Paul Bagnell

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It’s been a choppy quarter for Canada’s big banks, and investors have reacted accordingly. Banks that have topped expectations (CIBC, Bank of Nova Scotia and National Bank) have seen their stocks rise handsomely this week. Banks that missed or met consensus (Royal Bank and Toronto-Dominion Bank) have seen their shares punished. And the bank that hasn’t reported yet (Bank of Montreal) has seen its shares tread water.

With big year-to-date gains already on the scoreboard for all six of the big banks, investors are clearly not willing to bet – as they sometimes do – that good news for one bank will translate as a positive for others in the group.

Here’s what has stood out so far:

• Profit growth in Canadian retail banking is still difficult to come by. The slow-growth Canadian economy has made itself felt all year long in low single-digit percentage gains in the banks’ core retail franchises. The outlier this quarter was Bank of Nova Scotia with a gain of 14 per cent (albeit assisted by an acquisition). Otherwise, something around two per cent was more common.
• Losses to the oil and gas sector are still elevated, but the worst is over. When 2016 began, the bear case on the banks was that they were about to get swamped by a wave of bad loans to the energy sector. Well, that wave has peaked by now and losses will likely decline further in 2017. The bank that was hit the hardest – National – may soon be able to take money out of reserves for energy losses and put it back in the profit stream.
• U.S. banking will be something to watch in 2017. TD’s banking business in the U.S. was a bright spot in an otherwise disappointing set of fourth-quarter numbers. Profit was up 18 per cent stateside – and 25 per cent if you exclude the TD Ameritrade discount brokerage, of which TD owns 42 per cent. Royal Bank got a big boost in its wealth management business from the addition of its Hollywood “bank to the stars,” City National. When BMO reports on Tuesday, we’ll get another view of how much growth a U.S. banking franchise adds to the bottom line. And next year, CIBC will join that trio, presuming it successfully closes its $4.9-billion takeover of PrivateBancorp. With U.S. rates set to rise, the numbers from the U.S. will be fascinating to watch.
• Capital levels are stronger. The big story here was at National Bank, which took a capital hit twice during fiscal 2016. First, it wrote off its entire carrying value of Maple Financial Group, a bank that ran afoul of German regulators. It happened again when oil and gas loan losses spiked. National has been able to rebuild, however, and finished the year where the market wanted to see it – with a common tier one equity ratio of greater than ten per cent; at 10.1 per cent, it was ahead of National’s own forecast. Other banks also increased their capital levels; and two, CIBC and Scotia, now sit at greater than 11 per cent. That makes dividend hikes, share buybacks or acquisitions more likely.

So for five of the big six banks, fiscal 2016 is in the books; and, for investors, calendar 2016 will be in the books soon. It’s worth taking a look at how the bank stocks have performed so far this year – a year when the sceptics and short-sellers said a wave of energy loans and an at-risk housing market were going to weigh on the sector. Here’s how each has fared, as of the close of trading on Thursday:

• Scotia: up 32 per cent
• National: up 26 per cent
• CIBC: up 19 per cent
• Royal: up 18 per cent
• TD Bank: up 16 per cent
• BMO: up 14 per cent