Canadian banks had a decent fourth quarter for a few reasons. First, there wasn’t much change in the retail environment, and investors may have expected this business segment to decline slightly across the board as the housing market and Canadian economy both slowed.
Second, equity markets performed well between August and October. Finally, there was no significant financial event, either domestic or global, that would lead investors to be worried about the ongoing operations at Canadian financial institutions or the loan portfolios of Canadian banks.
Those were the expectations going into the quarter, and retail business segments saw net income growth year-over-year but declines quarter-over-quarter; wealth management businesses saw growth in assets and revenues; and capital market businesses were either stabilized or helped by an improved market environment.
As such, most bank earnings for Q4/12 were relatively in line with expectations and stock prices haven’t moved a great deal when compared to where they were before their results were released. Simply put, it was somewhat of a boring quarter for the Canadian banks — but in this case, boring is good.
Any concerns related to the quality of earnings likely focused on loan loss increases and lower than usual tax rates, but we prefer not to make a big deal about this until a trend forms.
Capital levels at the banks remain stable and while National Bank was the only bank of the big six to increase its dividend, payout ratios amongst the other five are at a level where they could raise dividends. That would resume the semi-annual dividend increase trend that existed prior to the 2008 financial crisis.
Trading week ahead
Fiscal policy will have to share the spotlight with monetary policy as the Federal Open Markets Committee will meet and announce an interest rate decision on Wednesday. It will be no shock when Ben Bernanke announces that rates will remain at 0.25%, but investors will be interested to see what policy and programs will look like going into 2013.
On the economic front, Bernanke and friends will be watching the U.S. inflation report on Friday where core inflation is expected to remain steady at 2%, while advance retail sales data for November will be released on Thursday.
Retail sales growth is expected to climb 0.4%. Most companies in North America have reported their earnings in 2012, so corporate news flow may be light next week with only a handful of companies providing earnings updates.
Read: CIBC earns $852M in Q4
In commodity markets, energy traders will be keeping a close eye on Syria and Egypt where the situation appears to have deteriorated further. While these two countries aren’t the largest source of oil in the Middle East, they do have influence over the region’s stability and thus could have an impact on energy prices.
Gold prices will likely look for direction from the Federal Reserve and any policy announcements that are made to gauge where the U.S. dollar is headed, and thus bullion prices, in the short term.