Three Canadian banks surprise analysts with better lending results

TORONTO – Three of Canada’s biggest banks delivered first-quarter results on Thursday that outshone analyst expectations, helped by improvement in their lending operations.

Both Royal Bank (TSX:RY) and TD Bank (TSX:TD) boosted their quarterly dividend payments, leaving CIBC (TSX:CM) as the unexpected lone wolf to keep its payouts at their current level. But aside from the disappointment, the results from the banks included more positive surprises than negative ones.

Royal Bank said that net income rose 12 per cent to $2.07 billion, or $1.36 per share, in the period. Adjusted earnings amounted to $1.38 per share, beating analyst estimates by six cents, according to a survey by Thomson Reuters.

TD Bank’s earnings grew 21 per cent to $1.79 billion, or $1.86 per share. Adjusted profits were $1.92 billion or $2 per share, eight cents above a consensus estimates.

CIBC delivered the weakest overall results with profits falling more than four per cent to $798 million, or $1.91 per share, affected by a $148 million loss booked in its structured credit business. The bank said when filtering out those costs, adjusted earnings rose to $868 million or $2.15 per share, seven cents above the consensus estimate.

Concerns the banking sector is headed towards more challenging times didn’t appear to be quite as evident as some analysts had anticipated before the quarterly reports began earlier this week.

The banks demonstrated that their personal and commercial loans businesses are still solid, even as expectations point to consumer lending growth slowing in the coming quarters amid persistent economic weakness.

“The results that have come out of the domestic businesses have just been much better than my expectations,” said Tom Lewandowski, a financial services analyst with Edward Jones in St. Louis.

“I’ve held the contention that as you see slower growth (the banks are) going to have to reposition your balance sheet into lower yield securities. If business growth continues to keep up with what we’ve seen here in the first quarter, that … may be less of a concern.”

On the dividend front, Royal Bank will rise five per cent to 63 cents per share. TD’s payout will rise by four cents to 81 cents per share. CIBC will keep its dividend unchanged, despite expectations from analysts to the contrary.

CIBC president and chief executive Gerry McCaughey defended the bank’s decision to holding steady on the dividend when asked by an analyst on the earnings conference call.

“I wouldn’t read too much into our not raising the dividend this quarter,” he said.

“On the capital front, we’re also in the middle of a (stock) buyback program that’s going at an accelerated pace. As I said before, to the extent that you have a buyback, it does allow you to raise your dividend more rapidly and stay within your payout ratio.”

He said the bank is still considering “the exact mix” of its buyback program, which would determine what happens to dividend increases in the coming quarters.