Lending markets

OVERVIEW Canadian banks face lower third-quarter earnings on provisions and market woes

A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of Toronto’s financial district January 22, 2015. REUTERS/Mark Blinch (CANADA – Tags: BUSINESS)/File Photo

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TORONTO, Aug 18 (Reuters) – (This Aug 18 story corrects to say banks start reporting earnings on Tuesday)

Canadian banks are expected to post an average decline in third-quarter earnings as a bleak economic outlook pushes up provisions for credit losses (PCLs) while market turmoil puts pressure on capital markets and corporate earnings. wealth management, analysts and investors said.

Banks, which will start reporting quarterly results next Tuesday, will benefit from higher margins thanks to higher interest rates, while loan growth remains strong despite some slowdown in mortgage lending, which will help offset declines. somewhere else.

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Canada’s Big Six Banks – Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia, Bank of Montreal (BMO) (BMO.TO), Canadian Imperial Bank of Commerce (CM.TO) and National Bank of Canada – are expected to report an average decline of 3.7% in adjusted earnings per share (EPS) compared to the prior quarter and the prior year.

Most banks beat earnings expectations in recent quarters as assets under management, transactions and trading revenue soared, and PCLs remained weak, offsetting pressure on margins due to historically low interest rates. These now reverse. Read more

“Rising interest rates are a tailwind,” said Brian Madden, chief investment officer at First Avenue Investment Counsel, who expects spreads to rise five to six basis points across the board. band. “The headwind that compensates is the provisions. They have been negative in many banks for five or six quarters, which is not normal.”

Excluding provisions and taxes, Credit Suisse analysts estimate average earnings growth of 6% from a year ago and 3% from the previous quarter.

Banks could also slow the pace of share buybacks “to preserve capital from a possible downturn”, Barclays analysts said.

Analysts expect the largest EPS reductions from a year earlier at RBC and BMO, which have the biggest capital markets businesses. The Toronto stock index lost 10% in the banks’ third fiscal quarter. (.GSPTSE)

Scotiabank and TD, which are less exposed to the markets, should be the best performers.

Investors and analysts also expect updates on major BMO and TD deals in the U.S., in particular the latter’s acquisition of First Horizon (FHN.N), which is expected to close in by the end of November but could face regulatory challenges. Read more

“It will be quite outsized and undue political interference,” if he is blocked, Madden said. “In the end, it probably ends up closing, but maybe it drags on” in 2023.

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Reporting by Nichola Saminather; Editing by Josie Kao

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