Banks expect "solid" quarterly results despite trade uncertainty

Canadian banks are expected to report solid results for second quarter of 2019 despite the uncertainty caused by trade disputes.

With employment doing well in Canada and the United States, the Big Six banks are expected to post earnings-per-share growth of around 6%-7% year-over-year.

“Given trade policy discussion and other geopolitical tensions, revenue may be a little softer or may be weakening... (But) the banks have a good handle on managing expense growth,'' Robert Colangelo, senior vice-president of financial institutions at ratings agency DBRS, told the Canadian Press.

RBC gains

RBC was the first of the big banks to report its quarterly earnings. Wednesday’s figures show net income of $3,263 million for the quarter ended July 31, 2019, up $154 million or 5% from the prior year, with solid diluted EPS growth of 6%.

Results reflected strong earnings growth in Personal & Commercial Banking, Wealth Management and Insurance. These were partially offset by lower earnings in Capital Markets and Investor & Treasury Services amidst challenging market conditions.

CIBC will report its earnings today (8/22) with BMO, Scotia, National, and TD all reporting next week.

The banks’ performance internationally will likely play a key role in their overall performance and expenses will also be a vital component in improving their results.

Mortgage lending operations are expected to remain subdued with the housing market still feeling the impact of lending restrictions introduced in 2018.

The more cautious outlook of Canada’s largest lenders will also likely mean a rise in provisions for credit losses.

Money set aside for bad loans rose 28% in the first half of 2019 according to Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets.

Dechaine also says that profit margins will be impacted by the Fed’s rate cuts and the expectation of BoC cuts in 2020.

“After two years of benefiting from rate-driven margin expansion, the outlook has reversed completely... We expect margin guidance to become more conservative, which could become reflected in 2020 forecasts. Not all is lost, though, as declining rates could stimulate the Canadian housing market (we believe it already has),” he said.

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