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Royal Bank of Canada and National Bank of Canada both announced better-than-expected earnings on Wednesday, keeping an end-of-year winning streak alive for Canada’s Big Six lenders.
Toronto-based RBC reported net income of approximately $3.25 billion for its fourth quarter, which ended Oct. 31, an increase of one per cent over the same three-month period of 2019.
Better results in its capital markets and back-office divisions were “largely offset” by weaker earnings from wealth management, insurance and its retail operations, said RBC, Canada’s biggest bank.
RBC also set aside less money for bad loans in the fourth quarter of 2020 than it did during the pre-pandemic fourth quarter of 2019, with provisions for credit losses coming in at $427 million, down from $499 million a year earlier.
The drop-off in building loan-loss reserves was helped by the COVID-19-related government support programs and payment deferrals provided to customers, as well as some positive economic developments, the bank said.
RBC’s earnings per share were $2.23, and when adjusted for certain items, they were $2.27, up two per cent from a year earlier and above the $2.05 consensus estimate among banking analysts.
“Looking ahead, while it is difficult to predict how the coming year will unfold, RBC has the strength, stability and operational resilience to face a range of scenarios, and to continue creating long-term sustainable value,” RBC president and CEO Dave McKay said in a press release.
Montreal-based National, Canada’s sixth-biggest bank, said its fourth-quarter profit fell year-over-year, sliding to $492 million from $604 million a year earlier. Even so, its adjusted earnings per share were $1.69, the same as the fourth quarter of 2019 and better than the $1.52 expected by analysts.
Provisions for credit losses ticked up for the bank’s fourth quarter, reaching $110 million, an increase of 24 per cent from a year earlier. However, National’s results were helped by a boost from its U.S. specialty finance and international division, the profit from which was up 36 per cent from a year earlier, to $106 million.
National also said it is boosting its stake in Atlanta, Georgia-based Credigy Ltd. to 100 per cent, buying the remaining 20 per cent of the firm it didn’t already own for approximately US$235 million. Credigy, which buys consumer debt from companies, is part of National’s U.S. specialty finance and international arm.
“Our overall performance during the pandemic has confirmed that we have made the right strategic choices in terms of risk management, capital allocation and business mix,” National Bank president and CEO Louis Vachon said in a press release.
On a full-year basis, both RBC and National saw their profit slip for their fiscal 2020s, which ended Oct. 31.
RBC reported net income of around $11.4 billion for its pandemic-affected 2020, down 11 per cent from its 2019. National’s 2020 net income was approximately $2.08 billion, a drop-off of 10 per cent from the prior year.
The lower earnings were due in large part to the effects of the coronavirus pandemic, which has hammered the economy and forced banks to bolster their loan-loss reserves. At the same time, customers have been increasing their deposits and central banks have cut interest rates, putting pressure on commercial lending margins.
Even so, the fourth-quarter earnings beats for RBC and National followed those of Bank of Nova Scotia and Bank of Montreal on Tuesday, making for a solid earnings season thus far.
The final two members of Canada’s Big Six, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, will report their year-end financial results on Thursday.
· Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne
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The chief executives of the Bank of Nova Scotia and Bank of Montreal began another earnings season for Canada’s Big Six lenders on Tuesday in an upbeat fashion, voicing confidence in a COVID-19 vaccine and the economic recovery that it could aid.
“While the path of the pandemic and the economic recovery remains uncertain, we now know that vaccines will be available relatively soon, and there’s good reason to be optimistic about the associated economic recovery accelerating as 2021 progresses,” said Darryl White, BMO’s CEO, during a conference call for analysts and investors on Tuesday.
Scotiabank CEO Brian Porter sounded a similar note, saying that precise forecasting is proving difficult, but that there are several factors that make them “cautiously optimistic for the year ahead,” such as the economic stimulus being supplied by governments and central banks.
“There is ample and growing evidence the economic recovery in our core markets is well underway,” Porter said during his bank’s conference call. “While our current outlook does not rely on an effective vaccine being introduced, any progress towards this goal will certainly improve our outlook,” he added later.
The optimism from the heads of two of the country’s biggest banks came as Statistics Canada revealed that the Canadian economy grew by nearly nine per cent in the third quarter, after shrinking by 11.3 per cent in the second. Both banks announced quarterly earnings that were better than analysts had expected, albeit still weighed down by the effects of the pandemic.
Toronto-based Scotiabank reported a profit of nearly $1.9 billion for its fiscal fourth quarter, a decrease of 18 per cent from the same quarter a year earlier. When adjusted for acquisition and divestiture-related costs, Scotiabank’s net income for the three-month period ended Oct. 31 was about $1.94 billion and its earnings per share were $1.45, down from $1.82 a year ago.
BMO, meanwhile, reported net income of approximately $1.58 billion for its fourth quarter, up 33 per cent from a year ago. When adjusted for certain costs, the bank’s net income was $1.6 billion and its earnings per share were $2.41, down two cents from the previous year’s quarter.
Although they were lower than 2019, the banks’ adjusted earnings per share for the fourth quarter beat analysts’ expectations. The consensus estimate for Scotiabank had been $1.22 in adjusted EPS, while BMO’s was $1.91.
· Bank of Montreal, Scotiabank end year of the pandemic with profit beats
· Big Six in solid financial shape, but pandemic pain to linger: analysts
· Scotiabank beats expectations on capital markets even as bad loan provisions grow
Credit costs eased for both banks when compared to the third quarter, aided by a better economic outlook. The change helped boost earnings on a quarter-over-quarter basis, with Scotiabank’s fourth-quarter profit rising 46 per cent and BMO’s up 28 per cent relative to the third quarter.
Scotiabank’s provisions for credit losses were $1.13 billion for the fourth quarter, compared to $2.18 billion in the third quarter and $753 million a year ago. Total provisions for credit losses at BMO were $432 million in the fourth quarter, up from $253 million a year earlier, but down from $1.05 billion it set aside in the third quarter.
Both banks also saw decreases in the amount of debt on which customers are deferring payments, which shot up in the early days of the pandemic.
BMO chief risk officer Patrick Cronin said approximately 88 per cent of payment deferrals to Canadian consumers and 80 per cent to U.S. consumers have expired, with just over two per cent of those now in default or delinquent on their payments.
“We’ve been pleased with our overall risk performance given the acute stress and uncertainty caused by the pandemic, and expect credit losses through fiscal 2021 to remain manageable,” Cronin said.
Yet even with a better-then-expected end to their year, the lenders reported that profits for their fiscal 2020, which ended Oct. 31, were down from those of pre-pandemic 2019. Scotiabank’s 2020 net income was approximately $6.85 billion, down from nearly $8.8 billion for the previous fiscal year. BMO said its full-year profit dipped to just shy of $5.1 billion, compared to about $5.76 billion for 2019.
There is also some concern for the staying power of the economic recovery, given a resurgence in COVID-19 cases in Canada and decisions by governments to reimpose restrictions on people and businesses. StatsCan noted that third-quarter real gross domestic product was still down 5.3 per cent compared to the end of 2019.
“We expect 2021 will be a transition year towards a return to the full earnings power of the bank, supported by a return to normal (provision for credit loss) levels consistent with an economic recovery,” Scotiabank’s Porter predicted.
The fourth-quarter results from BMO and Scotiabank are the first to be reported by Canada’s Big Six banks this week, and will be followed by Royal Bank of Canada and National Bank of Canada on Wednesday.
• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne
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The Bank of Nova Scotia and Bank of Montreal ended their 2020 fiscal years on a relative high note, as both lenders reported on Tuesday fourth-quarter earnings that were better than expected, albeit still buffeted by the coronavirus pandemic.
Toronto-based Scotiabank reported a profit of nearly $1.9 billion for the three-month period ended Oct. 31, a decrease of 18 per cent for the same quarter a year earlier. When adjusted for acquisition and divestiture-related costs, Scotiabank’s net income of the fourth quarter was about $1.94 billion and its earnings per share were $1.45, down from $1.82 a year ago.
BMO reported net income of approximately $1.58 billion for its fourth quarter, up 33 per cent from a year ago. When adjusted for certain costs, the bank’s net income was $1.6 billion and its earnings per share were $2.41, down two cents from the previous year’s quarter.
Although a decline from their 2019 fourth quarters, the banks’ adjusted earnings per share beat analysts’ expectations. The consensus estimate for Scotiabank had been $1.22 in adjusted EPS, while BMO’s was $1.91.
Moreover, credit costs eased for both BMO and Scotiabank in the fourth quarter when compared to the third, helping to improve earnings on a quarter-over-quarter basis. Scotiabank’s fourth-quarter profit was up 46 per cent from the third quarter, and BMO’s was up 28 per cent.
“The bank delivered improved earnings in the fourth quarter with strong operating results to end a year marked by high loan loss provisions driven by the global pandemic,” said Brian Porter, president and CEO of Scotiabank, in a press release. “We are encouraged by progress towards a vaccine and we remain cautiously optimistic about the year ahead.”
Tuesday’s results begin another earnings season for Canada’s six largest banks. And as has been the case since the pandemic hit, the driving force behind the financial results at Scotiabank and BMO — the country’s third and fourth-biggest banks, respectively — was COVID-19.
For instance, both lenders reported that full-year profits were down from 2019. Scotiabank’s 2020 net income was approximately $6.85 billion, down from nearly $8.8 billion for the previous fiscal year. BMO said its full-year profit dipped to just shy of $5.1 billion, compared to about $5.76 billion for 2019.
Those lower profits are due in large part to the banks having to increase their loan-loss reserves in the face of the pandemic and its related economic effects, both of which have weighed on borrowers. They have also weighed on lenders, which use economic forecasts in determining how much money to set aside for possible loan losses.
Scotiabank’s provisions for credit losses were $1.13 billion for the fourth quarter, compared to $2.18 billion in the third quarter and $753 million a year ago. The bank said that the sequential improvement was driven by lower provisions on performing loans, or those still being paid back, because of an improving macroeconomic forecast and credit quality.
Total provisions for credit losses at BMO were $432 million in the fourth quarter, up from $253 million a year earlier, but down from $1.05 billion it set aside in the third quarter.
“The prior quarter provision for credit losses was largely due to the impact of the extraordinary and highly uncertain environment on credit conditions, the economy and scenario weights, while the current quarter provision for credit losses was primarily due to a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances,” BMO said in its fourth-quarter report.
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Despite the global pandemic bearing down on businesses around the world, Vancouver-based private equity firm CAI Capital Partners exceeded a $100-million target for its latest fund by more than 25 per cent.
More than 80 returning investors, and some new ones, pumped $125 million — the hard cap — into CAI’s Fund VI.
The investment firm, which targets the “lower middle” segment of the market, has continued to invest throughout the economic turmoil caused by government-mandated efforts to try to slow the spread of COVID-19.
For example, in August, CAI invested in RebalanceMD Canada, a Victoria, B.C.-based operator of medical clinics that provide musculoskeletal care including a full range of orthopaedic surgical and non-surgical services. And on Sept. 30, the fund announced an investment in CMT Engineering Laboratories, a Utah-based civil and geotechnical engineering services provider.
“The pandemic certainly made raising the fund more complicated,” said Curtis Johansson, a partner at the firm. “But it doesn’t negate the underlying premise upon which CAI is built: the lower middle-market is a compelling place to invest.”
Investors in CAI’s latest fund include financial institutions, family offices, institutional investors, funds of funds and individuals.
Over the past three decades CAI, which was originally based in New York, has invested more than $1.5 billion of equity capital in companies across North America. One of its funds, launched in 2008, topped a list of more than 100 global buyout funds of that vintage based on the return on each dollar invested, or net multiple, according to Preqin, a London-based data firm that tracks private capital and the hedge fund industry.
CAI primarily focuses on investing in founder-owned companies, often in sectors that serve industries where services are required by regulation or government.
“As we always have, we are targeting businesses that demonstrate a track-record of cash-flow generation and unrealized growth opportunities,” said Johansson. “In particular, we think there are currently compelling opportunities to partner with companies that provide services to industrial, utility and government clients.”
• Email: bshecter@nationalpost.com | Twitter: BatPost
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TORONTO — Bank of Nova Scotia beat analysts’ estimates for fourth-quarter profit on Tuesday, helped by income growth in its capital markets business, even as loan loss provisions rose and earnings in its international division slumped 61 per cent.
While earnings at Canada’s third-biggest bank improved from the previous quarter, when it was hit by the impact of the coronavirus pandemic in some of its Latin American markets, it remained below the levels seen a year earlier.
Loan loss provisions jumped 50 per cent to $1.13 billion, driven by increases in its international and Canadian banking divisions.
· Bank of Montreal profit jumps 33%
Scotiabank said adjusted net income attributable to shareholders fell to $1.8 billion, or $1.45 a share, in the three months through Oct. 31, compared with analysts’ expectations of $1.22 a share.
While earnings recovered 34 per cent from the prior quarter, they fell from $1.82 a share a year earlier.
Its international business profit tumbled to $283 million from $725 million a year ago.
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Bank of Montreal reported a 33 per cent rise in quarterly profit on Tuesday, as strength in its wealth management and capital markets businesses helped offset higher loan-loss provisions due to the COVID-19 pandemic.
Net income attributable to equity holders of the bank rose to $1.58 billion, or $2.37 per share, in the fourth quarter, from $1.19 billion, or $1.78 per share, a year earlier.
More to come …
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