘beats.’”
With expectations high, Canaccord Genuity estimated Scotiabank had a “slight” miss on its earnings per share, which slid to $1.65 for the quarter ended Oct. 31 from $1.68 for the quarter ended July 31.
TD, meanwhile, reported earnings per share of $1.36 for the quarter, below National Bank Financial’s expectation of $1.44, analyst Gabriel Dechaine wrote.
A BMO Capital Markets note on TD’s results was headlined, “The Tyranny of High Expectations.”
“Relative to us, the miss was largely in U.S. Retail (positive but lower-than-expected operating leverage),” wrote BMO analyst Sohrab Movahedi.
The other two members of the Big Five have posted stronger numbers. CIBC reported quarterly net income that rose 25 per cent over last year’s quarter, to $1.16 billion, and RBC posted record earnings of $11.5 billion for the year ended Oct. 31.
CIBC and RBC were singled out by a short report this week published by Atlanta-based PAA Research.
“On the surface, there’s a lot to like here, but again we ask the question: how do things get better from here?” PAA said, referring to the Big Five Canadian banks.