Ashley Redmond: I'm Ashley Redmond for Morningstar.ca and I am here with Dan Werner who covers the big Canadian banks for us. Dan, thanks so much for joining me.
Dan Werner: Thanks Ashley.
Redmond: The big banks started reporting their Q2 earnings at the end of May, so that means you've had lots of time to mull over the numbers. How did the banks do this quarter?
Werner: The Canadian banks had a really nice quarter. Some of the things that we saw from them are really good wealth management revenues as assets under management continued to grow, as well as market impact to assets under management which helps raise the fee income. The net interest margins for most of the banks have either stabilized and in some cases have increased. And with better credit quality they've have had lower provisions for credit losses, which also helped their profitability.
Redmond: Okay. Were there any big surprises?
Werner: CIBC warned that they were going to take some losses on their Caribbean operations and I think that would qualify as a surprise. Outside of that I was a little bit surprised by the magnitude of lower provision for credit losses. We know that Canadian banks have very good credit quality and that the gross impaired loans have been pretty stable, but I was surprised by how much the banks had lowered their provisions.
Redmond: And I know that BMO raised their dividend in Q2 citing higher than expected profits. Did any other banks follow suit?
Werner: National Bank followed suit with a dividend increase of a few cents. But I think the surprise for me was CIBC; they raised its dividend in light of the big losses that totaled hundreds of millions of dollars. CIBC increased their dividend to $1 per share for the coming quarter, so that was a bit of surprise. But, obviously CIBC feels comfortable with its future earnings and they are comfortable returning capital back to the shareholder.
Redmond: Did you see any trends in Q2?
Werner: I think the main trend was probably in wealth management. We continue to see really good assets under management growth there, which leads to better fee revenues. I think that area has been an emphasis for the banks for much of the last year and a half as they've tried to build up that business and try to diversify their revenues a little bit better.
Redmond: What was your main take away from Q2?
Werner: Lower provisions for credit losses, better wealth management revenues, which I think should continue into 3Q and the stabilization of margin. And I think the other surprise would be the commercial loan growth that we’ve seen at some of the banks. So you know that has supplanted some of the decline in the residential loan growth that we've seen. I think that's my main takeaway that I think we're going to see a little bit more of the commercial loan growth going into the third quarter and probably still see some good wealth management growth for all the banks.
Redmond: So, in Q3 you'll be watching for commercial loan growth. Anything else that you'll be watching for?
Werner: I'll be watching the margins as well. We're still in a really low rate environment here. The Canadian banks have managed that very well. So I think I'm going to keep an eye on the margin here it's been pretty stable for the last few quarters. So we'll see how they manage their way through this.
Redmond: Great thanks so much Dan.
Werner: Thanks Ashley.
Redmond: For more on the big Canadian banks visit the stock section of Morningstar.ca.
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