Friday, August 18, 2006

Banks Set to Report Earnings

  
Globe and Mail, Allan Robinson, 18 August 2006

Canadian banks are the bedrock of the S&P/TSX composite index in terms of earnings, and if analysts' third-quarter profit forecasts are correct, investors are in for some good news.

Over the next two weeks, the domestic banks take centre stage, with four of the largest expected to report an average year-over-year profit increase of about 11.25 per cent, according to Thomson First Call.

As far as stock market performance goes, the shares of Canadian banks are largely unchanged this year, and have been lagging far behind the 7-per-cent share-price appreciation of banks in the United States and Australia, said Jim Bantis, an analyst with Credit Suisse Group. But the Canadian banks are poised to rebound, helped by profit and dividend growth, he said.

The Canadian banks now trade at about 12 times their 2007 share-profit estimates, which is the same as the large U.S. diversified banks that used to trade at a premium, Mr. Bantis said in a recent report.

Bank of Montreal is slated to lead the profit parade, reporting its results tomorrow; Toronto-Dominion Bank is to check in on Thursday, and Royal Bank of Canada on Friday. Bank of Nova Scotia will report on Tuesday of next week.

The two smallest of the big banks by market capitalization -- Canadian Imperial Bank of Commerce and National Bank of Canada -- will announce results on Aug. 31. Analysts forecast CIBC will post a 4.8-per-cent drop in profit during the third quarter, compared with the year-earlier period, while National Bank is expected to announce a profit increase of 5.1 per cent, according to Thomson First Call.

CIBC's profit decline is expected to reflect weaker growth in its retail business and reduced profit from its capital markets and investment banking arms, according to CIBC World Markets Inc.

Analyst Michael Goldberg of Desjardins Securities said in a recent report that he is retaining "top pick" recommendations on shares of TD Bank and Scotiabank, while Bank of Montreal and CIBC are "buys."

The financial sector, which includes banks and insurance companies, accounts for 30.2 per cent of the S&P/TSX composite index, just a notch behind the volatile energy sector, with a 30.5-per-cent weighting, but well ahead of the materials group, at 15.7 per cent.

Weightings of the remaining seven sectors, including health care, utilities, consumer staples, information technology, consumer discretionary, telecommunications and industrials, range between 1 per cent and 5.3 per cent.

Investors seem to be anticipating the good results, with stock performance of the S&P/TSX's financial sector outperforming the two other major groups. During the past month, the financials sector increased 3.9 per cent, compared with a modest 1.4-per-cent rise in materials and a 1.7-per-cent decline in the energy sector in response to the drop in oil prices.

The Royal Bank is the largest company in the S&P/TSX with a 4.8 per cent weighting. As a group the banks account for about 17 per cent of the S&P/TSX index.

• August 22, Bank of Montreal releases 3rd quarter results. Analysts expect profit of $1.21 a share, up from $1.08 a year earlier.

• August 24, Toronto-Dominion Bank releases 3rd quarter results. Analysts expect profit of $1.16 a share, up from $1.04 a year earlier.

• August 25, Royal Bank of Canada releases 3rd quarter results. Analysts expect profit of 84 cents a share, up from 76 cents a year earlier.

• August 29, Bank of Nova Scotia releases 3rd quarter results. Analysts expect profit of $0.86 a share, up from $.77 a year earlier.

• August 31, CIBC releases 3rd quarter results. Analysts expect profit of $1.60 a share, down from $1.68 a year earlier.

• August 31, National Bank of Canada releases 3rd quarter results. Analysts expect profit of $1.24 cents a share, up from $1.18 a year earlier.
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