Third-quarter results 21 per cent lower than this time last year

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THE CANADIAN PRESS

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TORONTO - Canada's biggest banks wrapped up the third quarter with a 21 per cent drop in overall earnings, down to $4.15 billion, from a year-ago $5.26 billion, on losses from bad loans as the credit crisis wore on.

The weaker results disappointed analysts in many aspects, but also offered some surprise because quarterly writedowns were less than anticipated.

The shift away from weeks of dreary sentiment towards banks stocks was evident on the Toronto Stock Exchange where traders sent the financial sector ahead four per cent, hoping that the worst of the Canadian banking writedowns was over.

"A couple of banks did end up missing expectations significantly, but by and large the results weren't bad, especially if they're viewed in the context of global financials," said Robert Sedran, an analyst at National Bank Financial.

"The macroeconomic outlook is still every uncertain."

The banks spent the quarter logging more credit losses, all of the Canadian majors affected to some degree by problems in the U.S. housing and financial sectors, with the Canadian Imperial Bank of Commerce (TSX:CM) the worst-hit.

The greatest disappointments were the usual suspects -- CIBC and Bank of Montreal (TSX:BMO) -- who have been hit by the credit crisis.

On Wednesday, CIBC reported a profit of $71 million as both consumer and investment banking turned out weaker results. So far this year, the bank has reported $2.5-billion in losses, compared with a profit of $2.4 billion in the first three quarters of 2007.

Bank of Montreal (TSX:BMO) said it earned $521 million in the quarter while booking a hit of $134 million from its capital markets division.

"The credit markets have had a substantial impact on the capital markets businesses for these banks, and that's taken the form of writedowns on some of their debt products," said Craig Fehr, a financial services analyst with Edward Jones in St. Louis.

"I don't think that we'll see the continued decimation of asset values on these bank's balance sheets going forward."

Fehr said that the quarter was defined by loan losses and the strength, or lack thereof, in domestic banking.

"In terms of how that score went, TD and Royal really performed on the retail side," he said.