* RBC is biggest miss as strong Canadian dollar bites
* TD, CIBC also come in slightly below expectations
* Shares mixed, but mostly lower
(Adds National Bank results, updates shares to close)
By Andrea Hopkins
TORONTO, May 27 Profits at three of Canada's
biggest banks rose, but fell short of lofty expectations on
Thursday, held back by trading headwinds, a strong currency and
a heavier tax burden.
Results at a smaller fourth lender, National Bank of Canada
(NA.TO), managed to meet analyst expectations, but not before
its shares fell in tandem with most of its peers.
The largely disappointing results took the shine off news
that loan losses continued to recede at Royal Bank of Canada
(RY.TO), Toronto-Dominion Bank (TD.TO), Canadian Imperial Bank
of Commerce (CM.TO).
RBC, the nation's largest bank, said the stronger Canadian
dollar took a big bite out of capital markets and wealth
management revenues in the second quarter, offsetting strong
domestic banking operations.
TD Bank, Canada's second-largest lender, and No. 5 CIBC
also missed market expectations, though by smaller margins.
CIBC was hurt by weak trading revenues and lower than expected
advisory fees, while TD's capital markets revenues were down
from the previous quarter.
"While lower than anticipated provisions for credit losses
helped all, each of the banks struggled with various aspects of
revenue growth, which lowered earnings relative to
expectations," Barclays Capital analyst John Aiken said.
National, Canada's No. 6 lender, hit expectations on the
back of higher retail loan volumes.
But, for the most part, Thursday's trend ran counter to
forecast-topping results released on Wednesday by Bank of
RBC shares sank 4.4 percent to C$56.85 during the session,
while CIBC dropped 4.3 percent to C$72.02, and National Bank
eased 1.6 percent to C$58.07.
TD edged up 0.8 percent to C$73.38, while BMO built on its
gains from the previous day, rising 3.4 percent to C$62.30.
STRONG DOMESTIC BANKING
All of the big banks are benefiting from strong Canadian
operations and and improving credit performance after
recession-linked loan losses. Even so, various unrelated
headwinds tempered overall profits, analysts said.
"When you look at some underlying results in terms of
performance from the domestic banking, performance in credit,
it's encouraging for a long-term sustained recovery in earnings
for the banks," Edward Jones analyst Craig Fehr said.
"However, on any quarter, given how high expectations have
gone, there is a possibility for disappointment. And it looks
like RBC's headline number at first blush is probably the one
that stands out most," Fehr said.
RBC's core cash earnings per share, which include the
amortization of intangibles, were 96 Canadian cents. While
overall profit was up 40 percent when one-time items are
excluded from year-ago results, the profit missed expectations.
Analysts, on average, had expected a profit of C$1.09 a
share, according to Thomson Reuters I/B/E/S.
Net income came in at C$1.33 billion ($1.27 billion) in the
second quarter ended April 30, compared with a loss of C$50
million in the same period a year earlier, when RBC took a C$1
billion goodwill impairment charge for losses in the bank's
The Toronto-based bank said the strengthening of the
Canadian dollar cut revenue by C$534 million, net income by
C$82 million and per-share earnings by 6 Canadian cents, with
the capital markets segment particularly hard-hit.
The Canadian dollar appreciated by 5 percent against the
U.S. dollar over the fiscal quarter, a move that depresses
earnings from U.S. operations when profits are translated to
Canadian dollars. RBC, TD and BMO all have sizable U.S. bank
segments as well as some international earnings.
BETTER LOAN BOOKS
Still, RBC's provisions for credit losses, or the amount of
money set aside to cover bad loans, fell 48 percent to C$504
million and Tier 1 capital was 13.4 percent, at the high end of
domestic peers and well above most global rivals.
Cross-town rival TD, which has recently made small
acquisitions to expand its U.S. footprint, earned C$1.18
billion in the quarter, up from C$545 million, as loan losses
fell to their lowest level in six quarters.
Adjusted income was C$1.36 a share, while analysts on
average were expected a per share profit of C$1.38.
Provisions for credit losses fell to C$365 million in the
quarter from C$772 million a year earlier.
Tier 1 capital, a key measure of the capital adequacy of a
bank, was 12.0 percent, at the low end of Canadian peers.
CIBC, meanwhile, posted lower than expected quarterly
earnings of C$660 million, though up from a year-before loss of
C$51 million. Excluding items, cash earnings were C$1.46 per
share, versus analyst expectations of a C$1.50 per share.
(Additional reporting by Cameron French in Toronto and Sakthi
Prasad in Bangalore; editing by Rob Wilson)