RBC tops banks de­fy­ing slow­down with deal fees

Royal Bank of Canada, Toronto- Do­min­ion Bank and other Cana­dian lenders will report quar­terly profit growth of 17pc

The Pak Banker - - Front Page -


Royal Bank of Canada, Toron­toDo­min­ion Bank (TD) and other Cana­dian lenders will report quar­terly profit growth of as much as 17 per­cent, demon­strat­ing the banks’ re­silience even as the world’s 11thlargest econ­omy slows.

Mar­ket-re­lated rev­enue such as trad­ing and ad­vi­sory fees will be the high­est in at least five quar­ters, said Su­mit Mal­ho­tra, an an­a­lyst at Mac­quarie Cap­i­tal Mar­kets in Toronto. The banks be­gin re­port­ing re­sults for the fis­cal fourth quar­ter on Nov. 29, start­ing with Royal Bank.

Royal Bank of Canada, the coun­try’s largest lender, is ex­pected to have profit be­fore one-time items of C$1.26 a share, ac­cord­ing to the av­er­age es­ti­mate of 15 an­a­lysts sur­vey. “De­spite the myr­iad head­winds and con­cerns that the op­er­at­ing back­drop con­tin­ues to present, the Cana­dian bank­ing sec­tor is set to end 2012 with an­other year of solid op­er­at­ing per­for­mance,” Mal­ho­tra said in a note to clients.

Fees for ar­rang­ing stock sales, trad­ing and merger ad­vice will off­set slower growth for domestic mort­gages and con­sumer lend­ing, an­a­lysts said. The value of eq­uity fi­nanc­ings, in­clud­ing pre­ferred share sales and con­vert­ibles, rose 30 per­cent to $8.63 bil­lion in the quar­ter ended Oct. 31, ac­cord­ing to a data.

“I ex­pect them to show some im­prove­ment,” said Michael Smed­ley, who helps man­age about C$1 bil­lion ($1 bil­lion) at Mor­gan Meighen & As­so­ci­ates in Toronto, in­clud­ing bank shares. “This one should do well, but prob­a­bly not as ex­ces­sively well as the third quar­ter,” he said by phone.

Af­ter two years of post­ing dou­ble-digit profit growth, the world’s sound­est banks may in­crease core cash earn­ings per share by 4 per­cent next year and 6 per­cent in fis­cal 2014, said An­dre- Philippe Hardy, an an­a­lyst at RBC Cap­i­tal Mar­kets in Toronto.

“Grind­ing out earn­ings growth in a chal­leng­ing en­vi­ron­ment is ex­pected to be the theme for the next sev­eral years,” said Kevin Cho­quette, a bank an­a­lyst at Sco­tia­bank Global Bank­ing and Mar­kets in Toronto, who forecast av­er­age op­er­at­ing profit growth of 17 per­cent for the fourth quar­ter from a year ear­lier. Net in­come was de­pressed in the year-ear­lier pe­riod on fewer deals in cap­i­tal mar­kets.

Mar­ket-sen­si­tive rev­enue for the quar­ter will climb 21 per­cent to C$7.1 bil­lion for the in­dus­try, Mac­quarie’s Mal­ho­tra said, the high­est in at least five quar­ters. Takeovers com­pleted in the quar­ter in­clude the C$3.73 bil­lion pur­chase of TMX Group Inc. by a group of Cana­dian banks and pen­sion funds, as well as share sales in­clud­ing the C$300 mil­lion ini­tial pub­lic of­fer­ing of Robert Fried­land’s Ivan­plats Ltd (IVP) min­ing com­pany in Oc­to­ber.

Higher cap­i­tal mar­kets fees may help to quell an ex­pected hous­ing slow­down, which lenders in­clud­ing Toronto-Do­min­ion have been pre­dict­ing for a year. “Re­cent data, in­dus­try con­tacts and anec­do­tal ev­i­dence all seem to in­di­cate that hous­ing and mort­gage ac­tiv­ity is soft­en­ing,” said Ja­son Bilodeau, an an­a­lyst at TD Se­cu­ri­ties, said in a note. “While we do not ex­pect the hous­ing mar­ket to col­lapse, we do ex­pect ag­gre­gate mort­gage growth to ease to a mid- to low-sin­gle dig­its pace over the coming year.” Canada’s hous­ing mar­ket has been cool­ing af­ter Fi­nance Min­is­ter Jim Fla­herty took mea­sures in June to tighten mort­gage lend­ing amid con­cern a bub­ble was build­ing in cities such as Toronto and Van­cou­ver. Ex­ist­ing home sales fell 0.1 per­cent in Oc­to­ber from the pre­vi­ous month, ac­cord­ing to the Cana­dian Real Es­tate As­so­ci­a­tion.

Canada Mort­gage & Hous­ing Corp. re­ported that hous­ing starts fell 8.9 per­cent in Oc­to­ber. The coun­try’s cen­tral bank forecast that hous­ing in­vest­ment will be­come a drag on growth next year and in 2014.

Lend­ing vol­umes are “go­ing to con­tinue to be fairly strong,” John Aiken, an an­a­lyst at Bar­clays Cap­i­tal, said by phone from Toronto. “We’re still see­ing rea­son­ably strong loan growth, but the prob­lem is that’s not go­ing to be a pos­i­tive fac­tor for the banks be­cause no one is ex­pect­ing that to con­tinue.”

Royal Bank, the coun­try’s largest lender, is ex­pected to have profit be­fore one-time items of C$1.26 a share, ac­cord­ing to the av­er­age es­ti­mate of 15 an­a­lysts sur­veyed by Bloomberg News. That’s a 14 per­cent in­crease from the C$1.11 the bank earned on that ba­sis a year ago.

Bank of Mon­treal, the fourth-big­gest bank, re­ports re­sults on Dec. 4. The lender will have profit of C$1.42 a share, ac­cord­ing to the an­a­lyst es­ti­mates, a 11 per­cent in­crease.

Toronto-Do­min­ion, the sec­ond-largest bank, is ex­pected to report profit of C$1.80 a share, 1.7 per­cent higher than a year ago. The bank is sched­uled to re­lease re­sults Dec. 6, the same day as Cana­dian Im­pe­rial Bank of Com­merce. CIBC, the No. 5 bank, is ex­pected to have profit of C$1.98 a share, a 5.9 per­cent in­crease. Bank of Nova Sco­tia, Canada’s third-largest bank, is ex­pected to post earn­ings of C$1.19 a share, up 8.2 per­cent from a year ago.

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