Canadian Banks Brace For Uncertainties After Mixed Quarter

• Bank of Montreal (BMO) closed out a mixed quarter for Canada's biggest banks on Tuesday, with investors and analysts expecting some earnings drivers to ebb and economic uncertainties to increase in future quarters.
• BMO missed analysts' estimates for third-quarter profit and reported a decline in earnings from a year earlier as revenue from its capital markets business slumped and it increased provisions for credit losses.
• Three of Canada's Big Six banks have missed expectations driven in part by challenges in their capital markets operations. The other three beat expectations as loan growth remained strong and margins expanded.
• Mortgages at the six banks grew nearly 10% in the quarter from a year earlier, while commercial loans jumped 16%, according to financial statements. "Overall, it was a solid quarter for the banks, but we're certainly seeing some storm clouds brewing," said Rob Colangelo, Senior Credit Officer at Moody's Investors Service.
• The Big Six mostly beat analyst estimates in the latter quarters of the pandemic thanks to strong mortgage growth backed by a red-hot housing market and robust trading and deals activity. Releases of loan-loss provisions set aside earlier in the pandemic also boosted earnings. However, the tide appears to be turning, with investment banking fees drying up, funds under management falling and the banks again increasing provisions as economic headwinds grow and higher costs and interest rates squeeze consumers.
• While some deals and trading activity could return in coming quarters, revenue in these businesses is likely to remain muted for the next few quarters, said Steve Belisle, portfolio manager at Manulife Investment Management. New mortgage lending - another growth engine - is also expected to sputter in coming quarters.

(Source: Reuters)