Revisiting Canadian Banks

Last month in my post regarding the state of Canadian bank dividends, I noted that an analyst (Robert Sedran) commented about the possibility that Royal Bank (RY), TD Bank (TD), Bank of Montreal (BMO), and CIBC (CM) may forgo dividend increases this quarter as profits decline. Canadian banks have been raising dividends twice per year, but he commented that dividend increases could be postponed because average profits before one-time items could be down around 1.4%. He would view any increases as a bullish sign.

I'd like to follow up on this post by reviewing what has transpired earnings-wise, particularly for the Canadian banks that I follow:

TD Bank (TD) - Profit rose 5%. Raised dividend 3.5% to $0.59/quarter. This dividend increase is 'on schedule', however the increase is at a slower rate than the bank has been in the habit of raising. TD was the darling of the Canadian banking sector this quarter. It has no subprime exposure, less emphasis on capital markets, and its Canadian retail franchise is strong. TD's dividend increase, although smaller, could be viewed as a bullish sign for the bank going forward.

Royal Bank (RY) - Profit declined 17%. Did not raise dividend. This lack of a dividend increase stops its streak of semi-annual raises which it has maintained going back to January 2005. The strong Canadian dollar, weakness in capital markets, and charges related to U.S. asset backed paper and subprime exposure.

Bank of Montreal (BMO) - Profit declined 27%. Did not raise dividend, did not cut dividend. This lack of a dividend increase stops its streak of semi-annual raises which it has maintained going back to 2003. Write downs, investment banking losses, and credit provisions were blamed, and the bank does not expect to meet its annual targets in 2008.

Bank of Nova Scotia (BNS) - Profit declined 18%. Scotia was not due or expected to raise its dividend. Profit in international operations, the strong loonie and credit provisions were blamed.

In summary, Sedran was probably optimistic for the quarter compared with what occurred. TD Bank has to be viewed as the strongest player right now as it is less involved in the mess south of the border, and is producing some good numbers in Canada. It seems BNS, RY, and TD have all been taking advantage of the strong loonie by purchasing non Canadian assets lately, which could turn out to be wise long term.

Comments

[captnimo:]

Is it possible given the larger than expected decline in profit among some of the Cnd Banks and sizable challenges facing them that the dividend may actually decrease? Are we in uncharted territory with these banks? - or is there a period during these banks long history that they faced this kind of challenge? . Any insight.

2008 Mar 05 08:04 AM