By Jeffrey Hodgson
TORONTO, Aug 28 (Reuters) - Toronto-Dominion Bank and Canadian Imperial Bank of Commerce reported higher third-quarter earnings on Thursday, extending a trend of buoyant capital markets boosting investment banking and trading profits at the country's big lenders.
Both banks posted earnings per share above estimates, though CIBC shares fell 2.5 percent, even as TD's stock outperformed its Canadian peers.
"It's a quality beat (for TD) in my book. I think if you had to do a comparison between the two, it was just a little bit stronger results out of TD. CIBC (had a) little bit of weakness in retail and business banking," said Tom Lewandowski, a financial services analyst for Edward Jones, who rates TD a "buy" and CIBC a "hold."
TD, Canada's second-largest lender, said net income rose to C$2.1 billion ($1.93 billion) in the quarter ended July 31, from C$1.52 billion a year earlier.
Excluding special items, earnings were C$1.15 a share. Analysts expected C$1.09 per share, according to Thomson Reuters data.
TD's stock slipped 0.4 percent to C$57.59 in Toronto, less than the broader 0.8 percent drop among financial service shares.
Profits at TD's Canadian retail arm jumped 54 percent to C$1.4 billion from a year earlier, when its insurance operation was hit with heavy claims from floods in Ontario and Alberta.
The division also benefited from the purchase of part of the lucrative Aeroplan Visa credit card portfolio from CIBC.
The pace of lending growth in Canada has slowed, something the bank has anticipated for a number of years and viewed as healthy, but is unlikely to slip further in the near term, said Colleen Johnston, TD Bank's chief financial officer.
Wholesale banking income, which includes the trading, investment banking and advisory businesses, rose 46 percent to C$216 million, boosted by "robust" capital markets and trading activity, the bank said.
CIBC WHOLESALE BANKING PROFIT JUMPS
Strong capital market earnings also lifted results at CIBC. Canada's 5th largest lender said net income rose to C$921 million from C$878 million a year earlier.
Adjusted earnings per share were C$2.23. Analysts looked for C$2.21 per share. Even so, its stock fell 2.7 percent to C$102.62.
Net income at its wholesale banking unit rose 32 percent to C$282 million. It benefited from increased financial markets activity, including fees from the initial public offering of PrairieSky Royalty Ltd.
Profit at its wealth management arm rose 19 percent to C$121 million, with assets under management boosted by mutual fund sales and a jump in Canadian and U.S. stock markets to record highs.
But profit at CIBC's retail and business banking arm slipped 4 percent to C$589 million, hurt by a drop in credit card revenue from the Aeroplan Visa credit card.
Lewandowski of Edward Jones said going forward, Canadian banks were likely to invest more in their wealth management and wholesale banking arms to offset slower lending growth at their core retail banking operations.
While this would offer upside if financial markets continue to strengthen, it also makes them more vulnerable to downturns.
"Higher earnings volatility going forward is probably the name of the game for a lot of these Canadian banks," he said.