Positive outlook for big banks

TORONTO — Canada’s big banks were basking Wednesday in the afterglow of a strong third-quarter performance that came amid a worldwide financial crisis in which scores of other financial institutions around the world crashed and burned.

TORONTO — Canada’s big banks were basking Wednesday in the afterglow of a strong third-quarter performance that came amid a worldwide financial crisis in which scores of other financial institutions around the world crashed and burned.

At a financial forum in Toronto, senior executives trumpeted the gains banks made while looking forward to some of the opportunities the global meltdown has opened up for them, particularly outside Canada.

Royal Bank CEO Gordon Nixon said he saw “significant opportunities” for acquisitions in the next few years amid further restructuring in the financial-services sector, but said the bank would proceed with caution.

His comments were echoed by Scotiabank CEO Richard Waugh, who said Jamaica, Mexico and Chile all offered up chances for expansion, while Bank of Montreal CEO Bill Downe said he saw the possibility of buying troubled consumer banks in the U.S., especially in the midwest.

“I’m highly confident that there will be good deposit bases that can be acquired and high-quality branches,” Downe told the Scotia Capital forum, adding he expected U.S. authorities to ramp up bank closures over the next year.

“What we’ve done is invested heavily in understanding where in the market there are banks that could be good opportunities.”

A Scotia Capital research report Wednesday noted Canadian banks had reported “stellar third-quarter earnings, better than street estimates,” and the third straight quarter of outperforming expectations.

Last month for example, Royal, the country’s largest bank, reported record quarterly profit of $1.56 billion.

Altogether, the five biggest banks — the Royal, CIBC, TD, Scotiabank and Bank of Montreal — earned a combined total of $4.4 billion in third quarter profits for the three months ended July 31. That was $500 million higher than the $3.9 billion a year earlier.

That was above analyst expectations and showed the Canadian banks, despite higher loans losses and problems in some of their businesses, have weathered the recession better than most.

Compared to the U.S., where the financial crisis has seen 81 banks fail in 2009 alone, the Canadian banking system is quickly establishing itself as one of the safest in the world, and this quarter only served to cement that reputation.

Once criticized for making huge profits and squeezing consumer and corporate borrowers, the Canadian industry is now being viewed by many Canadians as prudent, solid foundations of the economy which avoided the recklessness that battered big Wall Street financial companies such as Lehman Brothers , Bear Stearns and AIG.

The Scotia Capital report attributed the positive news to strong wholesale-banking earnings and trading revenue.

“Canadian banks seem to have weathered the siege in a strong fashion,” the report states.

“The most significant development this quarter, we believe, was the improvement in the net interest margin, which reversed an eight-year descent.”

Bank stocks have risen 50 per cent year-to-date, substantially outperforming the Toronto Stock Exchange, while dividend yields have been a healthy 4.1 per cent with prospects of further increases in the coming quarters.

CIBC CEO Gerry McCaughey said his bank’s strong capital levels would be used for its retail-business expansion rather than be used to reward investors.

While the bank had lower-than-expected quarterly profit in August because of funds set aside to cover bad loans, it did report a 12 per cent Tier 1 capital ratio — above the levels held by international competitors.

“Our Tier 1 (capital ration) is at the high end of what we think is required given the current environment,” McCaughey said.

“But unless we have a good usage for it from the viewpoint of normal business growth, we would not be engaging in activities such as dividend increases or share buybacks in order to bring the Tier 1 down.”

Nixon said markets were showing signs of recovery and the economic tailspin was slowing. The bank’s credit profile showed improvement even in the hard hit United States, although economies around the world still faced “many challenges.”

During the forum, environmental activists asked whether Nixon was comfortable with his bank’s financing of development of the Alberta oilsands, which they view as destructive and unhealthy.

Nixon said his bank tries to take a “balanced” approach and that all financial institutions invest in the energy sector.

On the TSX Wednesday, Royal Bank (TSX:RY) shares closed up 32 cents at $57.27, while CIBC (TSX:CM) shares fell seven cents to $65.38. Scotiabank (TSX:BNS) stock was up 10 cents to $48.60, BMO (TSX:BMO) stock was up 30 cents at $53.15 and TD Bank (TSX:TD) shares were up 23 cents to $68.25.

Just Posted

Rural transit service rolled out

2A South Regional Transit will link Innisfail and Penhold with Red Deer

Some Red Deer waste collection schedules change due to holiday season

Tuesday collections will be moved for two weeks

Red Deer ‘champion’ helps hospital by sharing ongoing petition

It’s been about three years since many physicians at Red Deer Regional… Continue reading

Red Deer Airport’s prospects are looking up for 2019

Ultra-low-cost passenger service is on the horizon

Funding down for Red Deer Christmas charities

Food hampers and toys for children going out to those in need

Alberta’s Sundial starts shipping to AGLC this week

Sundial’s Rocky View facility has received the green light from Health Canada… Continue reading

Penny Marshall dead at 75, best known as TV’s Laverne and director of ‘Big,’ ‘A League of Their Own’

Bronx-born Penny Marshall, who found ’70s sitcom success on “Laverne and Shirley”… Continue reading

Chabot scores overtime winner to lift Senators over Predators 4-3

OTTAWA — Thomas Chabot saw an opening and he took it. And… Continue reading

Canadian Marielle Thompson earns World Cup ski cross bronze in season opener

AROSA, Switzerland — Canada’s Marielle Thompson captured bronze at the opening World… Continue reading

Canada doesn’t make Oscars short list for best foreign language film

LOS ANGELES — Canada is no longer in the running for best… Continue reading

Warrant issued for arrest of ‘Schwimmer lookalike’ suspect

LONDON — A British judge has issued an arrest warrant for an… Continue reading

Moneywise: Canadian workers unhappy with pay, want pension plans

Many working Canadians are feeling underpaid and are so worried about their… Continue reading

Brazil police say faith healer has turned himself in

RIO DE JANEIRO — A celebrity faith healer accused of sexually abusing… Continue reading

B.C. hockey coach creates ‘gear library’ to remove cost barrier of sport

VANCOUVER — Nicola Froese says she has always loved playing sports, but… Continue reading

Most Read