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Is Now the Time to Invest in Canadian Banks?

A mixed picture has emerged from the most recent set of fourth-quarter earnings from Canada’s 6 major banks. Of the big six banks, three missed quarterly earnings expectations, resulting in stock prices falling in the wake of the announcements. One silver lining: banks increased their dividend payout, offering greater incentive to investors sitting on the sidelines.

Here’s an overview of the latest batch of earnings from Canada’s Big Six banks:

Big Six Earnings Glance
Source: Bloomberg as at December 5, 2023

Scotiabank

The puck dropped on bank earnings season with The Bank of Nova Scotia (Scotiabank)1, which reported fourth-quarter adjusted earnings that missed estimates. Banks often set aside money to cover potential losses from bad loans – known in the industry as loan loss provisions. The amount Scotiabank has set aside in the most recent quarter has more than doubled to $1.26B.

Known for its domestic Scotiabank brand, income from Canadian retail banking fell 31% from the same quarter last year. Scotiabank also has a footprint in the Caribbean and Latin America and saw net income from its overseas retail and wholesale banking operations fall 13% and 14% respectively. However, Scotiabank upped its dividend by three cents.

CIBC

Canadian Imperial Bank of Commerce (CIBC)2 set aside $541M for loan loss provisions, an increase of 42% from last year’s fourth quarter as earnings beat the expectations of the market. CIBC is planning to cut up to five percent of its staff by the end of the next fiscal year.

RBC

Royal Bank of Canada (RBC)3, Canada’s biggest bank by market capitalization, beat profit expectations in its fourth quarter thanks to a strong showing from its capital markets business and a favourable tax adjustment.

Loan loss provisions rose in the latest quarter and profits in its Personal & Commercial banking segment fell 2%. RBC’s quarterly dividend has increased by three cents to $1.38.

TD Bank

Toronto-Dominion Bank (TD)4 missed earnings estimates with provisions for credit losses coming in more than analysts expected at $878M. The bank also took a $266M charge related to its plan to shed 3% of staff and reduce its real estate footprint. TD increased its quarterly dividend to $1.01 from 96 cents.

Dividend Payouts

One market expert encouraged by the dividend payout trend was Horizons ETFs research analyst Brooke Thackray, who appeared on BNN Bloomberg to discuss bank earnings season.

“It’s a positive sign that we’ve seen [CIBC, RBC and TD] actually come out and make an announcement to say let’s increase their dividends,” Thackray told BNN anchor Amber Kanwar.

Click here to view Brooke’s BNN appearance.

Thackray suggests that a higher dividend payout may indicate a level of confidence and stability within the industry.

BMO

Bank of Montreal (BMO)5 reported fourth-quarter numbers that missed the market’s expectations due to higher costs from a recent U.S. acquisition and a 12% slump in income from its wealth management business. BMO’s loan loss provisions came in lower than expected at $446M. The bank is upping its quarterly dividend by 6% to $1.51.

National Bank

Winding down earnings season for Canada’s financial institutions, the National Bank of Canada (NA) beat market expectations with profit in the latest quarter rising 17% thanks to stronger income from its financial markets operations.

NA is the nation’s sixth-largest bank and biggest in Quebec.

NA increased its quarterly dividend by 4 cents and is planning to buy back up to 7 million shares (fewer shares in the market may increase the value of the remaining shares).

NA set aside more money to cover potential loan losses – up 32% year-over-year.

When asked by BNN about his outlook and what it would take to move bank stocks next year, Horizons ETFs’ Thackray reckons that Canada’s banks would get a “boost” from interest rates beginning to come down in 2024.

Amid a mixed picture from the latest batch of earnings, for investors considering this as an opportunity to invest in Canada’s big banks, one way to gain exposure is through the Horizons Equal Weight Banks Index ETF (HBNK).

Canadian banks have traditionally been a source of stable dividend income for investors in one of the country’s largest sectors. HBNK seeks to replicate, to the extent reasonably possible and net of expenses, the performance of an index of equal-weighted equity securities of diversified Canadian banks.

HBNK’s annual management fee is currently 0% until July 31, 2024. To find out more on HBNK and related ETFs, please visit: https://horizonsetfs.com/ETF/hbnk/.

DISCLAIMERS

Commissions, management fees and expenses all may be associated with an investment in the Horizons Equal Weight Banks Index ETF (the “ETF”) managed by Horizons ETFs Management (Canada) Inc. The ETF is not guaranteed, its value(s) change(s) frequently and past performance may not be repeated. The prospectus contains important detailed information about the ETF. Please read the prospectus before investing.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

1 BNS Q4: https://scotiabank.investorroom.com/2023-11-28-Scotiabank-reports-fourth-quarter-and-2023-results
About BNS: Corporate Profile (scotiabank.com)

2 CIBC Q4: https://cibc.mediaroom.com/2023-11-30-CIBC-announces-fourth-quarter-and-fiscal-2023-results
About CIBC: https://www.cibc.com/en/about-cibc/corporate-profile.html

3 RBC Q4: https://www.rbc.com/newsroom/news/article.html?article=125854
About RBC: https://www.rbc.com/about-rbc.html

4 TD Q4: https://td.mediaroom.com/2023-11-30-TD-Bank-Group-Reports-Fourth-Quarter-and-Fiscal-2023-Results
About TD: https://www.td.com/ca/en/about-td

5 BMO Q4: https://newsroom.bmo.com/2023-12-01-BMO-Financial-Group-Reports-Fourth-Quarter-and-Fiscal-2023-Results
About BMO: https://www.bmo.com/main/about-bmo/

6 NA Q4: https://www.nbc.ca/about-us/news-media/press-release/2023/20231201-NBC-fourth-quarter-results%20.html
About NA: https://www.nbc.ca/about-us.html

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