CANADA’S BANKS KEEP ON ROLLING
BMO joins RBC, CIBC in posting blow-out first-quarter earnings
Better than expected credit quality and strong trading revenues are helping drive Canada’s big banks to one of their best quarters ever.
On Tuesday, Bank of Montreal joined Royal Bank of Canada and the Canadian Imperial Bank of Commerce — which both reported last week — in posting blow-out first-quarter earnings, with adjusted net income rising 30 per cent over the year ago quarter.
Only the Bank of Nova Scotia, which Tuesday reported solid earnings growth that just met estimates, has so far drawn mixed reactions.
Still, even with Scotiabank’s “notional miss” Canada’s financial sector continues to defy expectations, said John Aiken, an analyst at Barclays in Toronto.
“By and large, we can take a look at the results (so far) this quarter and highlight the resiliency of the Canadian banks and the benefit of their diversified operating platforms,” he said in an interview.
While concerns linger about a surging housing market, the impact of low oil prices — top of mind for bank executives and analysts a year ago — continues to abate.
BMO, Canada’s fourth-largest bank by assets, reported net income of $1.53-billion or $2.28 per share, adjusted to exclude oneoff items, compared with $1.75 a year earlier. This was far ahead of the $1.87 analysts had expected, according to those surveyed by Bloomberg.
The earnings growth was driven in part by big gains in capital markets and wealth management, up 46 per cent and 81 per cent from a year ago, respectively, as well as by improved net interest margins in the U.S. on the back of rising interest rates.
BMO also announced a second quarter 2017 dividend of $0.88 per common share, unchanged from the preceding quarter. “We have reshaped the bank while reinforcing our core strengths, and our results confirm it,” said Bill Downe, chief executive officer of BMO Financial Group, on a conference call with analysts. “Our business model works.”
Meanwhile, Bank of Nova Scotia reported fiscal first-quarter net income of $2 billion compared to $1.81 billion last year, up 11 per cent year over year and slightly above expectations of $1.919 billion, according to analysts surveyed by Bloomberg.
The bank also reported earnings per share of $1.58, up from $1.44 a year earlier — just one cent above the $1.57 expected by analysts, according to those surveyed by Bloomberg.
Scotiabank’s earnings were driven in part by record results in international banking, which saw earnings of more than $500 million, “underpinned by solid growth in our key Pacific Alliance countries where we continue to see great potential.”
Scotiabank has the largest global presence among the big Canadian banks, with a footprint in countries such as Mexico, Chile and Peru.
Brian Porter, Scotiabank’s president and chief executive, said Tuesday he was pleased with its quarterly results, as the business is performing “exceedingly” well in these key countries.
“The person on Main Street, whether they’re in Mexico City, Guadalajara, Monterrey or any other city in the Pacific Alliance, our day to day business (in the Pacific Alliance) is somebody purchasing a home or planning for retirement,” he said on a call with analysts.
“That’s not changing in terms of what is going on in somebody’s Bloomberg screen ... What is going on on Main Street is different than what’s going on in terms of the latest rhetoric out of Washington or the latest tweet.”
Scotiabank hiked its dividend by $0.02 to $0.76 per share.
While BMO’s shares rose two per cent to $100.63 on Tuesday, Scotiabank’s slipped by 2.6 per cent to $77.25, a sign of just how much the market is expecting from the banks.
“In a world where all the banks are not just beating consensus EPS expectations, but blowing them out of the water, an in-line quarter stands out for all the wrong reasons,” said Meny Grauman, an analyst with Cormark Securities, in a note to clients on Tuesday.
BMO saw its total provisions for credit losses (PCL) drop by $10 million to $173 million this quarter, primarily due to lower provisions in Canadian personal and commercial banking and net recoveries in capital markets, the bank said.
Scotiabank, however, saw its PCL rise by $14 million to $553 million during the same period — still lower than analysts estimated — as higher retail and commercial provisions in Canadian and international banking were offset in part by significantly lower provisions in the energy sector.
“For the most part, the energy story is behind us,” Scotiabank chief financial officer Sean McGuckin told reporters.
Canada’s banks have been on a roll, with shares of the Big Six up between 31 per cent (CIBC) and 47 per cent (Scotiabank) in the last 12 months. Last week, CIBC reported quarterly net income of $1.4 billion, up some 43 per cent from a year earlier, while Royal Bank of Canada hit a record $3 billion net income for the quarter, up 24 per cent from the corresponding period in 2016.