TSX drops 105 points amid mixed earnings from RBC, TD and CIBC, Fed concerns

TORONTO – The Toronto stock market closed lower Thursday, pressured by the financial sector as the latest batch of bank earnings disappointed, giving traders an excuse to take some more profits from a sector that has delivered solid returns all year.

The S&P/TSX composite index fell 104.52 points to 13,200.4 with extra selling pressure coming from mining stocks amid falling commodity prices.

The Canadian dollar erased early losses to rise a third of a cent to 93.98 cents US.

Toronto-Dominion Bank (TSX:TD) shares fell $1.35 to $94.40 after it reported a quarterly profit of $1.622 billion, up from $1.597 billion a year ago. On an adjusted basis, TD earned $1.90 per share, up from $1.83 a year ago but nine cents less than analysts had expected.

The bank also raised its dividend by a penny to 86 cents a share and announced a two-for-one stock split.

Most of TD’s major units showed increases but net income from wholesale banking fell by 61 per cent to $122 million from a year earlier.

Meanwhile, Royal Bank of Canada (TSX:RY) had $2.119 billion of quarterly net income, up 11 per cent from last year. Adjusted diluted earnings per share was $1.42, four cents higher than analysts had forecast. But its shares fell 83 cents to $68.17 as Barclays analyst John Aiken pointed to both the wealth management and retail banking divisions as performing weaker than he expected.

RBC also announced that president and chief executive Gordon Nixon will retire next summer.

CIBC (TSX:CM) shares dropped $1.23 to $88.82 as it reported a profit of $836 million in net income in its latest quarter, down from $852 million a year ago. After adjusting for one-time items, earnings were $2.22 per share, seven cents ahead of estimates and up 8.8 per cent from a year ago.

Analysts pointed out that despite the pressure on the bank stocks Thursday, the financial sector was still up about 18 per cent year to date.

“None of the numbers were bad per se, they just didn’t knock the lights out and it’s something that people got accustomed to with the Canadian banks,” said Sadiq Adatia, chief investment officer of Sun Life Global Investment.

“There’s a lot of good things going forward, it’s just that at some point in time people’s expectations get higher than what a company can deliver.”

U.S. indexes were lower as concerns about what the Federal Reserve will do with a key stimulus measure grew in the wake of more positive economic data.

The Dow Jones industrials lost 68.26 points to 15,821.51 amid further positive news on the U.S. jobs front a day before the release of the government’s employment report. The U.S. Labor Department reported that applications for jobless benefits, which are a proxy for layoffs, dropped 23,000 last week to 296,000.

The Nasdaq declined 4.84 points to 4,033.16 and the S&P 500 index was down 7.78 points to 1,785.03.

Expectations for job creation in the government employment report moved higher after payroll firm ADP reported Wednesday that the private sector added 215,000 jobs last month. Prior to that report, markets had expected job creation of about 183,000.

But while a stronger report would be welcomed as another sign of an improving economy, it would also raise concerns the Federal Reserve is getting close to cutting back on its US$85 billion of monthly bond purchases, a program that has kept long term rates low and supported a strong stock market rally this year.

On the TSX, the financial sector was down about 0.66 per cent but still ahead about 18 per cent year to date.

Scotiabank (TSX:BNS) shares fell 38 cents to $63.32 ahead of its earnings report coming out on Friday.

But the gold sector was the biggest percentage decliner, falling almost three per cent. December bullion declined $15.30 to US$1,231.90 as the precious metal appeared less attractive on rising speculation the Fed will move sooner than thought to taper asset purchases. Goldcorp (TSX:G) fell 79 cents to C$22.14 and Kinross Gold (TSX:K) faded eight cents to $4.85.

Base metals were also lower as March copper declined two cents to US$3.23 a pound. The base metals sector fell per cent and HudBay Minerals gave back 14 cents to $7.70.

The energy sector declined 0.32 per cent while the January crude contract on the New York Mercantile Exchange gained 18 cents to US$97.38 a barrel. Suncor Energy (TSX:SU) gave back 84 cents to $36.27.

A major mover on the TSX was Precision Drilling. Its stock fell 93 cents or 9.06 per cent to $9.33 on huge volume of 74.1 million shares. Most of the volume came from a block trade of 56 million shares by Alberta Investment Management Company.