CIBC earned $2.1-billion in the third quarter, up from $1.8-billion a year earlier.Evan Buhler/The Canadian Press
Consumer credit is holding up well and some businesses are showing early signs of shaking off paralysis from trade uncertainty, as Canada’s largest lenders grow more confident their clients can handle the continuing fallout from tariffs.
Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T reported higher-than-anticipated profits for their fiscal third quarter ended July 31, capping off a week in which five of the country’s six biggest banks outperformed analysts’ expectations.
TD’s quarterly profit of $3.34-billion, or $1.89 per share, bounced back from a loss a year ago when U.S. regulators hit the bank with a US$3-billion fine over serious lapses in its programs to prevent money laundering. After adjusting to exclude that charge, TD earned $2.20 per share, ahead of analysts’ $2.05 consensus estimate.
CIBC’s $2.1-billion profit amounted to $2.15 per share, up from $1.8-billion, or $1.82 per share, a year earlier. The bank’s adjusted earnings per share of $2.16 beat analysts’ $2-a-share prediction.
The retail banking businesses that are the core engines of Canadian banks’ earnings had a strong quarter, underpinning rising profits. A combination of easing fears about defaulting loans, better profit margins and modest growth in loan portfolios had banks repeatedly praising the “resilience” of their clients in a difficult time for the global economy.
CIBC’s quarterly earnings from personal and business banking in Canada increased 17 per cent to $812-million, while TD had its best Canadian retail profit ever at $1.95-billion, up 4 per cent year-over-year.
Lower provisions for credit losses when compared with the second quarter also boosted bank profits, as risk officers eased the pace at which they are earmarking money against possible future defaults after stockpiling higher levels of reserves.
TD took $971-million of provisions in the quarter and CIBC booked $559-million, with both numbers well below what analysts had predicted.
“The Canadian and U.S. economies have shown resilience, though momentum has slowed,” said Raymond Chun, TD’s chief executive officer, on a Thursday conference call. “These remain early days. It will likely be a long road before the full impact of tariffs is well understood.”
Even so, TD and CIBC both topped up the part of their provisions tied to trade policy uncertainty, signalling that they are still wary about the damage tariffs could do to the Canadian and U.S. economies, especially with negotiations to update the United States-Mexico-Canada Agreement (USMCA) on trade still to come.
TD now has $600-million reserved to absorb potential losses on loans from trade upheaval – a sum that could shrink or grow depending on where tariff levels settle.
And CIBC also added modestly to its performing loan provisions – the money set aside to cover loans that are still being paid back but could run into trouble in future – to account for the unpredictability of trade policy.
“We have to see how this plays out,” TD chief financial officer Kelvin Tran said in an interview. “The general feeling is better, quarter over quarter, but I would say until someone can predict what the negotiation looks like, it’s really hard to tell.”
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Many businesses that are clients of TD and CIBC are still taking a wait-and-see approach, executives from both lenders said, hoping for more clarity before making big spending decisions that would require borrowing from banks.
Yet there are signs that some businesses are starting to get moving again as trade deals have been announced and a picture of the new global tariff regime starts to come into focus.
Surging trading revenue has carried the banks’ capital markets businesses in recent months, as clients raced to adapt to a changing business environment. But, in some cases, corporate lending and investment banking revenues also saw large increases in the third quarter as more companies seek advice on mergers, or help raising equity or debt.
CIBC’s trading revenue was up 29 per cent year over year, to $572-million, but corporate and investment banking revenue was up 34 per cent, with fee-based revenues leading the way.
“The longer this goes on, the more we’re seeing business volumes come back a little bit,” CIBC chief financial officer Rob Sedran said in an interview. “At some point you’re running a business and you’re making calls on how to deploy capital.”
He added: “It’d be a stretch to suggest that they’re sounding the all-clear, but we’re starting to see activity levels pick up a little bit.”
A rebound in business activity will be key to sustaining the health of personal banking customers, as the unemployment rate has typically been the most direct indicator for how many consumers will struggle to keep up with their debt.
“We’re watching the unemployment rate the same way everyone’s watching the unemployment rate,” Mr. Sedran said. “But from everything that we’re seeing today, it feels like ... things are starting to stabilize a little bit.”
TD said Thursday that it is making progress on a multiyear plan to improve its money-laundering controls and it expects to finish most of the remediation work this year, with some stretching into 2026 and 2027. “We are where we thought we would be in our work.”
The bank has also achieved a target to reduce its assets by 10 per cent, making room under an asset cap imposed by U.S. regulators on loans to American retail clients. And TD took a $333-million restructuring charge as part of a previously announced plan to cut costs and reduce staffing levels by 2 per cent.
TD’s share price closed down 4.7 per cent at $100.27 Thursday on the Toronto Stock Exchange, while CIBC’s shares rose 2 per cent to $105.91.