Loan losses to hit profit
Written on August 24, 2009
Canadian bank earnings, due out this week, are expected to hit bottom this quarter amid significant loan losses due in large part to the declining value of commercial real estate.
Unlike residential real estate in Canada, which has rebounded sharply in recent months – residential resale activity jumped 18.2 per cent in July from a year earlier – commercial real estate, mainly the office building sector, is still struggling.
Still, analysts from both Scotia Capital and National Bank Financial predicted that loan losses will hit their peak in the third quarter.
Analysts said the commercial real estate market is more stable in Canada than in the U.S. Therefore, banks like Royal Bank, Bank of Montreal and particularly Toronto-Dominion, with exposure to American commercial real estate, are more at risk.
Dundee Capital Markets analyst John Aiken cautioned that the banks have become more reliant on revenue from their corporate clients, which is more volatile than revenue from the consumer banking segment.
Scotia Capital analyst Kevin Choquette said he expects loan-loss provisions in the third quarter to increase to $2.6 billion or 0.83 per cent of loans compared to $1.4 billion or 47 per cent of loans a year earlier.
Forecasts say BMO, which will report tomorrow, will see earnings per share of 95 cents, down 14 per cent from a year earlier.
Canadian Imperial Bank of Commerce, reporting Wednesday, is expected to report EPS of $1.39, down 16 per cent.
Meanwhile, analysts expect TD, Royal and Bank of Nova Scotia, all reporting Thursday, to report EPS of $1.23, down 14 per cent; 91 cents, down 20 per cent; and 84 cents, down 16 per cent, respectively.
The Canadian Press