BIG SIX BANK PROFITS TOP $10.5B FOR Q1
Analyst cautions some key profit drivers unlikely to remain despite solid results
Strong results from Toronto-Dominion Bank on Thursday helped push the Big Six banks’ collective profit to more than $10.5 billion for the fiscal first quarter, as all enjoyed doubledigit increases in earnings over the year-ago period.
While it was a blockbuster start to the year, helped by better than expected credit quality and prudent cost control, some profit drivers, such as the surge in market activity after the surprise election of U.S. President Donald Trump, may not stick around.
“It’s unlikely that we’re going to see the same level of interest rate and equity market volatility that drove (trading) revenues,” said James Shanahan, an analyst with Edward Jones based in St. Louis, who noted that “overall, it was a very good quarter.”
For the three months ended Jan. 31, Canada’s biggest banks posted profit increases between 10 and 30 per cent compared to a year ago — with Bank of Montreal leading the way with a 30 per cent gain in adjusted net income.
Toronto-Dominion Bank was the last of the group to report its earnings and, like those before it, results surpassed market expectations with adjusted net income of $2.56 billion, up nearly 14 per cent from the year earlier period.
Canada’s second-largest bank by market capitalization reported adjusted diluted earnings of $1.33, beating the $1.27 analysts had expected, according to those surveyed by Bloomberg.
TD also hiked its dividend by five cents for the quarter ending in April, more than what analysts had expected.
It also announced it was seeking regulatory approval for a normal course issuer bid to repurchase for cancellation up to 15 million of its common shares.
“(I’m) very happy with how the quarter has turned out and the momentum we’re building,” Bharat Masrani, TD’s group president and chief executive, said on a call with analysts.
Still, compared to the stellar earnings of some of its competitors, TD’s performance lagged, said Doug Young, an analyst at Desjardins Capital Markets.
“While it beat ... we believe the market has been expecting all the banks to beat, and the margin at TD was the second lowest of its peers,” he said in a note Thursday.
Many of the banks benefited from big gains in capital markets and wealth management, both helped in part by the surge in trading volumes.
On the downside, loan growth was relatively weak and Canadian banks continue to face low interest rates, said Shanahan.
However, the banks did an “exceptionally” good job in controlling expenses, said John Aiken, an analyst with Barclays in Toronto.
“We are not in a hugely strong revenue environment, (yet) we’re seeing better earnings because the banks are doing a very good job of containing costs,” he said.
Credit quality was also resilient this quarter, with not as many losses as the market had been expecting, Aiken added.
“In general, I think that bank earnings showed that there is still a lot to be positive about when it comes to the Canadian banks,” Meny Grauman, an analyst at Cormark Securities, said in an email.
“Expense management appears to be a particularly consistent contributor to the big earnings beats that we saw this bank earnings season, and we would expect that trend to continue.”