WRAPUP 1-CIBC, TD Bank wind up Canadian bank earnings with profit slumps, surge in provisions

Canadian Imperial Bank of Commerce (CIBC) and TD Bank Group missed quarterly earnings expectations on Thursday, as they set aside billions to cover future loan losses due to the COVID-19 outbreak, dragging down bank shares.

That took the total provisions set aside by Canada's top six banks to C$10.93 billion ($7.94 billion), more than four times the level seen a year ago. "We're comfortable that, in the economic environment we're in, our provisions are sufficient," Riaz Ahmed, chief financial officer of TD Bank, told Reuters. "However, if the severity and duration of the pandemic changes, we can't rule out that provisions may have to increase."

TD shares dropped 3.6% in early Toronto trading, while CIBC fell 1.4%. The Toronto stock benchmark was flat, while the banking sub-index was down 1.5%. The majority of total bank provisions were on performing loans, and impaired loans only rose by 11% from a year ago. But the banks flagged future increases in soured loans as a result of the COVID-19 pandemic and continued energy sector struggles as government aid programs and loan deferrals wind down.

CIBC expects more performing loans included in the provisions to become impaired, Shawn Beber, chief risk officer at CIBC, said on an analyst call. That adds to the challenges for the banks, which are already seeing decade-low interest rates compress margins.

CIBC posted an adjusted profit of 94 Canadian cents per share for the quarter ended April, compared with analysts expectations of C$1.58 per share. TD Bank, Canada's second-biggest lender, reported an adjusted profit of 85 Canadian cents per share, missing estimates of 89 Canadian cents.

CIBC set aside C$1.41 billion in the quarter for future loan losses, compared with C$255 million a year earlier, while total provisions for TD Bank jumped to C$3.22 billion, compared with C$633 million a year earlier. ($1 = C$1.38)

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