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Banks rake in $5-billion profit

TORONTO — Canada’s five biggest banks raked in a collective $5.01 billion in profits during the second quarter, holding steady with results from the previous period but still missing inflated analyst expectations.

TORONTO — Canada’s five biggest banks raked in a collective $5.01 billion in profits during the second quarter, holding steady with results from the previous period but still missing inflated analyst expectations.

The quarterly tally fell short of the $5.09-billion profit that the group made during the first quarter of the year, when growth was starting to regain momentum on fewer bad loans and some pickup in mortgages.

However, to call the latest quarter a disappointment would be an overstatement, suggested John Kinsey, portfolio manager at Caldwell Securities.

“The first quarter was so good, unexpectedly, that it blew by all the earnings (forecasts) and that increased the expectations for the second quarter,” Kinsey said.

“Expectations were a little bit too high and, on balance, I think it’s shaping up as a pretty good year for the banks.”

Missed expectations aside, Canada’s banks actually showed significant gains when stacked to a year ago.

In the comparable second quarter of 2009, the five biggest banks posted a much weaker $1.75 billion profit, dragged down by weak results across the board including losses from both Royal Bank (TSX:RY) and CIBC (TSX:CM).

Since then, loan losses have abated and the pickup in the economy has helped drive mortgages and other banking divisions, giving the banks a more solid foundation for future growth.

On Tuesday, Scotiabank (TSX:BNS) wrapped up the second-quarter earnings reports for Canadian banks with a record profit of nearly $1.1 billion. Net income for the three-month period was the equivalent of $1.02 per share — beating analyst estimates of about 93 cents per share.

The bank said the profit was a quarterly record and up $225 million or 26 per cent from the same time last year.

Revenue was just under $3.9 billion, up nearly $300 million from a year earlier.

The bank’s provision for credit losses was reduced to $338 million, down $151 million from the same time last year.

“Our results reflect strong contributions from personal and commercial banking and wealth management, as well as the excellent performance of our wholesale business,” Scotiabank chief executive Rick Waugh said in a statement.

More than half of the quarterly profit — a record $584 million — was generated by Canadian banking operations, which saw growth in residential mortgages, lines of credit and business accounts. The Canadian banking contribution was up 42 per cent from $410 million in the second quarter of 2009.

International banking results were weakened partly by the stronger loonie, dropping to a $288-million profit versus $332 million a year ago.

Provisions for credit losses in the international division were also higher, rising to $173 million from $115 million in the comparable period, mostly because of a commercial account in the Caribbean.

Scotia Capital’s net income rose to $391 million from $328 million, while the Canadian bank’s international operations saw a decline in profit to $288 million from $332 million.

Shares of Scotiabank rose four per cent, or $1.99, to $50.24 on the Toronto Stock Exchange.

Last week, Bank of Montreal (TSX:BMO) launched the earnings period with the strongest results, including a quarterly profit of $745-million that was 18 cents per share ahead of analyst estimates.

However, the rest of the big banks fell short of expectations even as most of them delivered impressive profit gains over a year earlier when the financial meltdown was scorching their results.

In the latest quarter, Royal Bank posted a $1.3-billion profit but missed analyst estimates by 12 cents per share.

CIBC posted a $660 million profit that turned around a $51-million loss from a year earlier, but came short of analyst predictions by four cents per share.

TD Bank (TSX:TD) more than doubled its second-quarter profit to nearly $1.2 billion, but was still two cents per share below analyst targets.