An RBC Financial Group or Royal Bank of Canada Branch in the financial district of Toronto.Ryan Carter/The Globe and Mail
In the biggest flurry of bank earnings during the second quarter reporting season, three of Canada's big banks delivered results that surpassed expectations, easing concerns over whether a slowing Canadian economy and a depressed energy industry would hurt the sector.
Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce beat analysts' earnings estimates, though some top executives continued to identify industry challenges that have weighed on the banks' growth prospects and share prices.
"Our industry is changing in fundamental ways and at break-neck speed," said Bharat Masrani, TD's chief executive, during a Thursday conference call with analysts.
He pointed to the emergence of new competitors in the payments industry, such as Apple Inc., that threaten to stand between the banks and their customers. However, the broader shift from traditional in-branch banking to online and mobile banking is equally revolutionary.
TD made changes during the quarter, taking a hefty $337-million restructuring charge, representing about 2 per cent of the bank's total expenses. The actions were largely related to layoffs, branch closures and curtailed expansions in the United States.
"The restructuring is really about controlling our rate of expense growth to help us become fitter and faster, but also make it easier for our customers to do business with us and easier for our employees to get things done," said Colleen Johnston, TD's chief financial officer, in an interview.
The charge lowered TD's reported earnings to $1.68-billion or 97 cents a share, down nearly 7 per cent from last year.
Without the charge, the lender's adjusted earnings were $2.2-billion or $1.14 a share, up nearly 5 per cent over last year and beating the $1.11 average estimate among analysts.
RBC reported net income of $2.5-billion, or $1.68 a share, up 14 per cent over last year, also topping expectations.
The bank's powerful capital-markets unit played a key role. As companies feed into a frenzy for equity and debt issues, RBC scored large underwriting and advisory fees, driving capital-markets earnings to $625-million, up 23 per cent over last year.
While other banks have also reported strong gains in their respective capital-markets units, RBC has traditionally been the Canadian powerhouse in this area and has become a major player in the United States.
"A strengthening U.S. macro-economic outlook appears to be flowing through to RBC Capital Markets' earnings, and this strength will offset weakness in Canada, enabling the segment to deliver strong earnings growth in fiscal 2015," said Peter Routledge, an analyst at National Bank Financial, in a note.
Although earnings from RBC's retail Canadian banking operations rose just 7 per cent over last year, executives sounded upbeat that the economy – and the housing market in particular – would persevere.
"Notwithstanding the heightened media focus, we believe that the Canadian housing market generally continues to be supported by strong trends in employment, household income and population growth," said Dave McKay, RBC's chief executive, in a call with analysts.
CIBC reported net earnings of $911-million in its second quarter, or $2.25 a share, about triple its earnings from a year ago.
However, after accounting for some exceptional items in 2014, adjusted earnings rose 4.2 per cent to $924-million, or $2.28 a share, beating the average analyst estimate by about 5 cents.
Despite the modest overall growth, the lender raised its quarterly dividend for the fourth consecutive time, to $1.09, up 3 cents.
Victor Dodig, CIBC's chief executive, said in a conference call that the bank is distributing 44.9 per cent of its earnings to shareholders, putting it midway in his targeted payout range of 40 to 50 per cent.
This implies more dividend hikes ahead if the economic backdrop remains healthy for the bank.
"Our businesses are performing well," Mr. Dodig said. "The strategy that we laid out, around consistent, sustainable earnings and smart organic investments that drive those earnings, is delivering dividend growth to our shareholders."