Montgomery Investment Management’s Post

💰 The numbers are in! Here’s how Canada’s top banks are shaping up after Q3 2024! CIBC, RBC, BMO, National Bank, TD, and Scotiabank have all released their third-quarter earnings. From loan growth to profit margins, each bank tells a unique story about how the financial landscape is evolving. 🏦📊 Here’s a quick breakdown of their performance: CIBC: [1.03-billion ($2.89 per share)] RBC: [$4.49-billion ($3.09 per share)] BMO: [$1.86-billion ($2.48 per share)] National Bank: [] TD: [a loss of $181-million ($0.14 per share)] Scotiabank: [$1.91-billion ($1.41 per share)] What do these results mean for the future of Canadian banking? Let's discuss! 👇 https://lnkd.in/ggCn88UW #Banking #Finance #Q3Earnings #BigSix #CanadianEconomy #RetailBanking #FinTech

The UK’s biggest banks are set to report lower profits and narrower margins in the coming weeks, but uncertainty over the Bank of England cutting interest rates could revive the tailwind from higher borrowing costs. Reporting for the first three months of 2024 will kick off with Lloyds Banking Group next Wednesday, followed by Barclays on Thursday and Natwest on Friday. The following week will see HSBC and Santander’s results on Tuesday and Standard Chartered’s earnings on Thursday. Higher borrowing costs from the Bank of England pushed lenders’ net interest income to record highs last year, but their margins have narrowed into 2024 amid intense competition for mortgages and deposits, and the expectation that rate-setters will make multiple cuts this year. However, in recent weeks, concern over the US economy and stickier-than-expected UK inflation has caused traders to slash their bets on rate cuts from the Bank of England. Markets are currently pricing in just two cuts, down from seven at the start of the year. “The impact of higher-than-expected rates on existing FY24 guidance will be a key topic of discussion on results calls, especially any potential boost for net interest margins," Benjamin Toms, an analyst at RBC Capital Markets, told City A.M. ✍ Lars Mucklejohn Read the full story here 👇 https://lnkd.in/etxX-Ydv #banking #interestrates #markets

Market Insights – Canadian Banks 🏦 Healthy capital position for banks Canadian Banks - the Common Equity Tier 1 (CET 1) ratio— which compares a bank's capital against its risk-weighted assets—came in at 13.1%, down 30 bps q/q but well above the regulatory minimum of 11.5% (Figure 6). Following its semi-annual review, Canada's banking regulator, OSFI, decided to maintain the Domestic Stability Buffer (DSB) at 3.5% of total risk weighted assets. (The DSB is the amount of capital the country's biggest lenders must hold.) OSFI noted that its decision reflects elevated but stable systemic vulnerabilities and low but rising near-term risks. Valuation and Dividend Yield - Historically Canadian banks have traded between 10x and 12x forward earnings 70% of the time. Currently, the group is trading at the bottom of the range, at around 10x forward earnings (Figure 7). This valuation is fair considering it's within the normal range and credit losses are rising, which increases the downside risk for earnings estimates. However, the dividend yield, at 5.2%, is well above the historical average of 4.3%. While some would argue that a dividend yield of 5.2% doesn't seem very attractive in an environment where short-term interest rates are yielding 5%, we would suggest that dividends grow with earnings, which is the closest thing to a certainty for Canadian banks. The same cannot be said for interest income earned on a savings account or GIC, which carry reinvestment risk, especially when the Bank of Canada has just delivered its first rate cut. #TDWealth #CanadianBanks #Dividends #Yield #Market #Insights

The general consensus is that the RBA will keep interest rates on hold today. The best estimates for when interest rates may come down are ANZ in February and Westpac in March. #FinRocFinance #SydneyMortgageBroker #FinanceBroker #MortgageBroker #HomeLoans

Well, I can say from my vantage point the trend is mixed, some banks are aggressive for deposits, some are not. But the ones that are interested, are not playing around. They want to win those funds. How this translates in the retail space may vary. When I was at Scotia the preference was for large , stable pools of funds, such as the liquidity pools of large companies that tended to have a relatively stable average amount of liquid funds on hand for operations, regardless of what interest rates were doing. This article suggests banks will pay up to keep retail from moving funds from GIC's into equities. Given how the tech sector has been doing, and #BTC, I wonder how many are actually still in GIC's in the first place. Still, if the BOC does start to pivot, the choice to move liquid funds from HISA's to GIC 's to lock in a fixed rate becomes more pressing an issue, although the curve and thus GIC's already be pricing in those cuts. Buy, on that front I can tell you I see a wide array of GIC rates being thrown at me for under 1 year in term. Hard to know for certain whether this reflects different expectations for the BOC or simply different institutions hunger for deposits.

So what will interest rates do this year? This is the question I am regularly asked by clients - and even with the most up to date economic data in hand, the RBA often surprises us in regard to when they hold and when they increase rates. By all accounts, we should be nearing the end of the rate rises - but I wouldn't be expecting them to reduce rates any time soon. Curbing inflation has been a tough job - with harsh measures - so reducing rates too quickly will risk undoing all the benefits of rate rises and risk inflation taking off again. With that said, below is an extract of a recent Canstar article, presenting the Big 4 banks expectations as to when rates will go down.... ANZ: Late 2024 At this stage, ANZ says it hasn’t seen enough data to add a further rate hike to its forecasts but it will be watching the data closely as the “risks are skewed to further action”. ANZ doesn’t expect the RBA to start easing the cash rate until the last quarter of 2024 but thinks that by March 2025 the cash rate will be 3.85%. Commonwealth Bank: Late 2024 Commonwealth Bank thinks the RBA will leave the cash rate on hold at this level but hasn’t ruled out another rate hike this cycle. CBA says if the RBA is going to pull the rate hike trigger again it is likely to be in February 2024. CBA anticipates that the RBA will commence an easing cycle in September 2024 and that the cash rate will be sitting at 3.60% by the end of 2024. NAB: Late 2024 NAB expects we will see another rate hike of 25 basis points, pencilling in a 4.6% rate peak in February, though December is still a possibility. NAB believes rate cuts are unlikely to begin until November 2024 with gradual cuts through 2025 and early 2026 to take the cash rate down to 3.1%. Westpac: Late 2024 Westpac thinks the RBA will not raise rates further from here but says if there are any material upside surprises to the inflation outlook in the near term then the possibility of another rate hike can’t be dismissed. Westpac anticipates that the first cut in the cycle will be in the September quarter of 2024 and that the cash rate will end 2024 at 3.85%. It expects a further 50 basis points worth of cuts in the first half of 2025. For the full article, click here: https://bit.ly/3S0bhQN

Bank of America surpassed analyst expectations in Q3, with better-than-expected results driven by trading activity. Key Insights: – Earnings: 81 cents per share, exceeding the 77-cent estimate. – Revenue: $25.49 billion, beating the $25.3 billion forecast. – Fixed Income Trading: Rose 8% to $2.9 billion, surpassing estimates of $2.74 billion. – Equities Trading: Increased 18% to $2 billion, outperforming the $1.81 billion expectation. – Investment Banking Fees: Jumped 18% to $1.4 billion, above the $1.27 billion estimate. Despite a 12% net income decline due to higher provisions for loan losses and rising expenses, BofA's diversified revenue streams, especially in trading and advisory services, pushed results higher. Net interest income fell by 2.9%, but signs point to recovery in the second half of the year. 🔗 Read full article here: https://lnkd.in/gim_V8cr #BankOfAmerica #TradingRevenue #InvestmentBanking #Earnings #Finance

An expected drop in interest rates in Q4 2024 and 2025 is forecasted to result in net interest margins tightening. This will trickle to the bottom line results of the banking sector. Banks with higher commission and fees income are less affected than others. But the trend in profitability in an environment of falling rates is generally downwards. Investment managers tend to underweight the banking sector in their portfoilios when rates are expected to fall. Of course market timing and by how much the sector falls are all factors that affect the investment decision. JPMorgan shares drop 7% after bank cuts guidance on interest income and expenses https://lnkd.in/djfpWEUW

RBC's 𝗤𝟮 𝟮𝟬𝟮𝟰 𝗥𝗲𝗽𝗼𝗿𝘁: Income rose despite rising provision for credit losses (PCL). Elevated allowance for credit losses (ACL) and record write-offs suggest dark clouds over the credit skies. 𝗞𝗲𝘆𝗻𝗼𝘁𝗲𝘀: • Loan write-offs surged 71% Year-over-Year to $476M, the highest in the past 4.5 years. •  Adjusted earnings exceeded expectations: $2.92/share vs. $2.76 expected, mainly due to 31% Year-over-Year growth in the capital markets division. • Reported net quarterly income rose 7% Year-over-Year to $3.95B. • PCL increased 53% Year-over-Year to $920M. • Dividend rose by 4 cents to $1.42/share, effective from Q3 2024 onwards. • RBC closed the acquisition of HSBC Canada during Q2 2024. 𝗢𝘁𝗵𝗲𝗿 𝗶𝗻𝗳𝗼 𝗮𝗯𝗼𝘂𝘁 $𝗥𝗕𝗖 (𝗠𝗮𝘆 𝟯𝟬, 𝟮𝟬𝟮𝟰) • Dividend yield: 3.9% • P/E: 13.7 • Market Cap: CAD$209B  ----------------------- Provided by WOWA.ca Simply Know Your Options🔍

RBC (RY.TO) has reported a decline in first-quarter profit, citing increased provisions for potential loan losses amidst economic uncertainty. Like many other financial institutions, RBC raised capital reserves in anticipation of potential defaults on mortgages and credit card debt, driven by higher interest rates and elevated inflation impacting household finances. Despite these challenges, RBC capitalized on elevated interest rates to generate higher income from mortgages, personal loans, and credit card debt. Explore more about RBC's Q1 earnings report and its strategies for navigating volatile market conditions. Check the full details at https://lnkd.in/dAEiEgxW #RBC #Finance #EconomicNews"