Royal Bank of Canada and Toronto-Dominion Bank reported solid earnings for the second quarter, helping to clear concerns over the stagnation of the Canadian banking sector or, worse, to face challenging challenges.
The two banks are the largest credit institutions in Canada, and both have beaten their earnings expectations. The results should give investors some confidence after the Canadian Imperial Bank of Commerce has reduced its profit outlook for the entire year on Wednesday and noted that it now expects zero-zero earnings growth in the year 2019 tax.
TD, meanwhile, recorded a record $ 3.2 billion in the second quarter, 8.8% more than in the same period of 2018. After adjusting for one-off items, the TD earnings were $ 1.75 per share, exceeding analysts' estimate of $ 1.68 per Share.
RBC earned $ 3.2 billion, the second highest profit ever and 5.6% more than in the same period in 2018. After adjusting the one-off items, RBC earned $ 2.23 per share, beating slightly estimate of analysts' estimate of $ 2.21 per Share.
For both lenders, the slowest growth in their dominant Canadian banking divisions was offset by strength in other units, such as capital markets. Yet their market performance at the start of Thursday has been mixed. RBC shares fell by two percent, while TD shares rose 1.8 percent.
Although the performance of the trading suggests that investors are more encouraged by TD's earnings, the bank's shares have struggled recently. At the beginning of this year, TD recorded a weak first quarter profit, including a rare loss in its wholesale banking business, and largely because of this its shares had underperformed. the rival banks by around 1.3 percentage points on the 2019 calendar.
RBC's latest earnings also outweigh estimates due to some potentially one-off items, such as a lower tax rate and a sudden wave of income from fixed income trading, currency and commodities.
While RBC shares are down on Thursday, they are still up 10.4 percent from the start of the year and have recovered all the ground lost during the broad market correction in the autumn of 2018.
"Although segmented earnings are mixed, we believe that the underlying fundamentals of RBC are strong and worthy of a multiple to peer premium rating," wrote Canaccord analyst Genuity Scott Chan in a note to clients.
RBC's profit from Canadian banking activities rose 2.8% in the second quarter to $ 1.5 billion, marking a slower growth for the division that generates around 45% of total profit. Residential mortgage loans grew 5.2% in good health compared to the second quarter of 2018.
However, net income from asset management grew by 8.9% on an annual basis to $ 585 million and profits from capital markets increased by 16.7% to $ 776 million, supported by the interest rate and credit trading.
Overall, the overall expense growth of 7.9% was a brake on the bank's earnings. But RBC firmly believes that it was intentionally spent as revenues grow to prepare for the future.
"We passed the curve on a series of big programs," CEO Dave McKay said on a conference call. Spending initiatives include building the bank's mobile banking capabilities and upgrading trading platforms on the capital markets. "We have tied a lot of [expenses] to the increase in revenue at the end of interest rate increases".
Looking to the future, RBC expects to slow down the growth in single-digit figures, as much of the heavy work is over.
TD also reported modest growth and its Canadian banking division is dominant, with a profit up 0.9 percent. The division's expenses increased by 11% while revenue increased by 8.1%. Residential mortgage loans grew, but only 1.8% in the second quarter of 2018.
The US retail TD bank recorded a 13.6% growth in US dollars to $ 753 million, while the wholesale banking business rebounded after a difficult first quarter – although the profit of $ 221 million was still 17% lower than the previous year.