By Joshua Hongo
Earnings from Canadian banks will be positive news in the midst of great uncertainty in the markets.
A slew of fourth quarter earnings are expected to be released by Canada’s biggest banks over the next two weeks. Montreal-based National Bank of Canada (OTCPK:NTIOF) will set the tone when it reports earnings first. National Bank is expected to raise dividends as they currently sit at the low end of their historical dividend payout ratios. Four of Canada’s largest banks - RBC (NYSE:RY), TD (NYSE:TD), Scotia (NYSE:BNS) and CIBC (NYSE:CM) - are to release earnings on Wednesday. BMO will report earnings on Dec. 7. Analysts predict that earnings will be positive, painting a healthy picture of Canada’s financial institutions.
Canadian bank earnings are predicted to increase by as much as 9% year-over-year and about 5% from the third quarter. The banks’ capital markets divisions were a drag on third-quarter earnings; however, they are expected to improve for this upcoming quarter. The driving forces behind this quarter’s earnings will be commercial loan growth, improved credit, cost control and wealth-management fees. Scotia and RBC’s recent wealth-management acquisitions will also help these banks grow their earnings in the near future.
Canada’s economy is on pace to expand by 3.5% this year, in comparison U.S. GDP growth lags by almost a full percentage point. Unlike U.S. banks, which slashed their dividends during the financial crisis, the Canadian banks held their dividends steady. Desjardins Securities analyst Michael Goldberg expects dividend increases from TD, Canadian West Bank and Laurentian (OTCPK:LRCDF). RBC has held its dividend steady for the past 13 quarters, the longest stretch since 1995. The earnings are expected to bolster the Toronto stock market over the next few days. If bank performance matches what analysts have been calling for, overall earnings for Canadian companies reporting on the TSX will be up 12% by year-end. To date, the TSX is up about 9.8% and an even more impressive 14% since the July slow-down.
This is positive news for the global economy as markets are uncertain about the spread of the debt crisis in the Eurozone, as well as mounting military tensions in the Korean peninsula. Analysts expect that uncertainty over the euro debt crisis will cause commodity prices to initially drop. However, as bailouts occur from the European Union, concerns will turn toward inflation as commodity prices rebound. In addition, investors are looking to Friday when November employment numbers are expected from both Canada and the United States. In contrast, the higher-than-expected earnings from the largest Canadian banks are positive news amidst the uncertainty which is currently rife in the markets.
Disclosure: No positions