Big Five lenders earn collective $10.6B Q2 profit, up 11 per cent from last year

TORONTO — Canada’s Big Five banks reported a collective second-quarter profit of $10.6 billion, up nearly 11 per cent from a year ago, beating expectations across the board as they brushed off concern about the impact of a cooling real estate market amid tighter mortgage lending guidelines.

“The market is in various stages of worry about the outlook for the mortgage market in particular, but the results themselves seem to indicate that a lot of that worry is misplaced,” said Meny Grauman, an analyst with Cormark Securities in Toronto.

BMO was the last of the biggest banks to report its earnings for three-month period ended April 30 on Wednesday.

Its fiscal second-quarter net profit of $1.25 billion was relatively flat compared with a year ago, but included a $192-million after-tax restructuring charge primarily related to severance costs. Canada’s fourth-largest lender also raised its quarterly dividend to 96 cents per share, up three cents from 93 cents in its previous quarter.

BMO said it earned $2.20 per share on an adjusted basis for the quarter, up from $1.92 per share a year ago. Analysts on average had expected the bank to earned $2.12 per share, according to Thomson Reuters Eikon.

Like its rivals, BMO benefited from strong earnings on both sides of the border. Its Canadian banking arm saw net income rise 11 per cent to $590 million. And although home sales activity across the country in April hit a monthly low not seen in years, due to factors including a new stress test for uninsured mortgages as of Jan. 1 and higher interest rates, BMO’s total Canadian residential mortgage portfolio grew by 2.2 per cent to $106.4 billion in the latest quarter.

BMO has “momentum” in its U.S. personal and commercial business, which is driving “very strong” results in its Canadian business, said chief executive officer Darryl White.

“The bank’s performance this quarter, I believe, is indicative of our potential and I remain confident that our diversified businesses will deliver sustainable earnings growth for the future,” he said.

The other Big Five banks generated strong earnings at home as well. TD’s Canadian retail division net income was up 17 per cent compared with last year. RBC’s Canadian personal and small business banking division reported a seven per cent increase in net income, while Scotiabank’s domestic banking division saw a five per cent increase and CIBC’s Canadian personal and small business banking division reported a 16 per cent increase in net income.

International growth was a bright spot for the Canadian lenders as well, and a big contributor to the $10.6 billion in net income attributable to shareholders amongst them during the quarter.

BMO on Wednesday said its U.S. personal and commercial banking division saw net income increase 46 per cent to $348 million for the quarter.

The Canadian Imperial Bank of Commerce saw an even bigger increase of 431 per cent, helped by its acquisition of Chicago-based PrivateBancorp in June last year.

Profits at TD Bank’s U.S. retail arm’s rose 16 per cent, while Royal Bank’s U.S. Wealth Management unit, which includes Los Angeles-based City National, saw a 25 per cent jump. Scotiabank, which has focused its international expansion in Mexico, Peru, Chile and Colombia, saw net income at its international banking arm increase 14 per cent to $675 million.

Canada’s sixth-largest bank, National Bank of Canada, also reported better-than-expected results and raised its dividend Wednesday. It earned $547 million or $1.44 per diluted share for the quarter ended April 30, up from $484 million or $1.28 per diluted share in the same quarter last year.

“We’re seeing a lot of good contribution from their U.S. and international businesses,” said Robert Colangelo, senior vice president of Canadian banking and financial institutions at ratings agency DBRS.

“Those seem to be the platforms that are taking off.”

However, a dark cloud loomed as the banks delivered strong second-quarter earnings. BMO and CIBC’s direct banking brand Simplii warned that up to 90,000 clients’ information may have been compromised. BMO and CIBC on Monday said they were contacted a day earlier by “fraudsters” who claimed to have accessed clients sensitive data.

The accelerated pace of technological change brings benefits for banking customers in the digital age, but increases risk as well, said BMO’s chief risk officer Surjit Rajpal. The bank will continue to “enhance our layered defences,” he said.

“There will be bad actors that will attack banks or other institutions, be it for disruption or financial gain…. From an operational risk standpoint, I think there is an element that has gone up,” Rajpal told analysts.

“There’s no question about it, and we’re going to be better prepared for it.”

Companies in this story: (TSX:BMO, TSX:RY, TSX:BNS, TSX:TD, TSX:CM)

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