TD, CIBC Get a Lift as Housing Buoys Canadian Banking Units

(Bloomberg) -- Canada’s resilient housing market is proving a boon for Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, helping their domestic banking franchises return to earnings growth.

Profit in Toronto-Dominion’s Canadian retail unit rose 3.3% to C$1.8 billion ($1.4 billion) in the fiscal fourth quarter, and CIBC’s personal and commercial business in the country increased earnings 5.5% to C$634 million. Both banks benefited from rising residential mortgage balances as well as declining provisions for credit losses as fears of the coronavirus pandemic leading to a deeper financial crisis ebb.

Canada’s housing market is in the midst of a decades-long boom, driven by increased immigration and zoning regulations that make it hard to build additional residences. More recently, property values have been boosted by demands for more space as Covid-19 forces Canadians to use their homes for work and recreation. Residents have also been helped by government benefits that have kept many households solvent throughout the crisis.

“Canadian housing has proven to be quite resilient so far, and we continue to see pretty good activity on home buying and selling and refinancing as well,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in an interview Thursday.

Shares of Toronto-Dominion climbed 1% to C$71.50 at 9:48 a.m. in Toronto. CIBC rose 0.3% to C$110.33.

Toronto-Dominion had C$207.5 billion in Canadian residential mortgages on its books in the fourth quarter, up 5% from a year earlier. CIBC had C$212 billion of Canadian residential mortgages, a 5% increase.

Loan Losses

Both banks also benefited from declining provisions for credit losses after front-loading their set-asides earlier in the year. Toronto-Dominion’s provisions totaled C$917 million in the fourth quarter, down from C$2.19 billion in the previous three months and C$3.22 billion in the second quarter. For CIBC, provisions for credit losses totaled C$291 million in the three months through October, compared with C$525 million in the previous quarter and C$1.41 billion in the second quarter.

Those factors combined to help both banks’ overall earnings beat analysts’ expectations. Toronto-Dominion’s profit excluding some items was C$1.60 a share, topping the C$1.27 average estimate. CIBC’s adjusted earnings totaled C$2.79 a share, better than analysts’ projected C$2.52.

“If the world turns out the way it currently looks and there are no major changes, we believe the performing build is behind us,” CIBC CFO Hratch Panossian said in an interview.

The banks’ capital-markets divisions benefited from an increase in trading caused by turbulent markets. Profit in CIBC’s capital-markets business climbed 16% to C$267 million last quarter, helped by interest-rates and commodities trading. Net income in Toronto-Dominion’s wholesale-banking division more than tripled from a year earlier to C$486 million.

“We’ve seen customer activity at a very elevated level, including in debt issuances and the fixed-income categories in particular,” Ahmed said. “As the economy continues to recover and markets continue to function properly, we are hopeful that we will continue to see strong results to help the economy along.”

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