Canada bank profits surprisingly strong in Q3, but are storm clouds ahead?

Reuters reports that while quarterly profits looked good, gloomier times are ahead for Canada’s resilient banks.  Canada’s banks stayed strong through the financial crisis which largely beat analysts’ expectations with their third-quarter results. Analysts expect narrow lending margins and increased caution by already overstretched borrowers in the months ahead. “The next four quarters will not be as powerful as the last four quarters for the sector,” said CIBC World Markets analyst Robert Sedran. Canada’s banking is dominated by a half dozen big banks which are both protected from foreign takeovers and from merging with each other. They generate billions in profits from domestic branch-bank businesses and required no bailouts during the 2008-09 crisis. Canada’s No. 2 lender said earnings growth should moderate in coming quarters due to slower loan volume growth and margin pressure. “Obviously there’s a lot of uncertainly given what’s going on in the world,” said Chief Financial Officer Colleen Johnston at Toronto-Dominion Bank.  Europe’s banks are in the grip of a debt crisis, while U.S. banks are selling assets to build up capital. Even Canada, which has ridden a strong housing sector to a relatively even-keel economic performance over the past two years, experienced an unexpected economic contraction in the second quarter, data this week showed.

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