RPT-BAY STREET-Bank profits to rise, but stocks could drift

(Repeats Nov. 28 column without changes)

* Q4 profits seen rising around 9 pct year-on-year

* Dividend hikes could resume with NatBank increase

* Stocks could keep drifting as broader market catches up

By Cameron French

TORONTO, Nov 28 (BestGrowthStock) – Canadian bank profits should
rise modestly in the fourth quarter, with gains from stronger
loan revenue and better credit quality outweighing weaker
wholesale banking results.

But even if the results marginally beat expectations,
analysts say the stocks are unlikely to get much of a boost,
despite the potential for one or two of the lenders to resume
dividend hikes for the first time in two years.

Analysts polled by Thomson Reuters I/B/E/S say profits for
Canada’s big six banks should rise on average about 9 percent
when the lenders begin reporting on Nov. 30.

National Bank of Canada (NA.TO: ), the country’s No. 6 bank,
reports first, followed by Canadian Imperial Bank of Commerce
(CM.TO: ), Toronto-Dominion Bank (TD.TO: ), Royal Bank of Canada
(RY.TO: ), and Bank of Nova Scotia (BNS.TO: ). Bank of Montreal
(BMO.TO: ) will report results the following week.

“If you read through from what the U.S. banks were doing,
you’d have to say there will be lower profits out of the
trading and capital markets side,” said Gavin Graham, president
of Graham Investment Strategy.

“At the same time, one would anticipate pretty strong
performance from the retail side of things.”

The banks’ fourth quarter ends on Oct. 30, so it partially
overlaps with the U.S. banks’ July-September third quarter.

Canada’s banks took a hit to profits during the financial
crisis, but they emerged stronger than their international
rivals, and shrinking provisions to cover bad loans have helped
profits over the past year.

Smaller year-over-year provisions are expected to provide a
cushion again, but observers say the easy profits from better
loans may have almost run their course.

Loan-loss provisions are expected to fall only slightly
from the third quarter.

“The drop in the loan-loss provisions, I’ve been nervous
about that all along,” said John Kinsey, a portfolio manager at
Caldwell Securities in Toronto.

WATCHING FOR DIVIDEND HIKES

However, results could be overshadowed by a resumption of
dividend increases, a regular occurrence before the crisis.

Canada’s financial services regulator recently gave the
banks the green light to resume dividend hikes given recent
clarity over new global bank regulations, and analysts say one
of more of the lenders may boost payouts this quarter.

National is considered the most likely of the big six to
raise its dividend, as its payout ratio — the percentage of
profit spent on dividends — is at the low end of its range.

Canadian Western Bank (CWB.TO: ), the No. 7 bank by market
size, is also a good bet to raise its payout next month.

Ed Clark, Chief Executive at No. 2 lender Toronto-Dominion,
has said the bank will address the issue next quarter.

While dividend increases would help the stocks, analysts
say the sector could find it hard to build on recent gains
unless they sharply beat earnings estimates.

The banks outpaced the broader market last year, but they
have traded sideways of late, even as the S&P/TSX composite
index (.GSPTSE: ) has risen about 10 percent since late August.

Some of the banks are around all-time highs and the group
is near normal price-to-earnings ratios.

“We think the multiple expansion story has largely played
out, so we think it’s going to come down to earnings growth,
which will have to happen over several quarters,” said John
Aiken, an analyst at Barclays Capital.

He expected the stocks to stagnate for about three months,
before rising next year on stronger growth and higher
dividends.

“In the absolute near-term, you’ve got to have the market
catch up to them, because they’ve led the market for all the
right reasons,” he said.

($1=$1.02 Canadian)
(Reporting by Cameron French; editing by Janet Guttsman)

RPT-BAY STREET-Bank profits to rise, but stocks could drift