An underwhelming earnings season for Canadian banks continued Wednesday as the National Bank of Canada missed analyst expectations with third-quarter results that saw loan loss provisions rise and capital markets activity slow.

The National Bank of Canada missed analyst expectations in its third-quarter results as loan loss provisions rose and capital markets activity slowed – and the earnings shortfall was a significant one, according to one analyst.
 
“A pretty large miss for National as a precipitous drop in capital markets revenues along with higher provisions weighed on the results,” John Aiken, head of research for Canada at Barclays, wrote in a note to clients on Wednesday. 
 
The bank’s revenue for the quarter came in at $2.52 billion, up from $2.41 billion the same time last year. It earned $2.36 per diluted share, which was below the analyst consensus of $2.37 and lower than Barclays analyst estimate of $2.36. 
 
Aiken noted that while underlying growth at National Bank was decent, the headline number is likely to be something that the market will find difficult to ignore. 
 
Aiken has a 12-month price target of $96 on shares of National and holds an underweight rating of the stock, which is the equivalent of a sell or don’t buy rating. 

Shares of National were down roughly two per cent down at $98.12 after the market opened on Wednesday morning.

LACKLUSTRE EARNINGS

The weakness in National’s earnings is on trend with the lacklustre earnings season by the Canadian banks. The Big Six banks have all increased their provisions for credit losses and have revealed rising costs. 

TD Bank suffered from heightened loan loss provisions and weakness in its U.S. banking division, while RBC announced future layoffs amid rising expenses. Scotiabank’s margins came under pressure and the Bank of Montreal battled with loan loss provisions and severance pay. 

While the expectations for this earnings season were quite low, expenses have been a central theme, according to Lesley Marks, chief investment officer of equities at Mackenzie Investments.

“One negative that I’ve picked up across the banks has been expenses,” she told BNN Bloomberg on Wednesday.  

Marks explained that all the banks expanded their expenses throughout the pandemic years and are now cutting back on costs. She warned that trimming the Canadian banking workforce will have a material effect on the country’s economy, and said she is watching the situation closely. 

Despite the pressures, Marks made it clear that she thinks the Big Six will weather any economic storm ahead, and said investors should stay committed to these stocks regardless of the disappointing quarter. 

“You don’t want to bet against the banks over the long term,” she said.