Bank buildings are photographed in Toronto’s financial district on Wednesday, June 27, 2018. (Tijana Martin/The Canadian Press)

Market volatility, mortgages loom over upcoming earnings of Canada’s big banks

Central bank interest hikes have padded the banks’ net interest margins

Canada’s biggest banks are set to report on what has traditionally been the strongest quarter of the year, but market volatility and slower mortgage growth during the period could weigh on their latest results.

North American markets saw a sharp selloff at the end of 2018 amid a trade skirmish between China and the U.S. and political uncertainty with a partial shutdown south of the border, potentially hampering the banks’ related earnings.

“With markets falling through much of the fall and recovering through much of the winter so far… Everything from mutual fund fees to underwriting revenues will likely have been down,” CIBC analyst Robert Sedran said in a note to clients.

“Trading, as ever, is a wildcard but we do expect a sequential decline as well.”

The Royal Bank of Canada is the first lender to report its results for the three-month period ended Jan. 31 on Friday, followed by the Bank of Montreal and the Bank of Nova Scotia on Feb 26. National Bank of Canada reports its latest quarterly earnings on Feb. 27, followed by the Toronto Dominion Bank and the Canadian Imperial Bank of Commerce on Feb. 28.

During the earnings conference calls to discuss the banks’ results during the previous quarter, lenders expressed optimism for the coming financial year but some said the bumpy stock-market ride could add downward pressure.

“We expect to see some weakness year-over-year in our wealth and wholesale businesses, given the recent market volatility… However, our above-average net sales and strong investment banking pipeline will position us well for growth throughout the year,” said RBC’s chief financial officer Rod Bolger on a conference call with analysts in late November.

Investors’ concerns about the strength of the Big Six banks market-related earnings in the latest quarter are “overstated” given the market rally in January, said Meny Grauman, an analyst with Cormark Securities.

“The reality is that market-related revenues should have actually held up better than most investors’ fear, especially in the wealth business where the Canadian banks’ fiscal calendar should have helped as the Q1 numbers would have captured a very healthy stock market rally in January,” he said in a note to clients.

The financial first quarter has historically been the most robust period for capital markets and trading revenues and “could save the day” for the banks, said John Aiken, an analyst with Barclays in Toronto. Over the past nine years, Canadian banks have seen an uptick in capital markets revenues in the first quarter, up an average of 15 per cent from the previous quarter, he added.

While the macroeconomic environment is becoming increasingly challenging, the banks are expected to continue benefiting from the five central bank interest rate hikes since July 2017, Aiken added in his note to clients.

Those hikes have padded the banks’ net interest margins, which is the difference between the money they earn on the loans they make and what they pay out to savers.

“We anticipate NIMs will remain a positive story for much of 2019,” Aiken said. “That said, amidst rising rates, the slowdown in household and mortgage credit continues, with annual residential mortgage credit growth of 3.1 per cent in December, marking the slowest rate since May 2001 and roughly half of the growth rate from two years ago.”

Residential home sales in Canada in January were the weakest since 2015, down four per cent from the previous year, according to the Canadian Real Estate Association. In December, home sales slipped for the fourth month in a row to cap off the weakest annual sales since 2012.

READ MORE: Hackers targeting Canadian banks, mining companies

CREA attributed the drop in December to a rush of buyers at the end of 2017 who moved to lock in home loans before a new stress test for uninsured mortgages took effect on Jan. 1, 2018.

In turn, Canadian banks also saw a surge of mortgage lending during the financial first quarter one year ago — setting a high bar for comparison for quarterly results this year.

Some banks reported increases in mortgage originations of as much as 20 per cent during the first half of fiscal 2018, said Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets.

“‘Pull forward’ uninsured mortgage originations were surprisingly high… As such, we could see a larger-than-expected slowdown in new originations during H1/19, simply due to the ‘tough comps’ effect,” he said in a note to clients.

Armina Ligaya, The Canadian Press


Like us on Facebook and follow us on Twitter.

Just Posted

Sylvan Lake Library raises $600 for Christmas Bureau

Funds from the library’s coffee and cookie fundraiser were presented to the Christmas Bureau Dec. 5

Two dead in three-car collision on Hwy 11 near Alberta Springs Golf Course

Two women were pronounced dead on the scene of an accident Wednesday afternoon

Calgary police officer shares his story with Sylvan Lake parents and youth

A small audience listened to a presentation on bullying by Bullying Ends Here founder Tad Milmine

The best caesar in Canada can be found in Sylvan Lake

Kjeryn Dakin’s Tragically Hips caesar won the national Best Caesar in Town competition

Sylvan Lake Wranglers add a win after back-to-back home games

Wranglers fell 6-2 to the Medicine Hat Cubs Nov. 30, but won 3-0 over the Cochrane Generals Dec. 1

VIDEO: Federal Liberals’ throne speech welcomes opposition’s ideas

Trudeau will need NDP or Bloc support to pass legislation and survive confidence votes

Final appeal rejected for man convicted in deaths of missing Alberta seniors

Lyle and Marie McCann were in their 70s when they left their home in St. Albert in 2010 and vanished

Infants should be tested for autism if older siblings are diagnosed, Canadian study suggests

Blood test for infants with sibling who’s been diagnosed would get information to families earlier

Rural Alberta gets more police officers, but must pay for them directly

Premier wants areas to pay portion of overall costs on rising scale to bring in extra $200M by 2024

Rebels win second in row 5-2 over Moose Jaw

32 saves from Goalie Byron Fancy leads the way for Red Deer

Nearly 40% of Canadians want creationism taught in schools: poll

23% of Canadians believe God created humans in the past 10,000 years

Blackfalds RCMP lay charges following fatal pedestrian collision

35-year-old male died in the hospital as a result of injuries

Canadian families could pay nearly $500 more for food in 2020: report

Meat prices will increase the most, the report suggests

Most Read