Canada Banks to Face Grilling on Subprime Charges

By Nicole Mordant

VANCOUVER, British Columbia (Reuters) - Despite taking some of the sting out of their fourth-quarter results by announcing C$1.9 billion in charges already, Canada's big banks face a grilling in coming weeks on what further losses might stem from the default-hit U.S. subprime mortgage market.

Bank of Montreal (BMO.TO: Quote, Profile, Research, Stock Buzz) is the first of Canada's big six banks to release quarter and full-year results next Tuesday.

"We believe that management commentary on the outlook for 2008 will be more important for bank share prices than actual earnings levels," said RBC Capital Markets analyst Andre-Phillipe Hardy in a research note to clients.

Most analysts have continued to forecast earnings numbers without the already-announced charges, much of which have been offset by one-off gains from their stakes in credit card firm Visa, which is expected to go public early next year.

One exception is Desjardins Securities analyst Michael Goldberg, who expects the group's fourth-quarter operating profit, which excludes unpredictable items like loan loss provisions and investment gains and losses, to fall 6 percent.

The drop comes largely on the back of writedowns for investments in sophisticated subprime-related securities such as collateralized debt obligations, residential mortgage-backed securities and asset-backed commercial paper.

The credit crisis, sparked when high-risk U.S. home owners were squeezed by falling property prices and rising interest rates, has cost banks around the world more than $50 billion and forced the exit of some high-profile banking bosses.

By comparison, Canadian banks' exposure to the U.S. subprime real estate market is small.