Kamis, 28 Mei 2020

CIBC, TD miss expectations as profits plunge, bad loan provisions soar - Financial Post

Canadian Imperial Bank of Commerce and Toronto-Dominion Bank on Thursday became the latest and last of the Big Six lenders to report significant drops in quarterly profit this week, as the coronavirus pandemic and bargain-basement oil prices sent credit costs skyrocketing for both financial institutions.

TD reported earnings of approximately $1.5 billion for the three months ended April 30, down 52 per cent from a year earlier. CIBC, meanwhile, reported net income of $392 million for the same three months, which was down 71 per cent from 2019.

Potential profits at both banks were erased by an explosion in credit costs that was chiefly due to COVID-19 and lower oil prices, which forced the lenders to set aside much greater amounts to cover possible loan losses.

CIBC said provisions for credit loss were $1.4 billion for its fiscal second quarter, an increase of 454 per cent from a year ago. TD reported provisions of $3.2 billion for its second quarter, more than five times the $633 million it set aside for the same three months of 2019.

The surge in loan-loss provisions contributed to a quarterly earnings miss for both lenders. When adjusted for an acquisition-related expense, CIBC reported second-quarter diluted earnings per share of 94 cents, down 68 per cent year-over-year, and below the $1.48 consensus of banking analysts.

TD announced adjusted diluted earnings per share of 85 cents, compared with $1.75 a year earlier, which was two cents below the analyst consensus of 87 cents a share.

However, a reserve-driven earnings miss may not be something investors are too worried about.

“TD’s larger than expected provision is something most investors want/expect to see at this point,” wrote National Bank Financial analyst Gabriel Dechaine in a note.

Similar increases in second-quarter credit costs were reported by all of the Big Six this week, with CIBC and TD just the last to report earnings.

All of the main business lines for the two banks were affected by COVID-19. TD said net income for its Canadian retail unit was approximately $1.2 billion, which was down 37 per cent year-over-year, as loan-loss provisions jumped by $873 million, driven by a bleaker economic forecast. U.S. retail banking was hit even harder, with net income falling 73 per cent from a year earlier, to $336 million.

CIBC’s Canadian personal and business banking unit saw net income decline 64 per cent, to $203 million, as more provisions had to be taken for performing loans, or those that are still being paid back. On a pre-provision basis, earnings for the business were down by seven per cent year-over-year, driven lower in part by pandemic-related effects, such as relief for credit-card customers that helped reduce revenue.

Both banks have allowed thousands of customers to defer payments on mortgages and other debts to try to help borrowers stay afloat during the pandemic. CIBC, for example, said mortgage payments were being deferred by 108,000 accounts with $35.5 billion in balances. For TD’s Canadian business, it was 126,000 accounts with $36 billion in mortgage balances being deferred for up to six months.

CIBC also said its capital-markets unit reported net income of $137 million for the second quarter, a 52-per-cent drop from a year earlier, which was mostly due to higher loan-loss provisions. TD, however, said its wholesale business saw earnings slide only five per cent, to $209 million, as higher provisions were partially offset by greater trading-related revenue and debt underwriting fees.

• Email: gzochodne@nationalpost.com | Twitter:

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2020-05-28 13:00:00Z
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