Strong earnings reports from Canadian banking sector

The specific numbers published this morning further fuel the speculation that the economy will be stimulated by the positive reports coming from the banking industry. Making loan acquisition more plausible will be a key driving force if consumer and business spending is to increase during the coming year. To that end, the reports today from The Royal Bank of Canada and others will increase confidence across the board and should loosen the flow of capital for both acquisitions and spending.

Royal Bank of Canada, Canada’s largest lender by assets, announced that Q1 profit increased some 35% . The key components to the positive report was investment banking earnings rose significantly in conjunction with the fall in provisions for bad loans. The cycle that completed showed profit climbing to $1.5 billion and shares increasing by 78 cents on the strength of that.  These numbers marked the second highest profit in the history of the bank which stretches back to 1869.  RBC’s news makes them the fourth large lender in Canada to announce an increase in profit further enhancing the returning strength of an economy edging it’s way out of recession. Royal Bank is the fourth Canadian lender to report rising profit in the period after Canada’s economy emerged from its first recession since 1992. While investment-banking earnings leaped to $571 million (up from $225 million) the bank is equally benefited by need to reserve almost 40% less funds to cover bad loans. Barry Schwartz of RBC in Toronto stated:

“These are tremendous earnings, unfortunately, the street won’t be so rewarding to Royal’s stock today because these weren’t blow away numbers”  (such as other recent banking reports)

Royal Bank of Canada stock has made steady if unspectacular gains so far this year on the Toronto Stock Exchange with a 1.9% rise during the first 60 days of the year.  A less spectacular figure than the year to date increase of 3.0% from the S&P Banks Index.  Following a protracted period of shrinkage the news will be heralded as more supporting evidence that the positive economic trend is firmly in place.

The results are mirrored or bettered by Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada each of whom posted profit results that exceeded the expectations of analysts. An experienced asset manager in Toronto David Cockfield added:

“It’s a solid declaration that the Canadian economy is doing well, as the banks go, so goes the Canadian economy”

Results from the consumer sector were also encouraging as profit was buoyed by higher mortgages, personal loans and increased deposits. Profit from consumer banking rose 12% in Canada. A continued analysis will be warranted over the coming 90 days to see if the recent improvement can be maintained which would be another indicator (especially to consumers) that the confidence to seek needed loans is once more a pursuit to consider when investing or looking at acquisitions. The Canadian Dollar remains very strong trading at $1.035 against the US Dollar which represents a gain of a further 1.3% from a month earlier.

Some statistics for this article courtesy of Reuters.