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HomeEconomyBank of Canada faces lower third-quarter earnings on provisions and market woes

Bank of Canada faces lower third-quarter earnings on provisions and market woes

(Correction to report in August this year 18 said banks started reporting results from Tuesday)

by Nicola Saminather

TORONTO (Reuters) – Analysts and analysts expect Bank of Canada’s third-quarter average forecast to rise as credit-loss provisions rise due to an uncertain economic outlook, while market volatility weighs on capital markets and wealth management performance Profits will fall. Investors said.

Banks, which start reporting quarterly results next Tuesday, will benefit from higher margins from higher interest rates, while loan growth remains strong despite a slowdown in mortgage lending, helping to offset declines elsewhere.

Canada’s six largest banks – Royal Bank of Canada, Toronto-Dominion Bank, Scotiabank, Bank of Montreal (BMO), Canadian Imperial Bank of Commerce and National Bank of Canada (OTC: NTIOF) – Adjusted earnings per share (EPS) are expected to decline by an average of 3.7% from the prior quarter and the same period last year.

Profits at most banks over the past few quarters have been higher as assets under management, trading and trading income soared, and PCL remained low, offsetting pressure on margins from record low interest rates Exceeded expectations. These are now reversing.

“Rising interest rates are tailwinds,” said Brian Madden, chief investment officer at First Avenue Investment Counsel, who expects profit margins across the group to rise 5 to 6 basis points. “The offsetting headwind is the provisioning. It’s not normal for many banks to be negative for five or six quarters.”

Excluding provisions and taxes, analysts at Credit Suisse estimate that average earnings This was a 6% increase a year earlier and a 3% increase from the previous quarter.

Banks may also slow the pace of share buybacks “to preserve capital for a potential recession”, Barclays (LON: BARC) analysts said.

Analysts expect the biggest year-over-year EPS declines for RBC and BMO, which have the largest capital markets businesses. Toronto’s stock index fell 18% in the bank’s fiscal third quarter.

Scotiabank and TD Bank have less exposure to the market and are expected to be the top performers.

Investors and analysts are also looking forward to updates on major U.S. deals from BMO and TD, especially the latter’s acquisition of First Horizon (NYSE: FHN), which is expected to close by the end of November, but may face regulatory challenges.

Political interference,” if it were blocked, Madden said. “Eventually, it may end up closing, but it may be dragged in” 2023 .




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