Canadian bank earnings: RBC and TD beat estimates, CIBC misses

Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce (CIBC) reported diverging second-quarter performances on Thursday with the former two comfortably beating expectations while the latter missed, all driven largely by provisions for credit losses (PCLs).

Royal Bank, Canada’s largest lender, reported higher profit in the three months ended April 30 from a year earlier, and beat estimates. TD, the second-biggest, posted lower profit but beat expectations, while CIBC’s profit fell and it slightly missed estimates.

Strength in lending books and fees have continued to offer tailwinds for Canadian banks on the back of economic growth, but they are also seeing increased expenses due to tight labour markets and inflation erodes some of these benefits. PCLs are also starting to creep higher as they brace for economic uncertainties.

At RBC, excluding the impact of taxes and its C$342 million ($266.81 million) of loan-loss provision releases, earnings fell two per cent to $5 billion as lower revenues from its capital markets business outweighed strength in wealth management and lending.

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CIBC’s miss was largely driven by a 847 per cent surge in PCLs to $303 million, due to its acquisition of the Canadian Costco credit card portfolio, as well as higher expenses.

Excluding taxes and provisions, however, adjusted earnings rose seven per cent from a year earlier, as both interest and fee income increased.

TD took provisions of $27 million, versus the expected $237 million. Excluding the impact of this, its adjusted earnings were almost 11 per cent higher than a year earlier.

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All three banks posted continued loan growth, with strength in mortgages and recovery in business lending. But Royal Bank’s
capital markets challenges weighed on revenue, which fell three per cent, even as its expenses excluding variable compensation rose seven per cent.

CIBC’s adjusted expense growth of 11 per cent outpaced a revenue increase of nine per cent. Its capital markets business too faced challenges, although this was driven more by a decline in investment banking fees while trading remained strong.

While TD had an adjusted expense increase of five per cent from a year ago, revenue rose eight per cent thanks to higher loan volumes and fees.

($1 = 1.2818 Canadian dollars) (Reporting By Nichola Saminather in Toronto; Additional reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Shailesh Kuber and Chizu Nomiyama)