Big Six banks to further diverge as economic conditions get trickier

financialpost.com:

Diverging performances once again dominated the quarterly earnings of Canada’s top banks, with just three of the six lenders beating analysts’ expectations.

The trend is likely to continue as banks with more exposure in the United States perform differently than those more concentrated in Canada, according to Maria-Gabriella Khoury, a senior director at Fitch Rating Inc.

“The banks that have a heavier U.S. presence will need to manage future growth and potential credit impairments differently,” she said. “It’s just because of the different nature of both markets.”

Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada exceeded analysts’ expectations when the Big Six lenders released their fourth-quarter results this week, but the Bank of Nova Scotia, Bank of Montreal and Toronto-Dominion Bank missed estimates.

Khoury said the Canadian banks generally posted robust results and their positioning is still solid and stable, but we will continue to see this divergence in performance, which isn’t necessarily a bad thing.

“Diversification is always good and divergence is always good,” she said. “It makes for a really resilient banking system when you have a bit of diversification and divergence amongst these large banks.”

RBC and CIBC were the standout performers and that was reflected in their rising share price during the week. RBC’s better-than-expected revenues were due to profits in its key business streams, while CIBC’s performance was driven by a lower-than-expected provision for credit losses (PCL) — the amount of money a bank keeps aside for potential bad loans.

Despite the positive performance, RBC chief executive Dave McKay signalled a cautious outlook because of Canada’s constrained