Winnipeg Free Press - PRINT EDITION

Banks reap record profits, challenges ahead

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Canada's big banks reported record annual profits for 2013, buoyed by a strong domestic market, but stormier seas may lie ahead as the financial institutions go into the new year.

With Canada's housing market anticipated to cool and consumers already carrying record amounts of debt, the banking sector will face challenges in finding growth.

"I think it is going to be pretty sluggish growth for loans here, especially if the housing market starts to slow down," said Ian Nakamoto, a portfolio manager at MacDougall Investment Counsel. "I also think the demographics are starting to bite them in Canada. Meaning, as you get older, people tend to borrow less, they tend to pay down their obligations."

It has been a strong year for Canadian bank stocks with the sector up roughly 20 per cent for the year. However, shares in several banks were sold off this week as the results came in.

Bank of Nova Scotia, the last of the big Canadian banks to report its quarterly and annual results, capped off the sector Friday with a record annual profit of nearly $6.7 billion, but fell just shy of investor expectations for its latest quarter.

The bank earned a fourth-quarter profit of $1.7 billion or $1.30 per share, up from $1.52 billion or $1.18 per share a year ago. However, Scotiabank's core earnings were $1.31 per share, compared with an average analyst estimate of $1.32 compiled by Thomson Reuters.

As a group, the Big 5 Canadian banks -- Royal Bank, TD Bank, Scotiabank, Bank of Montreal and CIBC -- earned $29.25 billion in their 2013 financial year, up from $27.81 billion in 2012.

But even as the earnings piled up, several of the banks trimmed staff in the fourth quarter.

The Bank of Montreal cut the equivalent of nearly 1,000 positions in the fourth quarter in a bid to reduce expenses, while CIBC's number of full-time equivalent employees dipped by more than 450.

Royal Bank had about 1,100 fewer full-time equivalent employees compared to the third quarter.

"They are probably reading the writing on the wall as to what is going to be happening over the next several years," Nakamoto said.

But despite the concerns, Nakamoto said the effects will be felt less by Canadian banks that have diversified operations from retail banking to insurance, wealth management and capital markets operations.

Driving the latest quarterly results at Scotiabank was strong growth at its Canadian banking operations, boosted by the acquisition of ING Direct Canada as well as improved margins, lower loan-loss provisions and asset growth.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition December 7, 2013 B7

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