Big Six Banks Sweep Fourth Quarter

By Momal Khan

Canada’s Big Six banks have managed to pull off a complete sweep with their fourth-quarter financial results. Although all of Canada’s major banks exceeded estimates, results for three of the banks were especially impressive, topping analyst predictions by a large margin and despite uncertain economic conditions brought about by the pandemic. 

The Canadian Imperial Bank of Commerce (CIBC) and Toronto-Dominion Bank (TD) both announced their earnings in a release last Thursday that showed increased earnings from Canadian retail, commercial and wealth management operations as well as impressive increases in both banks’ capital markets and investment banking divisions. 

CIBC reported a profit of over $1.28 billion for the period ending October 31, which is up 3% from the previous quarter results. This was driven by government support programs in place to aid debt-payment deferrals provided to clients, which effectively helped reduce personal lending and write-offs and insolvencies linked to credit cards. 

Another factor was the amount of money the bank had set aside in the case of bad loans, which for this year was $291 million, a 45% drop from the amount poured into reserves in the previous quarter and an almost 28% year-over-year drop. 

CIBC had Earnings per Share (EPS) of $2.79 for the quarter. According to financial data solutions firm Refinitiv, analysts had originally expected an adjusted profit of $2.52 per share for the year, showing just how well CIBC managed to beat out expectations. 

The CEO of CIBC Victor Dodig said he is determined to protect existing shares and win even more of the market as the pandemic-economy continues to progress. He cited special interest in gaining shares in the personal and small business banking areas, saying these would be his top priorities heading into 2021. 

“We’ve made good progress … but there’s more upside to capture in the year and years ahead,”, said Dodig in a call with the Toronto Start last Thursday to discuss the bank’s fourth-quarter financial results. 

TD, the country’s second-biggest lender, reported upwards of an 80% increase in profit for its fourth quarter compared to last year’s results. The bank’s adjusted net income was up 1% for the period ended October 31st to about $3 billion. TD’s adjusted EPS was $1.60, which is up one cent from the previous year and beat out analysts’ estimate of $1.28 for the current year. 

These results were hoisted up by the bank’s wholesale division, which recorded net income of $486 million for the fourth quarter, up almost 10% from the third quarter and a whopping 200% from the previous year. TD’s wholesale division houses its capital markets and investment banking lines of business. 

Compared to CIBC’s $291 million, TD set aside $917 million to cover bad loans but was still a lower amount than the estimated $1.58 billion and less than half the amount taken in the second quarter of 2020. 

Canada’s biggest lender, Royal Bank of Canada (RBC), also joined its rivals Bank of Nova Scotia, Bank of Montreal, and National Bank of Canada in reporting much better than estimated profits for their fourth quarter. All banks set aside smaller amounts in their reserves to cover bad loans than expected, which seems to be a recurring theme this year even as they navigate the pandemic. 

RBC reported their fourth-quarter adjusted net income to be $2.27 per share, which is up 5 cents from 2019 and beat out estimates of $2.05 from the current year. 

For banks like CIBC and TD, the large majority of 2020 has been uniquely challenging as they have been forced to help their clients navigate rocky financial and economic conditions. With scattered and temporary lockdowns and unemployment rates soaring, banks have had to respond to the increased demand for loan deferrals among other abatements. 

Photo by Justin Jason, Unsplash

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