* Loan quality, business lending drive profits
* Profit gains overshadow consumer lending slowdown
* Royal Bank of Canada, Toronto-Dominion boost dividends
* CIBC holds payout steady, sending its shares lower
* RBC shares rise, TD little changed
By Cameron French
TORONTO, Feb 28 Three of Canada's top banks
posted stronger-than-expected quarterly profits on Thursday as
they relied on lower loan-loss provisions, cost-cutting, and
stronger international revenue to offset slower growth in
domestic consumer lending.
Royal Bank of Canada and Toronto-Dominion Bank
, the country's two largest banks, both raised their
quarterly dividend. No. 5 lender Canadian Imperial Bank of
Commerce left its payout unchanged, prompting investors
to pull its shares lower.
With signs emerging that a long-awaited slowdown in personal
lending and mortgage growth started to take hold in the fiscal
first quarter ended Jan 31, RBC relied heavily on wholesale
banking revenues to fuel its profits. TD enjoyed shrinking
loan-loss provisions, stronger business loan growth, and worked
hard to control costs.
"We are starting to definitely feel a slowdown in the
consumer lending side, and I think you'll see a gradual slowing
of the (mortgage) lending number over the course of the year,"
TD Chief Financial Officer Colleen Johnston told Reuters.
The banks have warned of the lending slowdown for more than
a year, based on signs Canada's once-torrid housing market is
cooling and a rise in consumer debt levels to record highs,
suggesting a period of deleveraging may be overdue.
Growth in TD's Canadian retail lending slowed to a meager 5
percent on the year, with loan margins narrowing because of low
interest rates. RBC posted a 6 percent growth in Canadian
lending, but growth slowed to less than 1 percent compared to
the fourth quarter of last year.
CIBC saw mortgage volumes fall due to its decision to close
its discount FirstLine mortgage wing last year, but the move
allowed it to raise its share of higher-margin loans.
GROWTH SLOWS, BUT PROFITS SURGE
Despite this lending slump, profits beat estimates at all
three banks, highlighting their capacity to wring profit growth
from their various business units.
RBC's net income rose to C$2.07 billion, or C$1.36 a share,
from a year-earlier profit of C$1.86 billion, or C$1.22.
The gain was driven by a 25 percent rise in capital markets
income, which benefited from higher U.S. lending and loan
syndication as well as merger and acquisition activity, as well
as a 24 percent jump in wealth management income. The bank has
been expanding both businesses in Europe and the United States
in recent years.
RBC even managed to squeeze 11 percent profit growth from
its Canadian banking division, bolstering the impact of the loan
growth by reducing loan-loss provisions and managing to keep
interest margins steady.
Excluding special items, RBC earned C$1.38 a share, beating
analysts' expectations of C$1.31, according to Thomson Reuters
"Overall, the bank reported a strong quarter and one that we
view as the best in class again this quarter," CIBC World
Markets analyst Robert Sedran said in a note.
TD, which has been expanding aggressively in the U.S. retail
banking, posted net profit of C$1.79 billion, or C$1.86 a share,
up from C$1.48 billion, or C$1.55.
The results were clouded by litigation reserves taken in
both the current and year-ago quarters to cover costs stemming
from its connection to a $1.2 billion Ponzi scheme run by
Florida lawyer Scott Rothstein, who used the bank's accounts.
Excluding the provisions and other costs, TD earned C$2.00 a
share, up from C$1.86, topping expectations of C$1.92.
TD has about 1,200 bank branches in Canada and about 1,300
in the United States. It also owns 45 percent of TD Ameritrade
Loan losses also supported TD's retail banking growth, which
hit 11 percent, as did a 13 percent rise in business banking.
The bank saw wholesale banking profit retreat, while U.S. retail
banking profits rose 9 percent, excluding the impact of the
"Looking out longer term, I still think despite the increase
in business growth, eventually the trends in residential and
personal will drag down the entire loan growth number, (for the
group)" said Tom Lewandowski, a St. Louis-based analyst at
RBC's shares were up 0.9 percent at C$64.05, while TD was
down 0.2 percent at C$84.09 just after midday. Both banks raised
their quarterly dividends by 5 percent.
CIBC SHARES SLIDE
Shares of CIBC, which unlike RBC and TD lacks a significant
international presence, were down 1.2 percent at C$82.87 after
failing to raise its dividend.
Analysts had forecast all three banks would raise their
payout, and Bank of Montreal unexpectedly raised its
dividend on Tuesday, cementing that view.
Speaking on a conference call, CIBC CEO Gerry McCaughey said
the bank had decided to play it cautious on the dividend front
in part because it intends to use capital to buy back shares.
"I wouldn't read too much into our not raising the dividend
this quarter," he said.
The bank earned C$798 million, or C$1.91 a share, down from
C$835 million, or C$1.91, as profit was hurt by a C$148 million
charge for a legal settlement with bankrupt U.S. bank Lehman
Core profit of C$2.15 a share topped analysts' estimates of
C$1.97, while loan-loss provisions dropped to C$265 million from