Here you go people,this is just the beginning, Banks enjoy more profit gains in second
quarter
TORONTO (CP) - The kickoff of another round of earnings reports by Canada's major banks
Tuesday was routine: more stellar results.
Bank of Montreal, Scotiabank and the Vancouver-based Hongkong Bank of Canada all showed
strong year-over-year profit gains in their second quarter results. Their competitors are expected to
do the same over the next week.
Overall profits, however, may be down slightly from the first quarter and some analysts predict
that trend will continue through the rest of the year.
Some of the results so far:
Profits at Bank of Montreal, the country's third-biggest bank, rose 11.9 per cent over the
1996 second quarter - $314 million from $281 million. That's lower, however, than the $322
million it earned in this year's first quarter.
The $300-million second-quarter profit at Scotiabank, Canada's fourth-largest bank, was 14
per cent higher.
The Hongkong Bank made an even stronger gain, reporting a profit increase of nearly 16 per
cent for the three months ended April 30. Profits at Canada's biggest foreign-owned bank
were $34.3 million, up from $29.6 million.
Fundamentals that drive bank earnings - the economy and interest rates, for example - remain
strong, said Hugh Brown of Nesbitt Burns, a big Toronto-based broker owned by Bank of
Montreal.
"We're going to plateau at this quite respectable level of profitability," said Brown.
He lists a number of reasons for the levelling off of bank profits: loan losses are so low it'll be hard
to do any better; stock broker and investment dealer subsidiaries are unlikely to top the unusually
high earnings they've been pulling in; competition is putting pressure on margins; and the banks are
spending large amounts to build up their telephone and computer banking wings.
The big banks' return on equity - a widely used ratio to determine industry profitability - was about
5.5 per cent in 1992 and pushed past the "truly quite admirable" level of 17 per cent in this year's
first quarter, said Brown.
"We've driven our little Model T up to this level and we're now going at 60 miles an hour rather
than 10, and we think our little engines can keep us going roughly at 60," he said.
"If return on equity were just to stay flat, earnings would grow roughly 10 per cent or so
internally."
Banks reporting their financial numbers Tuesday said a number of factors helped produce the
strong earnings.
"Continued improvement in Canada's economic picture resulted in strong loan growth for our
domestic retail and commercial operations," said Peter Godsoe, chairman of Scotiabank.
"Higher corporate banking revenues, a solid performance by our international branches and gains
on the sale of investment securities also contributed to our success this quarter."
Scotiabank's profits included gains from the sales of a number of businesses, including investment
adviser Montrusco Associates, which totalled $118 million before tax. The bank also increased its
general provision for credit losses by $175 million to $500 million.
At Bank of Montreal, chairman Matthew Barrett also attributed part of the profit increase to
higher volumes of small business and mortgage loans.
"Commercial banking business also represents an area of growth for the bank, with significant
growth opportunities for expansion as small business continues to play a larger role in the economy,"
Barrett said in a release.
Bank of Montreal said its geographic diversification strategy also helped boost profits. Foreign
earnings for the year to date were $313 million, 49.1 per cent of total earnings. In 1996, the bank's
profits from outside Canada was 46.8 per cent.
The bank said the North American Free Trade Agreement is having a positive effect on the
Canadian economy, with small and mid-sized businesses benefiting from expanded markets.
"With all three economies growing in the four to five and a half per cent range, the North American
economy is among the most robust in the world," Barrett said. "The bank's strategy of developing
our business in all three economies is reflected in our earnings growth."
The Bank of Montreal results include an expense of less than $5 million related to the Bre-X
Minerals debacle. The bank's Nesbitt Burns subsidiary hopes to recoup some of that money, which
involves margin stock trading loans to clients and trading losses.
|
