stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Banks set for strong results as trade, housing risks loom
space
Big Six first-quarter earnings expected to benefit from U.S. tax cuts, rising interest rates on both sides of border
space
By JAMES BRADSHAW
  
  

Email this article Print this article
Tuesday, February 20, 2018 – Page B1

Bullish expectations for Canada's banks are carrying into reporting season for the first fiscal quarter, dampened just a little by uncertainty over global trade and Canada's volatile housing markets.

Broadly speaking, the stage is set for banks to report strong quarterly results. Economic growth in Canada is still strong, despite signs of moderation, and rising interest rates could give banks' margins a modest boost.

Returns from capital markets are expected to be softer than a year ago, when the U.S. presidential election sent markets surging, but should still improve compared with the final quarter of 2017.

The banks' outlook is not without risks. Growth in Canada's mortgage market is expected to slow, household debt keeps climbing to new heights and a conclusion to fraught negotiations over the North American free-trade agreement is still uncertain. Banks will also need to keep a close eye on expenses in case revenue growth begins to soften.

Yet the anticipated benefits from U.S. tax cuts to banks with American operations, combined with rising interest rates on both sides of the border, are "turning what was already expected to be a good year into a better one," said Robert Sedran, an analyst at CIBC World Markets Inc. "At this point, the positives outweigh the negatives."

Canadian Imperial Bank of Commerce will report its results first on Feb. 22, followed by Royal Bank of Canada on Feb 23. Bank of Montreal and Bank of Nova Scotia both report on Feb. 27, National Bank of Canada on Feb. 28 and Toronto-Dominion on March 1.

Analysts predict as many as four banks - CIBC, Scotiabank, RBC and TD - are likely to hike their dividends.

Here are three themes worth watching this quarter:

NEW MORTGAGE RULES

Mortgages are still under scrutiny, as lenders and home buyers begin to digest the impact of a new stress test introduced by Canada's banking regulator, which will make it harder for some borrowers to qualify for uninsured home loans.

Growth in banks' mortgage portfolios is expected to pull back somewhat as a result. But banks' fiscal first quarters wrapped up on Jan. 31, only a month after the new rules took effect. And many buyers were likely preapproved for loans without meeting the stress test before the new year. So it may be too soon to gauge the full affect on banks' loan portfolios.

"We remain on real estate watch although [the new rules'] impacts will likely be modest this quarter - in our view, [the second quarter] will be the litmus test," said Darko Mihelic, an analyst at RBC Dominion Securities Inc.

U.S. TAX FALLOUT

Sweeping changes to the U.S. tax system passed just before Christmas by American legislators will force some Canadian banks to endure short-term pain in their first-quarter results.

TD and BMO both expect to take writedowns of roughly US$400-million, largely attributable to adjustments to deferred tax assets. RBC's writedown will total US$150-million writedown and CIBC's will be US$100-million.

But make no mistake: There are long-term gains to come.

Canadian banks with U.S. operations can expect earnings per share to rise between 1 per cent to 3 per cent, according to research by analysts at Citigroup Global Markets Inc. RBC predicted it will earn back that US$400million by the third quarter as lower taxes lift earnings. With U.S. tax reform resolved, companies that had held off on borrowing from banks as they awaited the outcome may feel empowered to take more loans.

"BMO is expected to be the largest beneficiary," Mr. Sedran said. "We expect any writedowns to be more than fully offset by new tax savings as well as strong organic capital generation."

ACCOUNTING FOR LOAN LOSSES

The start of banks' first fiscal quarters on Nov. 1 coincided with the introduction of a new accounting standard, known as IFRS 9, that puts more emphasis on banks' expected losses over the life of a loan.

The first quarter of 2018 will be the first time they frame their results within the new rules. The banks already disclosed so-called "day one" impacts after the fourth quarter and the only change is in the accounting. The result will be that provisions for credit losses - or the money banks set aside to cover bad loans - will be more volatile over time.

Because banks' loan books are healthy at the moment, and loan losses are low, the impact on provisions should be muted for the time being. "As for those underlying actual losses, we expect little change from quarters past," Mr. Sedran said.

Associated Graphic

THE GLOBE AND MAIL, SOURCE: BLOOMBERG


Huh? How did I get here?
Return to Main William_Johnson Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page