Uncertainty lingers around banks

TORONTO — Most of Canada’s biggest banks either met or beat expectations for their quarterly earnings, but uncertainty about what’s to come next year has some analysts less than optimistic, especially after Royal Bank’s (TSX:RY) results.

TORONTO — Most of Canada’s biggest banks either met or beat expectations for their quarterly earnings, but uncertainty about what’s to come next year has some analysts less than optimistic, especially after Royal Bank’s (TSX:RY) results.

Royal Bank reported Friday a $1.2-billion profit, up from $1.1 billion a year earlier, meeting analyst expectations of $1.06 per share according to Thomson Reuters.

But, Royal Bank shares closed down 2.6 per cent, or $1.48, to $56 on the Toronto Stock Exchange.

John Aiken, a banking analyst at Barclays Capital, gave a blunt explanation in a note to clients: “Just surpassing consensus (is) not good enough for the market.”

“While Royal Bank did exceed consensus expectations, it was far from the degree that some of its peers had done in the quarter. We believe that Royal’s results were solid, but less impressive than most of its peers.”

Scotiabank (TSX:BNS), the only major Canadian bank left to report its fourth-quarter earnings, is scheduled to post results on Tuesday.

Canada’s banks are considered among the most solid in the world and overall they performed relatively well during the quarter, but with year-end results come full-year outlooks for 2010 and that’s where doubts start to emerge.

Much of that is due to the state of the economy, which is backing off its recessionary levels at a sluggish pace, while slack jobs numbers have left some banks boosting their provisions for bad loans even as they cling to cautious optimism for next year.

Weakness in the jobs market often means that Canadians fall behind on their credit card payments, while a troubled economy often makes it hard for companies to meet their loan payments.

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