Newspaper article The Canadian Press

TD, RBC Second-Quarter Profit Bump Helped by Rising Rates, Macro Environment

Newspaper article The Canadian Press

TD, RBC Second-Quarter Profit Bump Helped by Rising Rates, Macro Environment

Article excerpt

TD, RBC get Q2 profit bump from rising rates

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TORONTO - Two of Canada's biggest banks reported second-quarter earnings Thursday that benefited from bigger profit margins on the back of rising interest rates, though the bump could be less pronounced in coming quarters as pressure mounts for banks to raise the interest rates they pay on deposits.

Toronto-Dominion Bank and Royal Bank of Canada handily beat analysts expectations with double-digit growth in the quarter ended Apr. 30, helped by a strong economy and growing net interest margins -- or the profit made on loans -- as interest rates rose on both sides of the border.

TD reported a bigger quarterly bump of the two, with net income attributable to common shareholders of $2.85 billion for the quarter, up 17 per cent from a year earlier, while RBC reported a nine per cent increase to $2.98 billion.

On an adjusted basis, TD and RBC earned $1.62 and $2.10 per diluted share for the period, respectively, beating analyst expectations of $1.50 and $2.05, according to Thomson Reuters Eikon.

TD's chief executive Bharat Masrani said it was "another terrific quarter" for the bank, with all its businesses on both sides of the border performing well.

"Canadian retail had a banner quarter... We benefited from our number one share in core deposits, with rising rates driving further margin expansion," Masrani told analysts on a call discussing its results Thursday.

Both TD and RBC saw increases in net interest margins, the difference between the money they earn on loans they make and interest they pay out to savers, in both their Canadian and U.S. businesses, said Shannon Stemm, an analyst with Edward Jones in St. Louis.

The Bank of Canada has raised its trend-setting interest rate once this year and is expected to do so at least once more before the end of 2018.

A rising rate environment is helpful for the banks at the beginning of a cycle, but lenders won't be able to get away with not passing on those benefits to depositors as rates continue to climb, she said. It's a dynamic that is already underway in the U.S., but not quite yet north of the border, she added. …

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