Summary
Strong Earnings and Revenue Growth
Most of the banks and insurance companies exceeded earnings expectations, with significant contributions from their core business segments. Lower interest rates hit net interest income, particularly in Canadian banking, while wealth management and asset management divisions saw considerable growth in assets under management (AUM) and fee-based income. For instance, Royal Bank of Canada, Canadian Imperial Bank of Commerce, and National Bank of Canada all reported strong revenue growth supported by their diversified business models. RBC beat earnings and revenue expectations on strong domestic banking, propelling its shares to an all time high. CIBC also saw record highs as its shares jumped to a 2 year high on its US commercial real estate problems being eased.
Capital Strength and Shareholder Returns
A key highlight across these companies is their robust capital positions, reflected in high Common Equity Tier 1 (CET1) ratios and solid credit quality. This strength has allowed several institutions to increase dividend payouts, continue share buyback programs, and signal confidence in future performance. Manulife Financial Corp and Sun Life Financial Inc particularly emphasized their plans for substantial shareholder returns through buybacks and increased dividends.
Strategic Acquisitions and Growth Initiatives
Strategic acquisitions have been instrumental in driving growth. For example, RBC’s acquisition of HSBC Canada has been accretive to earnings, while National Bank’s acquisition of Canadian Western Bank is expected to enhance its national presence. Similarly, insurance companies like Manulife and Great-West Lifeco are focusing on expanding their presence in Asia and the U.S., which are driving double-digit growth in sales and earnings.
Resilience Amid Economic Challenges
Despite the softening Canadian macro environment, these institutions have maintained strong credit quality and prudently built reserves. Banks like Bank of Nova Scotia and Toronto-Dominion have proactively managed credit loss provisions and enhanced their risk management frameworks, demonstrating resilience.
Innovation and Digital Transformation
Investment in technology and digital innovation is a recurring theme. CIBC highlighted the launch of AI tools, while TD focused on enhancing regulatory compliance through technological investments. These initiatives are not only helping to improve operational efficiency but also positioning these companies for future growth in a rapidly evolving financial landscape.
Overall, the financial sector in Canada remains on solid footing, with strong earnings, strategic growth initiatives, and a focus on capital discipline and shareholder returns. However, challenges such as regulatory changes, market volatility, and macroeconomic pressures persist, requiring ongoing vigilance and adaptability.
Portfolio Holdings
Royal Bank of Canada (RY)
Portfolio weight: 11.04%
- EPS: $3.26 reported vs $2.97 estimated
- Revenue: $14.63B reported vs $ 14.51B estimated
“Our Q3 results demonstrate that RBC continues to operate from a position of strategic and financial strength with solid revenue growth and momentum underpinned by a strong balance sheet, robust capital position and prudent risk management. Combined with our recently announced changes to the executive leadership team and business segments, RBC is better positioned than ever to accelerate our next phase of growth and deliver long-term value to clients, communities and shareholders” – Dave McKay, CEO.
RBC reported strong third quarter earnings of $4.5 billion, with significant contributions from its largest businesses, indicating robust financial health. The bank experienced a 26% year-over-year growth in Canadian banking net interest income and over 15% growth in fee-based assets in wealth management. The acquisition of HSBC Canada has been accretive to earnings, contributing $239 million, with $90 million of cost synergies achieved. Despite a softening Canadian macro environment with higher interest rates and rising unemployment, RBC’s credit quality remained strong, and it continues to build reserves prudently. The bank expects an increase in buybacks and maintains guidance for medium-term objectives, reflecting confidence in its future performance.
Manulife Financial Corp (MFC)
Portfolio weight: 10.86%
- EPS: $0.91 reported vs $0.88 estimated
- Revenue: $7.66B reported
“At our Investor Day in June, we communicated our goals of raising the bar on our financial targets. We are pleased to demonstrate continued positive momentum in the second quarter, with core EPS and new business value growth of 9% and 23%, respectively. As part of our transformation toward a higher return and lower risk business, we are proud to have closed the largest UL reinsurance transaction in Canada and the acquisition of CQS. Momentum also continued in our growth engines, with Asia delivering strong growth in core earnings, new business CSM and new business value margin year-over-year, and Global WAM delivering positive net flows and an improved core EBITDA margin. We continue to demonstrate that we have a strong track record of execution, and I am confident about the future and our ability to execute against our strategy and deliver value to our shareholders.” – Roy Gori, CEO.
Manulife Financial Corporation has raised its core Return on Equity (ROE) target to over 18% by 2027, signaling confidence in its growth strategy and operational execution. The company plans to maximize share buybacks, intending to return over $3 billion to shareholders, highlighting its strong financial health. Despite challenges from the Global Minimum Tax Act impacting core earnings, Manulife reported a 17% increase in APE sales and a 6% increase in core earnings, driven by growth in Canada and Asia. The company’s strong capital position, with a LICAT ratio of 139% and financial leverage at 24.6%, supports its strategic initiatives and ability to withstand financial stresses. Key growth drivers include the Asia segment and Global Wealth and Asset Management (WAM), with Asia driving double-digit growth in sales and new business value.
Canadian Imperial Bank of Commerce (CM)
Portfolio weight: 10.62%
- EPS: $1.93 reported vs $ 1.74 estimated
- Revenue: $6.60B reported vs $ 6.23B estimated
“Our strong third quarter results reflect the consistent, disciplined execution of our client-focused strategy and the diversification of our North American platform as we continue to create value for our stakeholders. We’re deepening client relationships, and have both a highly connected team and a strong balance sheet, all of which are contributing to CIBC’s continued momentum.” – Victor G. Dodig, CEO.
CIBC reported a strong quarterly performance with an adjusted net income of $1.9 billion and earnings per share of $1.93, alongside announcing a share repurchase program for 2% of its outstanding shares, indicating financial stability and shareholder value return. The bank achieved significant client growth, adding 640,000 net new personal clients in Canada, and saw a 20% increase in assets under management in its Canadian wealth business. Strategic rebalancing of its U.S. commercial banking portfolio has led to improved credit quality and above-market growth in deposits and CNI loans. CIBC’s commitment to innovation is evident through the launch of AI tools and strategic collaborations. The bank also highlighted a strong capital and liquidity position with a 13.3% CET1 ratio and a 126% LCR, and a positive outlook on expense management with expected mid-single-digit range growth for the full year.
Power Corp of Canada (POW)
Portfolio weight: 10.40%
- EPS: $ 1.17 reported vs $ 1.12 estimated
- Revenue: $9.90B reported
Power Corporation of Canada reported a mixed financial performance in Q2 2024. Great-West Lifeco achieved record earnings, surpassing $1 billion, and IGM Financial reported strong year-over-year earnings growth, demonstrating resilience and strategic growth despite challenging market conditions. GBL announced a record-high extraordinary dividend, funded by gains from its investment sell-down, benefiting Power Corporation with increased dividend income. The strong performance of alternative investment platforms and the progress in the share buyback program were highlighted as positive developments.
National Bank of Canada (NA)
Portfolio weight: 9.91%
- EPS: $2.68 reported vs $2.46 estimated
- Revenue: $2.98B reported vs $ 2.86B estimated
“Our strong financial results for the third quarter reflect our diversified earnings mix and solid credit profile as well as disciplined execution across the Bank. With our prudent approach to capital, credit, and costs, we remain well-positioned in a complex macro environment and we look forward to the growth opportunities ahead.” – Laurent Ferreira, CEO.
National Bank of Canada reported a strong financial performance in Q3, with notable earnings per share of $2.68 and a return on equity of 17%, indicating a positive outlook. The bank announced a dividend increase, reflecting robust earnings growth and a commitment to shareholder returns. A strategic acquisition of Canadian Western Bank is set to accelerate growth and enhance national reach. The personal and commercial banking segment showed solid revenue growth of 7% year-over-year, with a significant increase in personal mortgage and commercial loan portfolios. Wealth management and financial markets segments also reported strong performance, contributing to the bank’s diversified earnings stream.
Great-West Lifeco Inc (GWO)
Portfolio weight: 9.77%
- EPS: $ 1.11 reported vs $ 1.04 estimated
- Revenue: $5.27B reported
“Our strong momentum is supported by market-leading franchises with focused and disciplined execution of their growth strategies. As we work to deliver for our customers, we continue to drive sustainable and profitable growth for our shareholders, leading to a fourth consecutive quarter of record base earnings. We are executing against our ambitions in the U.S., surpassing the growth expectations we shared in 2023 and reiterated for 2024. While our U.S. segment is on course to become our largest by earnings this year, we continue to make progress across our portfolio of companies to strengthen and support our long-term success.” – Paul Mahon, CEO.
Great-West Lifeco reported a fourth consecutive quarter of record base and net earnings, surpassing $1 billion, indicating strong financial performance and sustainable growth. The company faces challenges from regulatory changes, inflation, and shifting interest rates, which could impact future earnings. Empower, a part of Great-West Lifeco, continues to show double-digit earnings growth, significantly contributing to the U.S. segment’s ROE. The company’s base ROE increased to 17.2%, and book value per share grew by 9%, reflecting positively on profitability and shareholder value. Despite challenges in the insurance and annuities segments, Great-West Lifeco remains confident in achieving its medium-term objective of 8-10% earnings growth for the full year.
Bank of Nova Scotia (BNS)
Portfolio weight: 9.70%
- EPS: $1.63 reported vs $1.62 estimated
- Revenue: $8.36B reported vs $8.52B estimated
“We made important progress in executing against our strategy this quarter, delivering solid revenue growth and generating continued positive operating leverage. Through a continued challenging environment, we achieved quarter over quarter EPS growth from balanced business line results while further strengthening our balance sheet.” – Scott Thomson, CEO.
The Bank of Nova Scotia reported a solid adjusted earnings growth in Q3, driven by higher net interest income and non-interest revenue, indicating strong profitability especially in its international and Canadian retail businesses. However, credit costs are at the high end of expectations due to sustained higher rates impacting retail portfolios, posing a short-term profitability pressure. The bank has seen growth in its Canadian mortgage portfolio and global wealth management, with significant earnings contributions from these segments. Additionally, a strategic investment in Key Corp is expected to enhance earnings per share and return on equity, showcasing a strategic and financially beneficial move. The bank’s proactive credit loss provisioning and stable delinquency rates highlight a strong risk management framework.
Toronto-Dominion Bank (TD)
Portfolio weight: 9.69%
• EPS: $2.05 reported vs $2.06 estimated
• Revenue: $12.59B reported vs $12.70B estimated
“TD delivered record revenue and net income in Canadian Personal and Commercial Banking, continued operating momentum in the U.S., and strong results across our markets-driven businesses. We continued to invest in new and innovative capabilities and expanded our product offerings to better serve our customers and clients.” – Bharat Masrani, CEO.
TD Bank reported strong Q3 earnings with a $3.6 billion profit and an EPS of $2.05, showcasing robust business fundamentals. The bank has made significant progress in resolving anti-money launcering (AML) matters, with investments in technology and procedures to enhance regulatory compliance. Revenue growth was driven by higher fee income and banking margins, with notable performance in Canadian personal and commercial banking and the US retail bank. Despite these positives, the bank faced a higher corporate net loss of $324 million due to investments in risk and control infrastructure and significant claims costs in the insurance segment from severe weather events. Additionally, the bank’s financials were impacted by a $2.6 billion provision for AML investigations.
Sun Life Financial Inc (SLF)
Portfolio weight: 9.28%
• EPS: $1.72 reported vs $1.58 estimated
• Revenue: $8.91B reported
“Sun Life had a strong quarter with a record $1 billion in underlying net income. These results reflect continued solid growth in Canada and Asia. The U.S. also saw favourable experience in Group Benefits, partially offset by residual headwinds in Dental. Our wealth and asset management businesses delivered good momentum with higher earnings on increased assets under management, and we expect to actively continue share buybacks in the third quarter. These outcomes underscore the strength of our diversified businesses, our Client Impact Strategy and our commitment to drive long-term value.” – Kevin Strain, CEO.
Sun Life Financial reported a record $1 billion in underlying net income for Q2 2024, driven by strong sales in Canada and Asia, and robust performance in the U.S. Group Benefits sector. Despite challenges in the U.S. dental business and net outflows in the MFS asset management sector, the company is taking proactive steps to address these issues, including a restructuring charge aimed at delivering significant pre-tax savings by 2026. Sun Life’s capital position remains strong, with a focus on digital innovation and sustainability, highlighted by the issuance of a $750 million sustainability bond and the renewal of its share buyback program. Leadership changes within SLC Management and record new business CSM growth further underscore the company’s strategic direction and commitment to growth.
Bank of Montreal (BMO)
Portfolio weight: 9.04%
- EPS: $2.64 reported vs $2.75 estimated
- Revenue: $8.20B reported vs $8.24B estimated
“This quarter, BMO delivered strong pre-provision, pre-tax earnings and met our commitment to positive operating leverage for the quarter and year-to-date, reflecting good cost discipline and the sustained strength of our operating performance. While the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, performance has been supported by operating momentum across our diversified businesses, including continued revenue growth in Canadian Personal and Commercial Banking and stronger client activity in our market-sensitive businesses. Across our U.S. markets, we’re adding new customers and expanding capabilities, contributing to consistent pre-provision-pre-tax earnings in our U.S. Segment.” – Darryl White, CEO.
Bank of Montreal reported a decline in adjusted net income to $2 billion and earnings per share at $2.64, indicating a negative performance trend. However, the bank saw record revenue in Canadian PNC with a 7% year-over-year growth and a 12% increase in pre-provision, pre-tax earnings, alongside a successful relaunch of the Air Miles program leading to double-digit growth in enrollments and redemptions. US PNC and Wealth Management segments also reported improvements, with US PNC showing positive operating leverage and Wealth Management net income increasing by 44% year over year. Despite these gains, the bank faces challenges including muted US banking industry growth, elevated impaired provisions expected in the coming quarters, and pressure on net interest margins.
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*Portfolio weight as at July 31, 2024. EPS and Revenue data via Bloomberg.
Header Image Source: Getty Images Credit: Javier Ghersi
