The lobby of National Bank of Canada on King Street in Toronto.FERNANDO MORALES/The Globe and Mail
Let the good times roll for another quarter for the big six Canadian banks.
That's the preliminary stance from National Bank Financial's latest projections for third-quarter trading revenues. NBF expects Canada's largest lenders, known as the Big Six, to report third-quarter trading revenues in the neighbourhood of $2.5-billion, a 7-per-cent quarterly rise, which would also be the 11th successive quarter of revenues between $2-billion and $2.5-billion. This all comes at a time when large trading desks across the globe have seen declines in trading profits, as low interest rates and dwindling volatility have squeezed returns.
The expected healthy returns should be driven largely by growth in fixed-income trading, which in turn has been nurtured by narrowing credit default swap (CDS) spreads, a traditional harbinger for improvement in corporate credit quality. Daily average CDS spreads narrowed 6.6 per cent in the third quarter, which correlates with higher fixed-income trading revenues in the NBF model. Narrowing credit spreads are expected to be partly offset by a decline in volatility: The CBOE Volatility Index – known as the VIX – dropped three points in the third quarter, indicating more sluggish trading volumes. However, NBF also predicts equity trading revenues will be supported by a strong quarter for the Toronto Stock Exchange, which is up 4 per cent so far.
Individually, NBF projects growth in trading revenues for three out of the six banks: Royal Bank of Canada, with 16 per cent quarterly growth, Bank of Montreal, with 10 per cent, and Bank of Nova Scotia, with 3 per cent.Meanwhile, NBF expects a slight quarterly loss for TD and CIBC, and flat revenues for National Bank of Canada.
Canada's biggest banks churned out another round of stellar earnings reports last quarter, although executives have warned that the surge in profits seen in the past few years may not be sustainable. NBF's estimates are subject to change ahead of the August earnings season. Still, it's one signal pointing toward another quarter of defying the skeptics and pumping out returns for Canadian investors.