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Canadian Bank Profits May Rise on Mortgage, Credit-Card Fees

Toronto-Dominion Chief Executive Officer Edmund Clark
Toronto-Dominion Chief Executive Officer Edmund Clark said, “We’ve had pretty phenomenal growth rates,” in domestic consumer banking. Photographer: Peter Foley/Bloomberg

Canadian banks, ranked the world’s soundest for three straight years by the World Economic Forum, may report higher first-quarter profit on rising fees from mortgages and credit cards and fewer bad loans.

Profit will increase an average of 14 percent in the quarter that ended Jan. 31, according to Andre-Philippe Hardy, an analyst at RBC Capital Markets. Hardy expects provisions for credit losses to drop 27 percent from the year-earlier period.

Canada’s economic growth rate is expected to accelerate to 3 percent in the second half of the year, driving bank earnings higher. Consumer-banking fees will cushion a slowdown in trading and other investment-banking revenue, Hardy said. The lenders begin reporting results tomorrow, starting with Canadian Imperial Bank of Commerce and National Bank of Canada.

“All the evidence quantitatively says the banks should do well,” said Tony Demarin, chief investment officer at BCV Asset Management in Winnipeg, Manitoba. “The debt level is not a scary story, given that the economy continues to show growth.”

The profit outlook has pushed Canadian bank shares higher, with Toronto-Dominion Bank, Bank of Nova Scotia, and National Bank touching records this month.

Hardy, ranked the top Canadian bank analyst last year by Brendan Wood International, expects “slowing but still-solid growth,” as banks such as Toronto-Dominion come off record profit levels for consumer lending.

TD Dividend

“We’ve had pretty phenomenal growth rates,” in domestic consumer banking, Toronto-Dominion Chief Executive Officer Edmund Clark said in a Feb. 1 interview. “What we’ve said is that they’re going to come down, but we’re still going to have very good, solid profit growth.”

Toronto-Dominion may also increase its quarterly dividend for the first time in more than two years, according to at least eight bank analysts. The country’s second-largest bank by assets may boost its payout 3 cents to 64 cents a share, according to the Bloomberg Dividend Forecast.

Personal credit lines increased by 8 percent in December, the slowest pace since February 2001, according to Bank of Canada statistics. Mark Carney, the country’s central bank governor, has been encouraging households to cut debt levels, which surpassed the U.S. for the first time in 12 years.

Mortgage volume climbed 8.7 percent in December compared with the year-earlier period, according to Bank of Canada data, while credit card volume rose 6.5 percent. Those segments represent about two-thirds of Canadian lending.

“Canadians today can manage current debt levels, because if you look at debt servicing capability we’re in actually very good shape,” Royal Bank of Canada CEO Gordon Nixon said in a Feb. 11 interview in Toronto. “We’re still able to manage it as long as we don’t get a massive spike in interest rates.”

CIBC, National Bank

CIBC and National Bank, the country’s fifth- and sixth-largest banks, are scheduled to report results tomorrow morning. CIBC, based in Toronto, is expected to have profit before one-time items of C$1.88 a share, according to Hardy, a 14 percent increase. National Bank, based in Montreal, is expected to report earnings of C$1.62 a share, 4.5 percent higher than a year earlier, Hardy said.

Bank of Montreal, the country’s fourth-largest bank, may report profit of C$1.31 a share when it release results March 1.

Royal Bank, Canada’s largest lender, is expected to earn C$1 a share, according to the average estimate of 13 analysts surveyed by Bloomberg News. Toronto-Dominion will report earnings of C$1.54 a share, a 3.8 percent decline, according to Hardy. Both banks release results on March 3.

Bank of Nova Scotia may earn C$1.08 a share, compared with 93 cents a year ago, said Hardy. The bank reports on March 8.

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