RBC Leads Canadian Banks Beating Quarterly Estimates

Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce joined the country’s other lenders in topping analysts’ estimates for third-quarter earnings, lifted by record profits in domestic consumer lending and wealth management.

Royal Bank, Canada’s largest lender by assets, reported today that net income for the period ended July 31 rose 2.9 percent to a record C$2.3 billion ($2.19 billion), or C$1.52 a share. Toronto-Dominion, the second-biggest bank, said profit fell 10 percent to C$1.53 billion, or C$1.58 a share, after taking insurance losses tied to severe weather claims. Canadian Imperial, the fifth largest, said profit rose 5.8 percent to C$890 million, or C$2.16 a share.

“It’s a return to business as usual for the Canadian banks,” Tom Lewandowski, an analyst at Edward Jones & Co., said in a phone interview from St. Louis. “All of these banks said they would see a slowdown in 2013 and it doesn’t seem to be happening.”

The three Toronto-based banks posted record profit in Canadian personal and commercial banking and wealth management even as near record-low interest rates and tight net interest margins proved challenging for lenders. Royal Bank and Toronto-Dominion joined Bank of Nova Scotia in raising their quarterly dividend.

Tougher Times

“I still feel that their real day in the sun is over, as things are going to be tougher for them going forward,” John Kinsey, who helps manage about C$1 billion including bank shares at Caldwell Securities Ltd. In Toronto. “Eventually it’s going to slow down a bit.”

The banks benefited by getting a jump on preparing for a slower Canadian economy, cutting costs and raising fees ahead of time, Kinsey said. Canada’s economy is predicted by economists to grow 1.7 percent this year, the slowest pace since a contraction in 2009.

“They’re not out of the woods yet, because the Canadian economic numbers look rather weak,” Kinsey said.

Stocks of Canadian lenders rose in Toronto. Royal Bank climbed 1.2 percent to C$65.24 and Toronto-Dominion increased 2.7 percent to a record C$89.93. CIBC advanced 2.8 percent to C$82.66, while Edmonton-based Canadian Western Bank, which yesterday posted results that beat estimates, surged 4.7 percent to C$29.49. The eight-company Standard & Poor’s/TSX Commercial Banks Index hit a record high.

‘Tremendous Strength’

“The Canadian banks have shown tremendous strength and resilience,” Colleen Johnston, Toronto-Dominion’s chief financial officer, said today in an interview. “But the operating environment is challenging.”

Royal Bank said profit excluding some items was C$1.48 a share, beating the C$1.38 average estimate of 13 analysts surveyed by Bloomberg. Toronto-Dominion reported adjusted profit of C$1.65 a share, beating the C$1.53 average estimate of 11 analysts, and Canadian Imperial said adjusted profit was C$2.29 a share, topping the C$2.13 average estimate of 14 analysts.

Royal Bank benefited from a 51 percent increase in profit from its wealth-management unit as fund sales and improving stock markets lifted fee-based client assets. The lender also added contributions from its RBC Investor Services custodian business after buying out partner Banque Internationale a Luxembourg SA in July 2012. Provisions for bad loans fell 18 percent to C$267 million from a year earlier. Royal Bank raised its quarterly dividend 6.3 percent to 67 cents.

Wealth Management

“Our strategies are working,” Royal Bank CFO Janice Fukakusa said in an interview. “It was a pretty clean quarter and really solid results, and you see the strength of our franchise.”

Profit from Royal Bank’s personal- and commercial-banking unit rose 7.1 percent to C$1.18 billion and wealth management posted C$236 million in profit. Insurance earnings fell 11 percent to C$160 million, while profit from the RBC Capital Markets investment-banking business declined 9.6 percent to C$388 million on lower revenue from advising on stock sales and mergers, and declines in fixed-income trading revenue.

Toronto-Dominion posted record profit in Canadian wealth management as well as its Canadian and U.S. retail-banking businesses, according to Johnston. The bank raised its dividend 4.9 percent to 85 cents a share.

Canadian Lending

Adjusted profit from Canadian lending rose 12 percent to C$997 million and profit from U.S. retail banking advanced 23 percent to C$445 million. Earnings from its investment-banking unit fell 18 percent to C$147 million, the lender said.

Toronto-Dominion’s gains were tempered by insurance losses on flood claims, which drove profit from its wealth management and insurance unit down to C$7 million, from C$360 million a year earlier. Rain-swollen rivers caused flooding in southern Alberta in June and a record deluge in Toronto on July 8 submerged parts of Canada’s most populous city, contributing to a C$243 million loss for TD Insurance in the quarter.

“If the market can look past the insurance charges, which we believe it should, the exceptionally strong retail-banking results on both sides of the border should be well-rewarded in its valuation,” John Aiken, a Barclays Plc analyst, said today in a note to clients.

Toronto-Dominion’s third-quarter results “likely mean little or no” growth in earnings per share for the year, Chief Executive Officer Ed Clark, 65, said today in a conference call with investors. The lender will consolidate facilities in Canada and the U.S., including combining some branches, to cut costs, he said.

CIBC Earnings

Canadian Imperial’s earnings were aided by a 34 percent gain in its wealth-management unit, as well as increases in investment banking and record profit in Canadian retail banking.

Consumer-lending and business-banking earnings climbed 7.4 percent to a record C$638 million from a year earlier. Profit from CIBC’s wealth-management unit rose to a record C$102 million after buying the private-wealth business of MFS McLean Budden last year from Sun Life Financial Inc. Income from investment banking advanced 39 percent to C$217 million, helped by a 42 percent increase in trading revenue.

CIBC said in a separate statement that it plans to buy back as many as 8 million shares, or 2 percent of its stock.

Canadian Western said yesterday in a statement that quarterly profit was C$47.5 million, down 1 percent from last year’s record high.

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