Canadian MoneySaver

QUESTION OF THE WEEK
by RM Group of Richardson GMP
http://dir.richardsongmp.com/the.rmgroup/page_2950

The banks reported their fiscal 2012 results over the past week. How did they do?

When we look back at the fiscal fourth quarter for the Canadian banks which lasted from August to October, a few things stood out in the marketplace that gave us a hint as to what we could expect when bank earnings were released. First, there wasn’t much change in the retail environment, and if anything, investors may have expected this business segment to decline slightly across the board as the housing market and Canadian economy both slowed. Second, equity markets performed well during those three months, so investors could infer that capital market and wealth management activity improved as asset levels, fees and commissions should have seen some support. Finally, there was no significant financial event, either domestic or global, that would lead investors to be worried about the ongoing operations at Canadian financial institutions or the loan portfolios of Canadian banks.
So those were the expectations going into the quarter, and it would appear as though those expectations were realized as retail business segments saw net income growth year-over-year but declines quarter-over-quarter, wealth management businesses saw growth in assets and revenues, and capital market businesses were either stabilized or helped by an improved market environment. As such, most bank earnings for Q4/12 were relatively in line with expectations and stock prices have not moved a great deal when compared to where they were before their results were released. Simply put, it was somewhat of a boring quarter for the Canadian banks, but in this case boring is good! Any concerns related to the quality of earnings likely focused on loan loss increases and lower than usual tax rates, but we prefer not to make a big deal about this just yet until a trend forms as these data points can vary a fair deal from quarter to quarter. Capital levels at the banks remain stable and while National Bank was the only bank of the big six to increase its dividend as expected, payout ratios amongst the other five are at a level where many could move again to raise the dividend and repeat the semi-annual dividend increase trend that existed prior to the 2008 financial crisis. Overall, we’d say the results for the banks as a whole were good going into fiscal 2013.