Group profit at Canada’s Big Six
banks fell by around 38 percent in 2008 to C$12 billion compared
with over C$19 billion in 2007 following write-downs of more than
C$10 billion. But retail profits held up over 2008 and the banks
are busy rebuilding capital without need of government bailouts.
Douglas Blakey reports.

Almost alone among industrialised nations, Canada’s banks have
survived the global chaos of 2008 without the need to run to
government or international sovereign wealth funds.

And while the country’s Big Six banks have not escaped the
crisis unscathed, having posted write-downs in excess of C$10
billion ($7.94 billion), the relatively resilient Canadian economy
helped the banks report retail profits for the year virtually
unchanged, down a mere 0.3 percent at a consolidated C$12.73

Among the Big Six, Toronto-Dominion (TD) stood out, with retail
profit up by more than 22 percent year-on-year boosted by its
purchase of US-based Commerce Bank, with plans to further expand
its retail arm in the New Year.

However, TD has eschewed the temptation to set a profit target
for 2009 along with the majority of its peers, with Bank of Nova
Scotia the only major Canadian lender to set a specific target. It
said it expected to post “moderate” earnings growth in 2009, but
cautioned that economic activity in Canada would be weak for much
of the year.

Disappointed with US performance

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In contrast with TD, RBC Royal suffered as a result of an
under-performing US unit and said it will do “everything we can” to
improve it in 2009. “We have been very candid; we are disappointed
with our performance of our US banking business,” said RBC’s
president and chief executive officer Gordon Nixon.

RBC expects its US operations will continue to be adversely
affected by the declining US economy, but said it remained
committed to the US market nonetheless.

At Bank of Montreal (BMO), profits also declined at its US
personal and commercial group, having been affected by higher
levels of integration costs, as it completed the integration of an
acquisition in the US state of Wisconsin.

In Canada, BMO was able to report some retail highlights,
including personal loans up by 21 percent year-on-year, while its
market share of retail deposits increased year-on-year and

Overall, the bank’s retail profit for the year rose by a modest
2.4 percent to C$1.42 billion.

Looking ahead, the Bank of Canada, the country’s central bank,
cut its key interest rate by 75 basis points on 9 December to the
lowest level in half a century to 1.5 percent in an effort to boost
an economy in danger of falling into recession.

Capital raising expected in 2009

Canadian Imperial Bank of Commerce (CIBC) endured a torrid year
and ranked bottom of the Big Six both in terms of group and retail
profit change for 2008 with retail profit down almost 18 percent to
C$2.26 billion.

On a positive note, CIBC ended the year with the strongest
capital ratio, at 10.5 percent, of the country’s leading banks.

In the event that a C$2.3 billion common share issue announced
by RBC on 8 December is exercised in full, the second-largest stock
sale announced by a Canadian bank this year after CIBC raised C$2.9
billion in January, RBC will join CIBC as the only banks with a
Tier 1 capital ratio in excess of 10 percent.

“Our capital position is strong and well above regulatory
levels, and we are one of the world’s most profitable financial
institutions,” said RBC’s Nixon in a statement. “However, the world
has changed and we want to be conservatively capitalised,” he

Further capital raising to be expected

The minimum Tier 1 capital ratio in Canada is 7 percent but if
double-digit capital reserves are to become the norm, further
capital raising can be expected in the new year from TD,
Scotiabank, BMO and NBC.

And according to an analyst from Credit Suisse, the sums
required to be raised will be substantial.

Scotiabank would need to sell stock worth $2.25 billion to have
a 10 percent Tier 1 ratio while TD is almost C$2 billion off the 10
percent threshold, even though it issued C$1.4 billion of common
shares as recently as late November, bringing its capital ratio up
to 9.1 percent.

At BMO and NBC, the figures to be raised would be C$432 million
and C$327 million, respectively.

Canada: full year 2008 results for top six banking groups, ranked by change in retail profit