U.S. election has been good news for banks
So-called Trump stock market rally has had a positive spillover effect on Q1 results for the Big Six banks, industry reports
The election of Donald Trump continues to pay dividends for Canada’s big banks.
Portfolio managers and bank executives say an across the board increase in capital market activity over the past few months contributed to the strong performance of the so-called Big Six in the first-quarter earnings season that wrapped up this week.
All six of the banks topped the consensus earnings forecast by analysts.
John Stephenson, president of assetmanagement firm Stephenson and Company, said the driver has been improving economic fundamentals, but added that the so-called Trump stock market rally has had a positive spillover effect.
Shares in the banks themselves have gained sharply since the fall on expectations that U.S. operations of Canadian banks will benefit from Trump’s commitment to roll back financial regulations and lower corporate taxes.
“For the past several quarters, we have seen the banks come in ahead of expectations largely on the back of better-than-expected credit and capital markets” with better cost controls adding to the mix more recently, Barclays Capital analyst John Aiken said in an email.
“The Trump rally has not necessarily influenced earnings, as we have not seen any recovery in net interest margins, but it has helped wealth management operations in terms of greater levels of assets managed on the client’s behalf.”
And while Canada’s banks have faced headwinds for some time in the form of record consumer debt, high earnings multiples on bank stocks and the lingering threat of a housing-market correction, Stephenson said the banks’ exposure hasn’t yet come home to roost.
“If something really bad was to happen, you’d think it would have happened a couple of quarters ago,” when the banks were more vulnerable to writedowns associated with the oil-price collapse and wildfires in northern Alberta.
John Zechner, chairman and lead equity manager of J. Zechner Associates, takes a cautious view of the outlook for the big banks and major insurance companies, suggesting they are vulnerable to stock-market gains that may be overheated and real-estate credit risk.
Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CIBC), meanwhile, both posted earnings beats on Thursday, with TD, Canada’s second-biggest bank, reporting an increase in thirdquarter profit helped by growth in its U.S. retail and wholesale-banking business. CIBC, the country’s fifthbiggest lender, also topped forecasts bolstered by improved results in its retail and capital markets divisions.
Royal Bank of Canada (RBC) and Bank of Montreal (BMO) reported earnings that beat forecasts earlier in the week. RBC reported first quarter adjusted earnings per share of $1.87 versus the analyst consensus prediction for $1.77. Net income rose 24 per cent to $3.03 billion compared with $2.45 billion a year ago.
CIBC bank analyst Robert Sedran calculates that BMO earnings per share came in at $2.02, above the consensus of $1.88 after adjusting for an after-tax gain on the sale of Moneris Solutions USA. Net income of $1.49 billion during its first quarter was up 39 per cent year over year.
Bank of Nova Scotia posted firstquarter adjusted earnings per share of $1.58, just above the consensus of $1.57, while National Bank topped the consensus of $1.26 with firstquarter EPS of $1.35.
“What it shows is (the banks are) great capital allocators; number two, the business is pretty much recession-proof, which is fantastic; and, three, it just shows that maybe the consumer itself is not as unhealthy as we might think — or at least they’re willing to continue to keep spending in spite of what appears to be a slowing economy,” Stephenson said in an interview with BNN.