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March 1st, 2019

Quarterly Results of Canadian Banks

By PRATTE

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The Canadian banks unveiled this week their quarterly results after a volatile quarter that affected their performance. General Electric’s stock jumped after the announcement of the sale of its activities in biopharma in order to reduce its debt. Finally, Statistics Canada released January economic data for Canada. So here is what happened in the markets this week.

NB Please note that the blog will take a break next week.
Market brief

Wall Street opened slightly higher Monday, just five days before the deadline of the agreement between China and the United States. “The wind of optimism continues after several weeks of strong growth,” said analysts Charles Schwab. Netflix’s stock advanced 1.36% after its film “Roma” won three awards at the Oscars Sunday. General Electric gained 8.70% while Boeing and Caterpillar were up 1.11% and 1.23%. Wall Street began Tuesday down as investors waited for comments from the Fed chairman and the indicator of consumer confidence. “Markets are anxious and are waiting to see if confidence has picked up again with the rise in financial markets,” said Patrick O’Hare of Briefing.

On Wednesday, the three major US indexes opened lower as rising tensions between India and Pakistan disrupted the markets. In the United States, investors were cautiously awaiting the second day of the hearing of Jerome Powell, head of the US Central Bank (Fed), in front of parliamentarians. Powell indicated on Tuesday that inflation would slow down some time in the country, and so it was “the right time” for the Fed “to be patient and wait to see” before acting again on interest rates. The highly anticipated testimony of Donald Trump’s former lawyer, Michael Cohen, should also be added to investors’ being cautious. Thursday, markets opened without direction despite the announcement of strong economic data in the United States that were counterbalanced by talks between Donald Trump and Kim Jong Un. On Friday markets rallied, the Dow gained 0.43%, the Nasdaq rose 0.47% and the S&P 500 rose 0.52%. The Gap stock jumped 17.40% following the announcement of a major restructuring while Tesla lost 8.64%.

On Monday, the TSX also benefited from the optimistic atmosphere surrounding a possible agreement between China and the United States. Indeed, the latter started the day Monday with a rise of 0.27%. The share of Enerflex Ltd. gained 5.4%. However, Cronos Group lost 6%. The TSX opened up Tuesday with gains in the energy sector. On Wednesday, the Canadian stock market gained 10.88 points in the opening session, while Cronos Group gained 6.7%, Baytex Energy Corp was up 6.6% and Aurora Cannabis was up 6.4%. The TSX opened lower on Thursday, pulled down by the financials sector after disappointing quarterly results from Canadian banks. TSX opened up 100.52 points on Friday, thanks to a rise in the price of oil.

Earnings from Canadian banks

Canadian banks unveiled their quarterly results this week after a volatile quarter that affected their performance.

The Royal Bank, the nation’s largest bank, last week filed its results and reported net income up 5% from last year, even though market volatility hurt their profits. The bank also increased its quarterly dividend by $0.04, an increase of 4% to $1.02 per share.

Scotiabank, the third-largest bank in Canada, posted a third quarter in a row below expectations. Net income was down 5% from the fourth quarter and 2% from last year. Adjusted earnings increased from $1.87 per share last year to $1.75 per share this year, while analysts expected a profit of $1.82 per share. However, the 6% increase in its dividend is in line with expectations.
BMO Financial Group reported a 10% increase in earnings. In fact, the institution grew from $1.54 billion in the first quarter to $1.4 billion last year. The bank’s quarterly revenues increased from $5.6 billion last year to $6.5 billion this year.

For its part, Laurentian Bank filed its quarterly results on Wednesday, announcing profits down 32%. It also said it will cut 350 jobs in the next year, which translates into 10% of its workforce. Its first-quarter performance is below analysts’ expectations as its sales declined by 9%. Chief Executive Officer François Desjardins attributed this decline to volatility and the poor performance of the financial markets in recent months, which weighed on the results of the last quarter.
TD Bank unveiled Thursday a “stable” performance for the last quarter. Net income was $2.4 billion compared to $2.35 billion last year. While its quarterly revenues increased to 10 billion compared to 9.4 billion a year earlier.

Finally, CIBC released its results on Thursday, announcing an 11% drop in earnings in the last quarter. Its quarterly profit reached 1.2 billion while it reached 1.3 billion last year. The institution believes that its results were affected by significant items, which together offered a negative performance of 41 ¢ per share.

General Electric

The company founded by Thomas Edison in 1889 announced this week that it sold its biopharma business with the objective of reducing its debt. The Danaher group bought the department, a transaction valued at 21.4 billion. At the same time, the group took over part of employee pensions for 400 million. “This is an important milestone,” said Larry Culp, CEO of the company. “This is proof that we are implementing our strategy by taking thoughtful steps to reduce our debt and improve our accounts.”

It should be noted that GE’s new CEO, Larry Culp, has led Danaher for more than a decade. This is a change of strategy by the new CEO, who said last year he had plans for an IPO for GE Healthcare. The latter will provide independence to the activities of this sector. Following the announcement, the stock jumped 6.39% on Monday while Danaher’s stock gained 8.5%. The transaction is expected to be finalized in the fourth quarter.

Canadian Economy

Statistics Canada released economic data for January. The consumer index (inflation) rose 1.4% compared to last year in January, down from the 2% gain in December, its lowest level since October. 2017. The price of most of the elements that compose the consumer index is up except for energy prices, down 6.9%. US refineries have produced too much gas in recent weeks, increasing supply while demand remains the same, resulting in falling prices.

Canadians across the country paid 14.2% less for gasoline. Vegetable prices were up 13.2% in the last year, mortgage interest rose 7.8% while auto insurance premiums were up 5.3%. In short, this data will give the Bank of Canada the space it needs to make its final interest rate decision. “The benign inflation environment may lead policymakers to question whether further rate hikes are even necessary,” TD Bank economist James Marple said, “or whether the current policy setting is … just right.”

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
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