CIBC, TD latest to ease fears
TORONTO — Canada’s biggest banks continue to defy pessimistic predictions hoisted on the sector in recent weeks after Canadian Imperial Bank of Commerce and Toronto Dominion Bank both announced first-quarter earnings that topped estimates and showered investors with dividend increases on Thursday.
CIBC, the country’s fifthlargest bank by market capitalization, booked the more impressive results of the two, reporting a record adjusted net income of $956 million or $2.36 per share that easily topped the average analyst estimate of $2.27.
The bank’s shares staged their biggest one-day gain since Nov. 30, 2011, rising 3.26 per cent to $95.23 after the results were bolstered by a surprise quarterly dividend boost of three cents to $1.06 per share.
“We are pleased to announce a strong start to the year,” CIBC chief executive Victor Dodig said on a conference call.
“We are confident that our client-focused strategy and high-quality asset base positions us well to deliver consistent, sustainable returns and industry leading yield to our shareholders.”
John Aiken, analyst at Barclays Capital Markets, said CIBC’s earnings beat was aided by strong trading revenues and lower provisions for credit losses, which unexpectedly added four cents per share to the bottom line.
While the segment’s adjusted net income of $618 million fell four per cent from last year, average earning assets were up 1.3 per cent from the fourth quarter and the bank managed to generate four basis points of margin expansion, a feat unparalleled by it peers.
“CIBC reported solid results, capped off with a surprise dividend increase in what could be interpreted as a signal from the board that its outlook is nowhere near as negative as what is being priced into CM’s shares at present,” Aiken said in a note to clients.
TD Bank’s earnings, meanwhile, were less striking, but more than enough to boost investor sentiment in the stock, which climbed one per cent to $54.47 on the results.
Canada’s second-largest bank by market cap reported adjusted net income of $2.1 billion or $1.12 per share — narrowly beating the average analyst estimate of $1.11. It also raised its quarterly dividend by four per cent to 51 cents per share, slightly less than predicted.
TD’s Canadian retail earnings jumped eight per cent year over year to $1.45 billion, with net interest margins falling four basis points to 2.88 per cent from the previous quarter. South of the border, earnings were up 16 per cent to $536 million US from this time last year, while margins grew six basis points quarter over quarter.
“It was a good quarter for TD,” said chief financial officer Colleen Johnston. “(We got) good contributions from all of our business segments, but particularly strong from the retail side on both sides of the border.”
RBC analyst Darko Mihelic said TD’s results might be perceived as relatively weak compared to its peers because the earnings beat was not as big as that for CIBC and Royal Bank of Canada Wednesday and because the dividend increase was shy of expectations.
He also said TD’s capital ratios are ‘light’ relative to peers, but thinks the bank should benefit in future quarters from being less exposed than some of its counterparts to the Canadian economy.
“In addition, we also believe the U.S. results for TD this quarter were positive and we have a positive outlook for US earnings (and a weak Canadian dollar), which would also benefit TD more than peers,” he said in a note to clients.
“WE ARE CONFIDENT THAT OUR CLIENT-FOCUSED STRATEGY AND HIGH-QUALITY ASSET BASE POSITIONS US WELL TO DELIVER CONSISTENT, SUSTAINABLE RETURNS.”
CIBC’S VICTOR DODIG