09/01/2011 07:06 EDT | Updated 11/01/2011 05:12 EDT

Canada's six biggest banks earn combined $4.56 billion in third quarter

TORONTO - Strong retail banking numbers helped Canada's six biggest banks make a combined $4.56 billion in profits in the third quarter, with several of them posting double-digit improvements that beat analyst estimates.

But the combined profits were about 11 per cent lower than a year ago as Royal Bank (TSX:RY) pulled down the industry tally with a major writedown of its U.S. retail banking operations, which are being sold.

TD Bank (TSX:TD) was the last big bank to report its results for the quarter on Thursday, with profits up 22 per cent compared with a year ago. It boosted its dividend by two cents, or three per cent to 68 cents per share.

CIBC (TSX:CM) also bumped its dividend higher earlier in the week, up three cents to 90 cents per share.

Craig Fehr, a financial services analyst at Edward Jones, said earnings growth for the banks as a whole were reasonable given that the Canadian economy shrank in the quarter, but added that Canada's banks are cushioned by their diversified operations around the world that generate revenue.

"You're seeing RBC which has a global wealth management platform and they're really capitalizing on growth in that avenue. Scotiabank has an international banking platform in many emerging markets — that's an area where they can continue to deploy capital," he said, referring to Scotia's recent acquisitions of banks in Mexico and Chile.

"It's really an environment where we're seeing a defined growth strategy that's quite different across the banking landscape, so each bank is going to forge their own future here in the next several quarters in terms of defining their growth strategies."

He added that the banks generally showed strength in domestic banking, but that the pace of growth in the segment is beginning to slow as more Canadians take heed of warnings about taking out loans as federal officials say consumers are racking up ballooning debts.

This week, Scotiabank warned that the stock market's roller-coaster ups and downs this summer will cut into its fourth quarter profits, but said it is prepared to weather the volatility due to strong results in its global insurance, global private client, and international wealth management businesses.

Analysts appear optimistic that TD is generating profits moving forward, with Barclays analyst John Aiken raising his target share price for TD to $91 from C$89, as he praised the company's U.S. operations.

"While investors may have gotten accustomed to the earnings power of its domestic retail bank, we were quite pleased to see a strong contribution from south of the border," he wrote, looking forward to TD reporting incremental earnings contributions from its acquisition of Chrysler Financial, which closed on April 1.

TD owns about 40 per cent of TD Ameritrade (Nasdaq:AMTD), a discount brokerage based in the U.S. Midwest. The bank now has more than U.S. 1,000 branches.

On a conference call Thursday, TD Bank said that although it is not sure it can meet previous estimates for its wholesale banking results and that it will be some time before the economy strengthens, it is confident its American operations will continue to grow as it tries to introduce new products.

"Even with lower interest rates and a partial slowdown in commercial lending, we expect some positive growth," CEO Ed Clark said about its American operations.

"We remain comitted to our U.S. $1.6 billion earnings target for 2013."

TD said its overall profits rose to $1.45 billion in the third quarter, or $1.58 per share, compared with $1.18 billion or $1.29 a share in the same period a year ago.

On an adjusted basis, earnings were $1.72 or 10 cents above analyst expectations, according to Thomson Reuters.

Revenues increased to $5.35 billion from $4.74 billion.

Unlike the success that TD and Bank of Montreal have had with their U.S. retail banks, Royal Bank sold its U.S, retail banking unit at a $1.6-billion loss during the quarter.

U.S. retail banking had been a thorn in RBC's side since the U.S. housing bubble burst and hit mortgage markets hard. That writedown pushed Royal, Canada's largest bank to a $92 million loss in its third quarter, and dragged down total profits for all the banks combined.

Total results for the this quarter came in below the $5.1-billion in profits reported in the same quarter of last year — even though the latest earnings were stronger overall, particularly in domestic retail banking operations.

TD, Canada's second-largest bank had predicted its profit growth would pull back in the second half of the year as consumer borrowing slows and banks compete more fiercely for their business.

Last month, TD agreed to buy the Canadian MBNA credit card business of Bank of America Corp. for $7.5 billion in cash and assumed $1.1 billion in liabilities.

That bulked up TD's position in the cards segment of the Canadian consumer debt market, an area where it has often lagged behind competitors. The purchase comes at a time when Canadians households are saddled with more debt than ever and government officials are sounding alarms about the dangers of overspending.

TD has also been pushing to grow its retail business in Canada by introducing Sunday hours at more than 300 retail branches across the country.

The bank recently said it was in advanced talks to sell its stake in Maple Leaf Sports and Entertainment — owner of the Toronto Maple Leafs and Raptors — to the Ontario Teachers' Pension Plan.

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