The bank week that’s beating expectations

Canada’s banks warned of a bumpy 2015 – but so far, they seem to be proving investors’ expectations wrong.

This morning, first-quarter reporting season continues with CIBC and TD both going for early-morning announcements. CIBC’s profits were down compared to last year’s first quarter, while TD’s were up, but both managed to put a slightly sunnier spin on a quarter that was forecast to show the strains of the oil crisis. Yesterday, RBC actually reported record-beating quarterly profits.

The morning has started on a fast note, and the pace will keep up today. In Canada, we have the survey of employment, payrolls and hours for December, which is timely not only for the intense scrutiny on how oil prices are affecting Canadian jobs, but amidst a wider debate over the strength of Statistic Canada’s Labour Force Survey. Then we’ll see inflation numbers for January, coming as inflation slumps in much of the world. In the U.S., a day after Janet Yellen was in the House of Representatives talking about the U.S. economy, there are also American inflation numbers. In other news, oil is back above $50 this morning.

A few other highlights from this morning: the U.K. has announced 0.5 per cent growth in the last quarter of 2014, identical to the previous two quarters and a sign of steady growth. Germany also whittled away at its historically low unemployment rate, with 10,000 more jobs than expected created this past month.

CIBC and TD beat investor expectations. CIBC had an early-morning earnings report for the first quarter of 2015, announcing net profits of $923 million, down from nearly $1.2 billion the same quarter last year, which is still slightly above investors’ expectations. TD also beat expectations this morning, reporting a net profit of $2.06 billion, compared to last year’s $2.04 billion, and plumped its dividend by four cents. The company attributed the gains to strong returns in retail banking. Yesterday, RBC beat expectations by posting a record quarter with a $2.46-billion profit, and also announced they would hike their dividend. National Bank also beat expectations and saw profits rise, hitting $415 million in profits for the quarter, compared to last year’s $405 million. Banks began warning investors last year that 2015 would be rocky for profits, but so far, the picture has been mixed.

A health check for the Canadian economy. Today brings crucial figures on jobs, wages and inflation, a week ahead of a monetary policy meeting for the Bank of Canada. The latest jobs report brought surprisingly large numbers, but indications the gains were one of quantity, not quality, with drops in full-time work being papered over with gains in part-time and self-employment. Today, we’ll see the survey for December, and expect the numbers to feed into debate over the strength of the labour survey, following the end of the compulsory long-form census. Yesterday, Statistics Canada’s chief statistician was back in the Globe defending the quality of the survey amid challenges over how reliable the numbers are, and ahead of the release of a new jobs survey. Inflation is also a hot topic – December’s inflation was down to 1.5 per cent, from the previous month’s two per cent. But even the Bank’s governor, Stephen Poloz, has raised questions about whether traditional interest-rate targeting is the best method of monetary policy. In a speech on Thursday, Poloz addressed the limits of the inflation target, as the Bank gears up for a review of the policy next year. As investors and bankers worldwide watch the U.S. for signs of when a rate hike could come, today is another crucial day: even as the job market has surged, inflation has remained stubbornly low, and forecasts predict the rate of price increases slowed again in January.

Billions in fines for the financial crisis. Morgan Stanley has agreed to another settlement, this time to the tune of $2.6 billion, for their role in the creation of toxic mortgage-backed securities. It’s not the first time the bank has paid fines – last year, in just one example, they were fined $1.25 billion for selling those same toxic securities to Fannie Mae and Freddie Mac – and they have plenty of company. Collectively, major American banks have been fined $35 billion. The bank responded by retroactively lowering their reported profits for last year.

China wants to crack down on the tech industry. And American and European tech companies are not happy, according to a letter sent yesterday to the European Commission. Chinese authorities are pushing through new regulations that dictate any banking technology must be “secure and controllable” by state authorities. This would include testing by Beijing, use of Chinese intellectual property and a requirement that companies share their data. This would restrict the market for outside products in China and would of course tighten Chinese control over access to technology. But a quick reminder that in terms of governments meddling with the hardware, it was recently revealed that the U.S. and the U.K. hacked the world’s biggest maker of SIM cards in order to have access to information.

Need to know:
TSX: 15,228.57 (+63.6), Wednesday
Loonie: 80.5 (+0.47 cents), Wednesday
Oil (WTI): $50.26 (7:30 a.m.)