Thursday, January 25, 2007

Citigroup Earnings Sets Tone for Cdn Banks?

Financial Post, Duncan Mavin, 25 January 2007

Disappointing fourth-quarter earnings at U.S. banking giant Citigroup last week provide clues for investors in Canadian financial institutions, said Genuity Capital Markets analyst Mario Mendonca in a note.

"As the largest financial institution in the U.S., Citigroup provides us with useful information on how a variety of businesses that impact Canadian banks are trending," he said.

Citi's earnings of US$1.03 per share from continuing operations beat analysts' consensus.

But the results represented a less-than-impressive 5.1% increase on the previous year. In particular, Citi trailed its peers because it could not match the performance of investment banks in areas such as commodity trading.

Mr. Mendonca points out that Canadian banks, too, might find trading results weakening in light of "choppy Canadian equity markets" and the government's decision to tax trusts, for instance.

Mr. Mendonca also notes that investors in Bank of Nova Scotia might take a look at the rising loan loss provisions at Citi's Mexican operations.

Scotiabank, like Citi, has a significant presence in Mexico.