Canada's RBC, TD, CIBC top bank profit estimates

By Nivedita Balu and Arasu Kannagi Basil

Aug 27 (Reuters) - Royal ‌Bank of Canada, TD ​Bank and CIBC ​beat quarterly profit estimates on Thursday as the Canadian lenders largely benefited from strong earnings in their capital markets segments.

The results wrap up the third-quarter earnings season for Canada's largest banks, with all six lenders beating Bay Street profit estimates despite geopolitical uncertainty ‌and the fallout from the trade dispute between Canada and the U.S., a key market for some of the country's ⁠major banks.

The banks have strengthened their balance sheets over the past two years by building capital, robust earnings and sizable reserves against potential credit losses, leaving them better positioned to withstand ‌economic and trade-related uncertainty. The banks have expanded ‌beyond Canada and built fee-based businesses such as wealth management and investment banking, helping diversify revenue streams.

"These results reflect three forces working together: diversified business model, strong client activity, and a favorable market backdrop," RBC CEO Dave McKay told analysts.

Still, RBC shares were down 2%.

"The results were better than ​expected (for RBC). But if you go segment by segment, they were a little bit light in their largest segment, which is Canadian personal banking," said Brian Madden, chief investment officer at First Avenue Investment Counsel. Madden said rich valuations prompted his firm to trim its positions in RBC, TD ⁠and BMO this month.

TD's shares were marginally up, while CIBC was down 3.5%.

WELL POSITIONED

Trade tensions intensified this month after negotiations aimed at reaching a bilateral trade agreement collapsed. The United States imposed tariffs on ​certain Canadian goods and Canada responded with duties on U.S. steel and aluminum.

"I feel very comfortable with the reserve we have ... the situation is still quite fluid; we have to look at the specifics of the tariffs, how ​long it lasts, the detail of (the government) responses," TD Bank's CFO Kelvin Tran said ‌in an interview.

"That's something that we're monitoring very carefully."

CIBC said the most tariff-sensitive businesses it lends to represent less than 1% of the bank's total loan portfolio. RBC said it was optimistic about increased foreign direct investment and Canada's new ⁠trade relationships.

CAPITAL MARKETS GROWTH

Capital markets businesses have benefited from strong deal flow, higher trading income fueled by volatile markets, and a revival in IPO markets in the U.S. and Canada.

RBC, the only Canadian bank in the underwriting syndicate for SpaceX's blockbuster initial public offering, said capital markets net income rose 16% to C$1.54 billion ($1.11 billion).

The results were also boosted ⁠by a 32% rise in profit at its wealth management segment.

At CIBC, capital markets income rose 34%, boosted by lower loan loss provisions.

TD said its wholesale banking segment, which ​includes capital markets and corporate and investment banking services, recorded an 87% increase in net income. Its U.S. segment recorded a 41% increase in net income. The bank said it plans to open 100 new branches in the region by 2028.

JUSTIFIED PREMIUM

The Canadian banks are trading at an average of about 15 times forward earnings, the most expensive ‌they have been since 2010, and their stocks have outperformed the broader Toronto Stock Exchange.

"Its (RBC) valuation premium was once again justified by its impressive return on equity (ROE)," Jefferies analyst John Aiken said, citing the bank's 17.9% ROE, which ‌beat the lender's own target. "To close out third-quarter earnings, TD produced the strongest beat of the quarter," Aiken said.

CIBC's adjusted net income of C$2.73 per share was 20 Canadian ⁠cents above analysts’ estimates, according to LSEG data.

RBC earned C$4.28 ‌per share, also beating the estimate of C$4.08. ​At TD, adjusted earnings of C$2.77 per share were well above the average analysts' estimate of C$2.47.

($1 = 1.3883 Canadian dollars)

(Reporting by Nivedita Balu in Toronto, Pritam Biswas, Pragyan Kalita and Arasu Kannagi Basil in Bengaluru; Editing by Shailesh Kuber, Jan Harvey, Deepa ‌Babington, Rod Nickel)

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