TD, CIBC Earnings Misses Cap Hard Quarter for Canadian Banks

(Bloomberg) -- Earnings disappointments at Toronto-Dominion Bank and Canadian Imperial Bank of Commerce capped a tough quarter for Canada's six largest lenders, with the industry sideswiped by rising provisions for soured loans and slumping capital markets.

Both Toronto-Dominion and CIBC reported fiscal fourth quarter results that missed analysts' estimates Thursday, after setting aside more money for loan losses and posting declining profits in capital markets and Canadian banking. Toronto-Dominion also was affected by a C$154 million ($117 million) restructuring charge, with the majority covering severance packages, echoing measures taken by Bank of Montreal earlier in the week that marked the industry's biggest job cuts in years.

“We took some restructuring charges as we continue to accelerate our ongoing efforts to modernize our operations and improve our efficiency,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said Thursday in a phone interview, declining to give a number for the job reductions. “Because it's broadly distributed, it's just a very small portion of our workforce.”

The two banks join Royal Bank of Canada in posting quarterly results that failed to live up to analysts' expectations. Bank of Montreal beat estimates earlier in the week, even after taking a restructuring charge for job cuts that will affect about 5% of its workforce, or about 2,300 employees, while Montreal-based National Bank of Canada also topped expectations. Bank of Nova Scotia matched estimates when it reported its results last week.

Toronto-Dominion's shares fell 3% to C$73.40 at 9:49 a.m. in Toronto, while CIBC slumped 4.8% to C$109.33, its biggest intraday decline in more than four years.

Earnings at Toronto-Dominion fell 3.5% to C$2.86 billion, with adjusted earnings of C$1.59 a share missing the C$1.73 average estimate of analysts surveyed by Bloomberg. Earnings from Canadian retail, which includes wealth management, were little changed, though profit in Canadian personal and commercial banking fell. The lender's capital markets business also saw an earnings drop, due in part to changes to its trading capabilities that caused some derivative valuation charges in the quarter.

‘Largest Miss'

“All segments came in below our forecast with the largest miss in Canadian retail banking,” RBC Capital Markets analyst Darko Mihelic said in a note to clients.

CIBC's profit fell 5.9% to C$1.19 billion after taking a C$135 million goodwill charge related to selling a stake in CIBC FirstCaribbean in November, and adjusted per-share earnings of C$2.84 missed the C$3.07 average analysts' estimate. A 37% jump in earnings from its U.S. commercial banking and wealth management was a bright spot in a quarter that saw profit declines in its Canadian businesses and capital markets.

Rising provisions were a theme across Canadian banks in the fourth quarter. Toronto-Dominion set aside C$891 million in the quarter for soured loans, up 33% from a year ago and its highest amount in at least two years, in what Ahmed described as the “effects of normalizing” provisions.

“We are continuing to see a normalization from what has been cyclically very low provisions in the last two years,” he said. “We just see it as individual business stories and not an overall trend in the economy.”

CIBC's provisions soared 52% to C$402 million, with part of that due to a C$52 million fraud-related impairment in its Canadian commercial bank.

“We had a few unusual items this year combined with continued normalization in an environment that the industry has seen,” CIBC CFO Hratch Panossian said in a phone interview. “On the impaired, we had a few unique events. Those we feel go away.”

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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