(Adds analyst comment)
By Matt Scuffham
TORONTO May 25 Three of Canada's biggest banks
on Thursday played down concerns that Home Capital Group's
problems could impact the broader financial system and
reported quarterly results that topped market expectations.
The comments from executives came as investors, worried
about a possible slowdown in Canada's red-hot housing market,
are scrutinizing banks' mortgage exposures with the outlook
clouded by issues at the country's biggest non-bank lender.
Home Capital has been struggling to finance its assets as
its high-interest deposit account balances have fallen by more
than 90 percent since March 27, when the company terminated the
employment of former Chief Executive Martin Reid.
The withdrawals accelerated after April 19, when Canada's
biggest securities regulator, the Ontario Securities Commission,
accused Home Capital of making misleading statements to
investors about its mortgage underwriting business. The company
has said the accusations are without merit.
Royal Bank of Canada Chief Executive Dave McKay said
on Thursday those issues should not have systemic implications
because Home Capital has only 1 percent of Canada's C$1.4
trillion mortgage market.
"It is not a systemic risk if that firm were to continue to
experience trouble," he told analysts on a conference call to
"I think it is an anomaly in the sense that there wasn't a
credit reason to drive the liquidity challenges that Home
Capital faced, but more a lack of confidence. I do not believe
that is a systemic risk to the overall mortgage market."
Canada's biggest banks built a reputation for financial
stability after emerging from the 2007-09 financial crisis
unscathed. However, an index of Canadian bank shares
hit a five-month low in May on worries about overheating housing
markets, Home Capital and a Moody's downgrade that highlighted
record household debt.
Canadian Imperial Bank of Commerce Chief Financial
Officer Kevin Glass echoed the RBC CEO's comments, saying he did
not anticipate broader problems emerging in the mortgage lending
"They're a very small part of the industry. If you look at
the issues they were dealing with they are very much entity
specific," he said in an interview.
Toronto-Dominion Bank's Chief Financial Officer Riaz
Ahmed likewise said he did not think contagion was a concern.
"The Home Capital matter was reported as being a liquidity
issue and not a fundamental credit issue. We're pleased to see
the situation has been stabilised," he said.
However, Edward Jones analyst Jim Shanahan said bank
executives should not dismiss Home Capital as a non-issue.
"Financial services is all about depositor confidence in the
institutions and anything that potentially puts a dent in that
confidence could impact the banks," he said.
Deposit withdrawals at Home Capital have slowed in recent
A Reuters poll released on Thursday showed analysts believe
Home Capital's problems are unlikely to affect investor
confidence in the Canadian mortgage market.
Cheap credit and speculative buyers have pushed home prices
higher, particularly in the Vancouver and Toronto markets, and
sparked concerns of a housing bubble.
"Sales activity has come down in April and listings have
increased which means that the demand/supply weakness has eased
We're pleased that there is a cooling in the market particularly
in the (Greater Toronto Area)," said TD's Ahmed.
Canada's two largest banks, RBC and Toronto-Dominion Bank,
reported second-quarter earnings that comfortably topped
analysts' forecasts while Canadian Imperial Bank of Commerce
achieved a more modest beat.
Shares in TD were up 1.3 percent and RBC rose 1.1 percent,
while CIBC shares fell 0.8 percent.
RBC reported an 11 percent increase in earnings, helped by
strong performance in its capital markets and wealth management
Canada's biggest lender by assets and market value said
earnings per share rose to C$1.85 per share in the quarter to
April 30 from C$1.66 a year earlier. Earnings per share,
excluding one-off items, rose to C$1.89. Analysts had on average
forecast earnings of C$1.80, according to Thomson Reuters
Toronto-Dominion Bank results were helped by a strong
performance at its retail and investment banking businesses.
Canada's second-biggest bank said earnings per share,
excluding one-off items, rose to C$1.34 from C$1.20 in the same
period the previous year. Analysts had forecast earnings of
CIBC, Canada's fifth-biggest lender, said growth across its
businesses helped boost earnings per share to C$2.64 from C$2.40
a year ago, compared with analysts' estimate of C$2.57.
($1 = 1.3431 Canadian dollars)
(Reporting by Matt Scuffham; Editing by Mark Potter and