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Canada’s Big Six banks reported fourth-quarter earnings this week. Here’s what you need to know

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Canada’s biggest banks reported their fourth-quarter earnings this week, covering the three months ending Oct. 31, as analysts gauge the strength of the banking sector before heading into an expected slowdown (and possible recession) next year.

Bank of Nova Scotia, Royal Bank of Canada and Toronto-Dominion Bank topped analysts’ forecasts. Meanwhile, National Bank, Canadian Imperial Bank of Commerce and Bank of Montreal fell short of analysts’ expectations.

As central banks raise interest rates to slow inflation, economic fears have held bank stocks back compared with the overall market. Markets are watching these earnings closely for signs of how they will be affected in future quarters by decades-high inflation and central banks’ rapid rate hikes.

Here’s a breakdown of the Big Six banks’ fourth-quarter earnings.

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Bank of Nova Scotia

The Bank of Nova Scotia building, in Toronto, on Aug. 22, 2017.Nathan Denette/The Canadian Press

  • Earnings Q4 2022: $2.1 billion ($1.63 per share)
  • Earnings Q4 2021: $2.6 billion ($1.97 per share)
  • Adjusted EPS $2.06
  • Analysts’ expectations: $1.99 per share (adjusted)
  • Dividend: $1.03 per share, unchanged from Q3

Bank of Nova Scotia reported a lower fourth-quarter profit as expenses increased and the bank set aside more money to cover loans that could default, but still beat low expectations on the strength of robust retail banking revenues.

Scotiabank earned $2.1-billion, or $1.63 per share, in the quarter that ended Oct. 31. That compared with $2.6-billion, or $1.97 per share, in the same quarter last year.

The bank’s fiscal fourth-quarter results included several charges that reduced earnings, including a $340-million loss from the sale of investments in Venezuela and Thailand, a $66-million restructuring charge and $98-million in costs to expand the bank’s Scene+ loyalty program.

On an adjusted basis, the bank said it earned $2.06 per share, which was ahead of the $1.99 per share anticipated by analysts, according to Refinitiv. Scotiabank kept its quarterly dividend unchanged at $1.03 per share.

Scotiabank also earmarked $529-million in provisions for credit losses – the money banks set aside to cover loans that may default. That was a large increase from a year ago, at $168-million, when Scotiabank was recovering provisions it had set aside during the early months of the COVID-19 pandemic.

The bank is in the midst of a transition in leadership, as Scott Thomson prepares to be its next chief executive. He will assume the top job on Jan. 31, when current CEO Brian Porter retires.

Royal Bank of Canada

A person walks past RBC signage in Toronto, on Sept. 20.Alex Lupul/The Canadian Press

  • Earnings Q4 2022: $3.88 billion ($2.74 per share)
  • Earnings Q4 2021: $3.89 billion ($2.68 per share)
  • Adjusted EPS $2.78
  • Analysts’ expectations: $2.69 per share (adjusted)
  • Dividend: $1.32 per share, up 4 cents from Q3

Royal Bank of Canada reported fiscal fourth-quarter profit that was roughly unchanged from a year earlier – a day after it announced a $13.5-billion deal to acquire HSBC Bank Canada in the country’s biggest bank deal on record.

For the three months that ended Oct. 31, RBC earned $3.88-billion or $2.74 a share. That compared with $3.89-billion or $2.68 in the same quarter last year. On an adjusted basis, RBC said it earned $2.78 a share, above analysts’ consensus estimate of $2.69, according to Refinitiv.

The bank also increased its quarterly dividend by 4 cents to $1.32 per share, a three-per-cent hike.

Chief executive officer Dave McKay warned there are still several warning signs in the economy. With inflation, a potential recession on the horizon and labour-market pressures driving costs higher, “there’s a higher level of uncertainty and therefore you have higher tail risk right now,” Mr. McKay said.

National Bank

A National Bank sign is seen May 30, 2016 in Montreal.Paul Chiasson/The Canadian Press

  • Earnings Q4 2022: $738 million ($2.08 per share)
  • Earnings Q4 2021: $776 million ($2.19 per share)
  • Adjusted EPS $2.08
  • Analysts’ expectations: $2.22 per share (adjusted)
  • Dividend: $0.97 per share, up 5 cents from Q3

National Bank of Canada reported a 4-per-cent drop in fiscal fourth-quarter profit and raised its dividend by 5 per cent as rising provisions against loan losses outweighed strong gains in retail banking.

In the fiscal fourth quarter, National Bank earned $738-million or $2.08 a share, compared with $776-million or $2.19 a year earlier. On average, analysts were expecting earnings per share of $2.22. For the full fiscal year, National Bank’s profit and revenue were both up 8 per cent, to $3.38-billion and $9.65-billion respectively.

National Bank raised its quarterly dividend by five cents to 97 cents per share, a five-per-cent increase, and announced a plan to buy back as many as seven million shares, or 2.1 per cent of total shares outstanding.

Rising provisions for credit losses weighed heavily on results. National Bank set aside $87-million in provisions, after recovering $41-million from its reserves in the same quarter last year.

CEO Laurent Ferreira told analysts on Wednesday that economic indicators “are moving in the right direction,” but that the bank is nonetheless keeping “a defensive positioning” and watching central banks’ tone on monetary policy.

Canadian Imperial Bank of Commerce

The lobby of CIBC’s headquarters, in Toronto, on Oct. 25, 2021.Evan Buhler/The Canadian Press

  • Earnings Q4 2022: $1.19 billion ($1.26 per share)
  • Earnings Q4 2021: $1.44 billion ($1.54 per share)
  • Adjusted EPS $1.39
  • Analysts’ expectations: $1.72 per share (adjusted)
  • Dividend: $0.85 per share, up two cents from Q3

Canadian Imperial Bank of Commerce reported an 18-per-cent drop in fiscal fourth-quarter profit and raised its dividend as the bank was hit by higher expenses and loan loss provisions.

CIBC earned $1.19-billion, or $1.26 per share, in the fourth quarter. That compared with $1.44-billion, or $1.54 per share, a year earlier.

The bank’s results included several special charges, including a $91-million increase in legal provisions, a $37-million charge from consolidating its real estate portfolio and $12-million of costs related to the bank’s acquisition of the credit card portfolio of retailer Costco in Canada.

“CIBC had a big miss in the quarter and, while some of it related to higher provisions on performing loans, the bank’s domestic net interest margin contraction was disappointing,” said John Aiken, an analyst at Barclays Capital Inc., in a note to clients.

Adjusted to exclude those items, CIBC said it earned $1.39 per share. That was far shy of analysts’ estimate of $1.72 per share, according to Refinitiv.

CIBC raised its quarterly dividend by two cents to 85 cents per share.

For the full fiscal year, CIBC’s profit fell 3 per cent to $6.2-billion.

Bank of Montreal

A BMO branch in Ottawa, on Feb. 14, 2019.CHRIS WATTIE/Reuters

  • Earnings Q4 2022: $4.48 billion ($6.51 per share)
  • Earnings Q4 2021: $2.16 billion ($3.23 per share)
  • Adjusted EPS $3.04
  • Analysts’ expectations: $3.11 per share (adjusted)
  • Dividend: $1.43 per share, up four cents from Q3

Bank of Montreal reported adjusted fourth-quarter profit that fell 4 per cent and raised its dividend as higher costs and lower returns from investment and corporate banking weighed on earnings.

The bank’s earnings for the quarter that ended Oct. 31 were affected by two large items. It had revenue of $3.37-billion from a hedging strategy designed to offset the impact of interest rate changes on the closing cost of its $17.1-billion deal to acquire California-based Bank of the West. And it took a previously-announced legal provision of $1.14-billion after a U.S. court found the bank liable for damages in a lawsuit related to a prominent Ponzi scheme.

BMO earned $4.48-billion, or $6.51 per share, compared with $2.16-billion, or $3.23 per share, in the same quarter last year.

Adjusted to exclude the one-time items, BMO said it earned $2.14-billion, or $3.04 per share. On average, analysts expected adjusted earnings of $3.11 per share, according to Refinitiv.

The bank raised its quarterly dividend by four cents to $1.43 per share.

BMO’s results represent “a mixed quarter,” said Scotia Capital Inc. analyst Meny Grauman, in a note to clients. “There is plenty to like here despite the headline miss.”

For the full fiscal year, Adjusted profit of $9-billion was up 4 per cent.

Toronto-Dominion Bank

A TD Bank branch in Halifax, on March 30, 2017.Andrew Vaughan/The Canadian Press

  • Earnings Q4 2022: $6.67 billion ($3.62 per share)
  • Earnings Q4 2021: $3.78 billion ($2.04 per share)
  • Adjusted EPS $2.18
  • Analysts’ expectations: $2.07 per share (adjusted)
  • Dividend: $0.96 per share, up seven cents from Q3

Toronto-Dominion Bank reported adjusted fourth-quarter profits that beat expectations and raised its dividend as higher margins earned on loans helped drive strong retail banking returns in Canada and the U.S..

Its results were helped by a favourable tax rate, and included two large items that boosted results: a $2.3-billion gain on an interest-rate hedging strategy tied to its US$13.4-billion acquisition of First Horizon Corp., and a $997-million gain on the sale of shares in Charles Schwab Corp.

TD earned $6.67-billion, or $3.62 per share, compared with $3.78-billion, or $2.04 per share, in the same quarter last year.

After adjusting for special items, TD said it earned $4.07-billion, or $2.18 per share. On average, analysts expected adjusted earnings per share of $2.07, according to Refinitiv.

TD raised its quarterly dividend by 7 cents to 96 cents per share.

Margins have been a focal point for analysts and investors this quarter as a key support for banks’ earnings, faced with an array of economic headwinds.

“If rates continue to rise then you would expect that to be helping margins,” said Kelvin Tran, TD’s chief financial officer, in an interview. “But that also depends on the competitiveness of the loan pricing.”

For the full fiscal year, TD’s adjusted profit was up 5 per cent to $17.43-billion.

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Tiny wines find home in B.C.’s market, as Canadians consider reducing consumption

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VANCOUVER — Wine lovers have growing options on the shelf to enjoy their favourite beverage as producers in B.C. offer smaller container sizes.

Multiple British Columbia wineries over the last several years have begun offering their product in smaller, single-serve cans and bottles.

Along with making wine more attractive to those looking to toss some in a backpack or sip on the golf course, the petite containers leave wineries with options for a potential shift in mindset as Canadians discuss the health benefits of reducing alcohol consumption.

Vancouver-based wine consultant Kurtis Kolt said he’s watched the segment of the wine industry offering smaller bottles and cans “explode” over the last several years, particularly during the COVID-19 pandemic when people were meeting outdoors in parks and beaches and looking for something more portable to take with them.

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“You’re not taking a hit on quality, you know? In fact, if someone is only going to be having a glass or two, you’re cracking a can and it’s completely fresh, guaranteed,” he said.

It’s also an advantage for people who want to drink less, he said.

“It’s much less of a commitment to crack open a can or a small bottle or a smaller vessel than it is to open a bottle,” he said.

“Then you have to decide how quickly you’re going to go through it or end up dumping some out if you don’t finish it.”

Last month, the Canadian Centre on Substance Use and Addiction released a report funded by Health Canada saying no amount of alcohol is safe and those who consume up to two standard drinks per week face a low health risk.

That’s a significant change from the centre’s 2011 advice that said having 15 drinks per week for men and 10 drinks per week for women was low risk.

Health Canada has said it is reviewing the report.

Charlie Baessler, the managing partner at Corcelettes Estate Winery in the southern Interior, said his winery’s Santé en Cannette sparkling wine in a can was released in 2020 as a reduced alcohol, reduced sugar, low-calorie option.

“We’ve kind of gone above and beyond to attract a bit of a younger, millennial-type market segment with a fun design concept of the can and sparkling, low alcohol — all these things that have been recently a big item on the news,” he said.

Santé en Cannette is a nine per cent wine and reducing the alcohol was a way to reduce its calories, he said. The can also makes it attractive for events like a picnic or golf, is recyclable, and makes it easier for restaurants that might want to offer sparkling wine by the glass without opening an entire bottle.

At the same time, the lower alcohol content makes it an option for people who might want a glass of wine without feeling the same effect that comes from a higher alcohol content, he said.

“So the health is clearly one incentive, but I think more importantly, so was being able to enjoy a locally made product of B.C. from a boutique winery, dare I say, with a mimosa at 11 o’clock and not ruin your day,” he said.

Baessler said the winery has doubled production since the product was first released to about 30,000 cans a year, which they expect to match this year.

He said there’s naturally a market for the product but he doesn’t expect it to compete with the higher-alcohol wine.

“So this isn’t our Holy Grail. This is something that we do for fun and we’ll never compete, or never distract, from what is our core line of riper, higher-alcohol wine,” he said.

Jeff Guignard, executive director of B.C.’s Alliance of Beverage Licensees, which represents bars, pubs and private liquor stores, said the industry has seen a shift in consumers wanting options that are more convenient.

“It’s not a massive change in consumer behaviour but it is a definitely a noticeable one, which is why you see big companies responding to it,” he said.

Guignard said the latest CCSA report is creating an increased awareness and desire to become educated about responsible consumption choices, which is a good thing, but he adds it’s important for people to look at the relative risk of what they’re doing.

“If you’re eating fast food three meals a day, I don’t think having a beer or not is going to be the single most important determinant of your health,” he said.

“But from a consumer perspective, as consumer preferences change, of course beverage manufacturers respond with different packaging or different products, the same way you’ve seen in the last five years, a large number of low-alcohol or no-alcohol beverages being introduced to the market.”

While he won’t predict how much the market share could grow, Guignard said non-alcoholic beverages and low-alcoholic beverages will continue to be a significant piece of the market.

“I don’t know if it’s reached its peak or if it will grow. I just expect it to be part of the market for now on.”

This report by The Canadian Press was first published Feb. 5, 2023.

 

Ashley Joannou, The Canadian Press

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