Canadian Banks 2011 Perspectives on the Canadian banking industry www.pwc.com/ca/canadianbanks

www.pwc.com/ca/canadianbanks
Canadian Banks 2011
Perspectives on the Canadian banking industry
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more than 5,300 partners and staff in offices across
the country.
2 Canadian Banks 2011
A message from our CEO
Chris Clark
PwC is pleased to present the 2011 edition of Canadian Banks.
2010 was a year of continued strength for the Canadian
banking system, with the World Economic Forum naming
Canada’s banking system as the world’s soundest for the
third consecutive year. Canadian banks have surpassed
expectations during a tumultuous time in the banking
industry and they are now in an enviable position to actively
pursue their growth strategies, which has been demonstrated
through increased acquisition activity during the year.
Globally, risks remain in the banking system. European Union
competitors are facing threats over sovereign debt levels and
the US market is dealing with an ever-tightening regulatory
environment coupled with a struggling economy. Rules surrounding capital are being re-written
through Basel III, while new sweeping legislation through Dodd-Frank will have profound future
business impacts on any financial institution doing business in the US.
In this edition of Canadian Banks we look back and examine the 2010 results for the largest six
banks in Canada. Looking forward, we share industry perspectives into “what’s next” and how
our banks may tackle the challenges and opportunities that lay ahead.
We hope you find this publication insightful as we examine these and related issues.
We look forward to discussing this with you and your team.
Christie J.B. Clark
Canadian Senior Partner and CEO
PwC, Canada
Perspectives on the Canadian banking industry
3
Contents
06
Capitalizing on opportunities
14
2010 economic highlights
20
Happy comparative year
28
Analysis of 2010 results
50
Appendices
76
Financial services publications
78
Financial services leadership team
4 Canadian Banks 2011
Perspectives on the Canadian banking industry
5
Capitalizing on
opportunities
6
Canadian Banks 2011
In a time of accelerating change, Canadian banks have done far more
than what’s necessary to survive over the past year. As many global
banks struggled to regain their pre-crisis position, Canada’s Big Six
banks leveraged their well managed, well regulated and well capitalized
standing to actively pursue their growth strategies. And the effort paid
off: the 2010 combined net income of the Big Six was $20.4 billion,
exceeding 2009 net income by more than $6 billion and eclipsing the
previous record of $19.5 billion set in 2007.
With the events of the past year in mind, we
spoke with a number of Canadian analysts
and portfolio managers to understand their
opinion on what the future holds for Canadian
banks. Overall, managing complexity, pursuing
growth strategies and transforming through
innovation were the overriding considerations
to stay competitive. As is often the case, the real
challenge going forward is how to execute while
many pervasive risks remain.
A clearer path ahead
In last year’s edition of this publication, we
reported that increased regulation, tighter
controls and government intervention in
many countries dominated the agendas of
the financial services sector. This sentiment
continued in 2010: according to PwC’s
14th Annual Global CEO Survey, over 80%
of global banking CEOs were concerned that
overregulation would threaten their business
growth prospects. In Canada, despite their
strong earnings, banks were also faced with
“Canadian banks are well
capitalized and in some ways the
gold standard that the rest of
their peer group will try to model.”
—Banking analyst
significant obstacles related to economic and
regulatory uncertainty. Out of necessity, 2010
ushered in a new era of regulation through
global regulatory reform designed to increase
both capital and transparency for financial
institutions—and provide much needed clarity
for the industry.
The recently endorsed Basel III reforms will
require banks to retain greater levels of capital
and liquidity, as well as higher capital quality.
Currently, all of Canada’s major banks comply
with the attributes of the new rules and meet
the initial 2013 targets. But the changes will
likely have implications for each bank—
potentially impacting profitability and decisions
around the mix of business.
At the same time, increased US regulation,
such as The Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), will change
the way financial institutions conduct business,
requiring banks to assess how they operate and
manage risks as the rules are defined.
Perspectives on the Canadian banking industry
7
“Five to six years ago, the Big Six banks
looked similar, now they have really
differentiated themselves.”
Execution in managing the different and growing
regulatory requirements will be critical over the
coming years; and management and boards will need
to pay significant time and attention to the implications
of the changing regulations. As clarity emerges around
the way regulations will be devolved, the banks will be
able to operate with greater certainty and confidence in
those growth strategies that have propelled them into
the global spotlight over the past year.
Looking back, how have Canada’s banks generated
growth? According to one portfolio manager, “Five to
six years ago, the Big Six banks looked similar, now
they have really differentiated themselves.” Looking
ahead, where do they go from here?
Last year’s events have shown that a number of the
Big Six banks are looking internationally to expand
their presence and gain precious share in important
strategic markets. Announcements of foreign
acquisitions dominated the news in late 2010, with
banks snapping up smaller players around the world
and deepening their presence in countries where they
have existing operations. According to one portfolio
manager, “the easiest way to play catch-up is to
acquire”.
8 Canadian Banks 2011
Interestingly, Canadian banks’ strategies are now
starting to diverge, in terms of both geographic
and line of business focus. For example, we have
seen varying focus on growth opportunities in the
US, Latin America, the Caribbean, Europe and Asia
For some institutions, capital markets and asset
management is the priority, while others are investing
more in personal and commercial banking.
In 2010, Bank of Montreal (BMO) and TorontoDominion Bank (TD) focused on consolidation in the
US by acquiring a number of US banks, including both
FDIC transactions and non-bank financial companies
in niche markets. With the Canadian dollar holding
its strength, we will likely see more expansion into
the US, an area that was previously seen as more
challenging to penetrate with the weaker dollar and
historically prohibitive bank valuations. One leading
banking analyst comments: “now is a good a time
as any to leverage that into growth opportunities”.
Overall, the Big Six banks’ assets invested outside
of Canada and the US ranged from 2% to 26%, with
Scotiabank holding the most assets invested beyond
North America, largely focusing on Latin America and
increasingly Asia.
“As Canadians, we are generally
more conservative. If our banks had
high growth aspirations and failed
miserably we would lose sleep.”
But, with greater geographic expansion, comes
greater global regulations and risks. Navigating
political, cultural, economic and regulatory hurdles
in international markets is critical for banks to
successfully expand in chosen geographies. One
analyst says the key to getting it right is “You need
to have decent local roots. Local commitment is
important, whether it be from a political, economical,
[or] social perspective.” For many banks, a baseline
is a stable political and economic view. Yet, there’s
also the question of a broad range of macro-economic
threats, such as rising public sector deficits and the
ability to refinance debt, which could impact both the
Canadian economy—and with it, Canadian banks—
down the line.
Undeniably, the concern of a double dip recession
impacting an already battered US housing market has
some analysts and portfolio managers anxious about
the impact on Canadian banks with US operations.
Decreasing home prices will send more homeowners
into negative equity and constrain consumption
growth, bringing with it difficulties for banks and their
government guarantors.
Domestically, Canada’s largest banks continued to
focus on their existing profitable operations and
product offerings at home to grow their revenues.
Many of our interviews pointed to the re-emergence
of the wealth management segment as a key area to
boost profitability, particularly given the banks’ strong
control over distribution channels and changing
demographics. The importance of savings and
retirement planning will become more significant as
baby boomers near retirement and life expectancies
increase. Not surprisingly, 2010 saw a number of
acquisitions in the wealth management space;
however, the number of independent players left
in Canada are few, which could drive the banks to
explore opportunities outside the country, particularly
to those regions where similar demographics and
opportunities prevail.
Perspectives on the Canadian banking industry
9
When it comes to domestic personal and commercial
banking, undoubtedly an interesting year is before
us. While a significant amount of the banks’ earnings
growth in 2010 was driven by consumer spending and
increased borrowing, debt levels are currently at alltime highs in Canada. According to Statistics Canada,
household debt in Canada surpassed the US for the first
time in 12 years, with a debt-to-income ratio of 148.1%
compared to 147.2% in the US. At the same time, with
recent government announcements around clampdowns on the insurable mortgage market, changes are
afoot that will dampen consumer enthusiasm for debt.
According to PwC’s Consumer Lending Survey, out
of over 600 Canadians, 67% are comfortable with
their debt level, yet most (64%) intend to decrease
this debt over the next 12 months, primarily by
cutting back on, or deferring large-ticket items such
as autos, home electronics and housing upgrades. As
customers’ willingness to spend and borrow decreases,
by necessity, so too will the banking sector’s earnings
growth in these areas.
The evolving payments industry
is also certainly top-of-mind, as
customers and businesses alike
demand more consumer-friendly
payment options.
Some banks are focusing on strengthening their core
consumer offerings, while others are expanding their
product lines into other areas, such as integrated
lending products. The fallout from the financial crisis
is giving cause for banks to steer back into debates with
regulators to re-enter the auto leasing space, an area
that was previously off limits, yet could expand the
banks’ product offerings and be generally favourable to
the market.
Several analysts also believe that increased foreign
interest for Canadian companies, particularly in Alberta
and the resources sectors, will boost banks’ revenues
from mergers and acquisitions (M&A) activity. “Our
economy has done well to attract foreign investment.
When you think of the pace and the role Canadian
banks will play in M&A activity, it’s a positive catalyst,”
says one banking analyst. The recent proposed merger
of the TMX Group (which operates the Toronto Stock
Exchange) and the London Stock Exchange Group
would create the largest venue for global listings
for natural resources, mining, energy and clean
technology. This is a testament to the attractiveness
of the resource sector and the place it plays within the
Canadian capital markets.
With this heightened focus on business, analysts and
portfolio managers see the commercial and small
business segment growing at a faster rate than personal
banking. PwC’s Global CEO Survey indicates that half
of Canadian CEOs and 48% of global CEOs surveyed
said they were “very confident” for growth in the next
12 months. Longer term, 95% of Canadian CEOs are
confident for growth three years from now, similar to
their counterparts from other countries (94%). This
confidence could chalk up to bigger profits for banks
as Canadian businesses begin to realize their growth
aspirations and turn to the country’s strongest source
of capital to help get them there.
10 Canadian Banks 2011
Outsourcing has long been a reality, and
labour arbitrage and service effectiveness
continue to be the main catalyst in sending
core operations outside of the organization.
Driving the innovation engine
As the consumer and business world continues to
evolve, innovation is becoming imperative for banks
to move forward. One banking analyst comments:
“we have to grind forward and grow our business,
prove ourselves in this new environment”. Innovation
is critical to help cut costs; respond to changing
consumer and business expectations, particularly
among different generations; and create the agility
needed to compete. And, the industry couldn’t agree
more: according to our recent Global CEO Survey, 87%
of banking and capital markets CEOs surveyed believe
that innovations will lead to operational efficiencies;
and 64% also believe that their IT investments will
help them tap into new marketing and transactional
opportunities.
So, what’s driving innovation? Operationally,
Canada’s banks are looking inwards at the costs
of their networks to make sure they’re running as
efficiently as possible while still delivering the best
customer experience that exceeds expectations.
Outsourcing has long been a reality, and labour
arbitrage and service effectiveness continue to be the
main catalyst in sending core operations outside of the
organization. But, other innovative models to acquire
scale benefits or drive revenue are still evolving.
For many banks, co-sourcing and joint ventures in
areas of operation where they don’t compete (based
on product or client service) are emerging. New
global centres of excellence focus on streamlining
service, while creating a new reality in efficiency and
effectiveness. Increasingly, such centres are popping
up at those banks with broad geographic footprints
to leverage time zone differences, skill and labour in
critical markets to achieve scale-back benefits and
efficiencies.
The quick pace of new, emerging technologies is an
imperative as Canada’s banks approach innovation
with an emphasis on customer experience. More and
more clients are looking to interact through mobile
and digital technologies, such as smart phones and
tablets—and expect their bank to be onboard. Just
as we saw Canadian banks welcome and promote
innovation through the online experience some 15
years ago, today they’re investing in new digital
technology and applications to improve the customer
experience across all channels in a very integrated
manner—branch, web, call centres and mobile
banking. For example, many banks are enabling their
mobile workforce with sophisticated tools. Whether
it’s an investment advisor or a commercial banker,
providing on-site and on-demand advice using digital
devices is becoming the new battlefield for many
segments. Further, all of the Big Six have launched
innovative applications to help clients put banking at
their fingertips, where we are really still in the early
stages of this evolution.
Perspectives on the Canadian banking industry
11
Social media is spreading as a critical dimension to
appeal to various segments of the banks’ client base,
particularly Gen X and Gen Y customers. Many banks
have tapped into the root of what social media means
to the community, pursuing strategies (through such
tools as Twitter, Facebook, YouTube and LinkedIn) to
directly communicate with clients: to recruit; build
product awareness and start dialogues; showcase
philanthropy; run contests and promotions; and, most
importantly, create loyalty among the individuals
following them. It is also breaking new ground in how
banks report their earnings. Traditional annual reports
presented only in a PDF format may soon be a thing of
the past, as new interactive reports that incorporate
video from bank executives, allow visitors to share
content and are compatible with mobile devices create
a fresh, unique experience for users. The time to take
advantage of this captive—and ever expanding—
audience is now; we have no doubt only seen the
beginning of how banks plan to unleash the power of
social media.
The evolving payments industry is also certainly top-ofmind, as customers and businesses alike demand more
consumer-friendly payment options. For some this
means opening up the doors to involve partnerships
with other providers; others are looking inwards to
upgrade their existing technology. Looking ahead,
all banks will need to continuously reconsider how
they can make these new technologies an integral
part of their multi-channel strategy and if their legacy
platforms can support innovation—or risk having their
customers use alternative service providers.
12 Canadian Banks 2011
Social media is spreading as a
critical dimension to appeal to
various segments of the banks’
client base, particularly Gen X and
Gen Y customers.
When compared to historical levels, banks globally
face a future of greater capital requirements, more
liquidity and less risk taking. Canadian banks are in
an enviable position compared to their global peers
to continue to actively pursue their growth strategies,
while navigating through regulatory reform. Just
as we’ve seen with the positive results of the Big Six
banks over the past year, there are opportunities
for those who anticipate how business is changing
and creatively search for value. The most successful
banks are likely to be those that can make the most
of their principal competitive strengths and focus on
innovation to drive growth and efficiency further.
Want to learn more?
Visit www.pwc.com/ca/canadianbanks and view
our short video on the direction Canadian banks
are taking.
For more information, please contact:
Key banking and capital markets findings
from the 14th Annual Global CEO Survey
Policy and economic threats
Respondents who stated “extremely” or “somewhat concerned”
71
73
Uncertain or volatile
economic growth
67
61
Government response to
fiscal deficit and debt burden
70
70
59
Over-regulation
87
54
Exchange rate volatility
49
43
52
Lack of stability in
capital markets
62
Protectionist tendencies
of national governments
33
Diane Kazarian
National Banking and Capital Markets Leader
Inflation
0
[email protected]
20
% respondents
John MacKinlay
Global base
68
40
43
31
29
30
416 365 8228
National Financial Services Consulting and Deals Leader
80
Total Financial services (200)
40
60
80
100
Financial services – Retail & Commercial Banking (69)
416 815 5117
[email protected]
George Sheen
National Financial Services Leader
Q: How concerned are you about the following potential economic and policy threats to your
business growth prospects?
Base: All respondents (1,201)
Source: PricewaterhouseCoopers 14th Annual Global CEO Survey 2011
416 815 5060
[email protected]
Ryan Leopold
Senior Manager
416 869 2594
[email protected]
Perspectives on the Canadian banking industry
13
2010
economic
highlights
14 Canadian Banks 2011
Introduction
The Great Recession, ignited by the worst financial crisis since the
Great Depression, took a toll on the Canadian economy. But Canada has
escaped in relatively good shape, anchored by a strong fiscal situation
and a resilient financial sector. The recovery of the Canadian economy is
well underway, with growth rebounding by an estimated 3% in 2010 and
employment now above pre-recession levels. While the dark economic
clouds of the recession have yet to fully fade, the Canadian economy
faces brighter prospects in 2011.
...rebounding by
an estimated 3%
in 2010
A recovery not without risks
Around the world, economic recovery is now
taking shape. International trade and industrial
production is rebounding, and employment
growth is picking up in most countries.
In Canada, real GDP contracted for three
straight quarters from 2008 Q4 to 2009 Q2,
its longest stretch in nearly two decades. Yet,
compared to its peers, the Canadian economy
has weathered the storm relatively well. In
2009, it suffered the smallest contraction
in economic activity compared to the US,
Euro Area, UK and Japan. The International
Monetary Fund (IMF) also estimates that
Canada outpaced these regions in economic
growth in 2010.
But the Canadian economy faces several
challenges going forward, largely to do
with external factors, including unexpected
stumbling blocks in global recovery. Turbulence
in the financial markets, sparked by the Greek
debt crises and general concerns around fiscal
sustainability in the Eurozone, has cast a cloud
of renewed uncertainty. The latest victim is
Ireland, which received a bailout package in
December in response to its debt problems.
South of the border, Canada’s largest trading
partner faces a very fragile recovery, with
unemployment in excess of 9% and a depressed
housing market dimming growth prospects.
At home, Canadians are coming out of the
recession burdened by high debt levels, a
concern voiced by the IMF and Bank of Canada
Governor Mark Carney. Lofty debt loads make
households more susceptible to defaults and
interest rate increases, threatening much
needed improvements to consumer spending.
A potential cooling of Canada’s housing
market—a possibility raised by many analysts—
would put additional pressure on household
balance sheets.
Real GDP growth—Canada outperforms its peers
2010
2009
4%
3
3.1
2
2.8
2.6
1
1.7
1.7
0
-1
-2
-2.5
-2.6
-3
-4.1
-4
-4.9
-5
-5.2
-6
Canada United States Euro area United Kingdom Japan
Source: International Monetary Fund WEO, October 2010 Update
Perspectives on the Canadian banking industry
15
Public debt*—Canada well positioned
120
100
4
80
3
2
1
0
20
59
61
3
62
2
29
1
0
0
Canada
United States United Kingdom
Euro area
Japan
*General Government gross debt minus financial assets.
Source: IMF estimates. International Monetary Fund WEO, October 2010 Update
Canadian banks remained profitable during
the downturn and did not require a single
dollar of government support, as they held
higher capital ratios and avoided risky
lending practices used by many foreign
counterparts.
16 Canadian Banks 2011
5%
4
60
40
112
The good news is that Canada is relatively well
positioned to overcome these challenges. While
Canada’s fiscal situation has deteriorated, the
government debt-to-GDP ratios remain below many
other industrialized countries. Fiscal prudence leading
into the crisis helped absorb some of the financiallydamaging effects of the recession and gives the
government fiscal room to maneuver going forward.
Canada’s financial sector also emerged from the
recession in an enviable position. Canadian banks
remained profitable during the downturn and did not
require a single dollar of government support, as they
held higher capital ratios and avoided risky lending
practices employed by many foreign counterparts.
A strong balance sheet is helping restore credit and
continues to put Canadian banks among the most
competitive in the world.
20
0
20 8-1
08
20 -2
0
20 8-4
08
20 -6
0
20 8-8
0
20 8-10
08
20 -12
0
20 9-1
0
20 9-3
0
20 9-5
09
20 -7
0
20 9-9
09
20 -11
1
20 0-1
10
20 -2
1
20 0-4
10
20 -6
1
20 0-8
1
20 0-10
10
-1
2
5
Target for overnight rate—crawling out from record lows
% of GDP 2009
Last Observation: January 4, 2011
Source: Bank of Canada
Without a doubt, a resilient financial sector
combined with fiscal and monetary stimulus has
paved the way for Canada’s recovery. The economy
had a strong start in the first half of 2010, but lost
some momentum in the second half, weighed down
by sluggish exports and a moderating housing
market. Yet the sluggish pace of Canada’s rebound
should be no surprise—it’s typical of recoveries
stemming from financial crises.
Monetary policy – Finding the right
balance
Central bankers around the globe now face the
challenge of unwinding the tremendous amount
of monetary stimulus used to lift their economies
from the Great Recession. This takes a fine balancing
act—raising interest rates guards against inflationary
pressures, but it must be done in a way that doesn’t
jeopardize the recovery. The Bank of Canada
began lifting its benchmark rate from its effective
lower bound of 0.25% in June 2010. After three
consecutive 25 basis point increases, the overnight
rate has been sitting at 1% since September. While
the current rate leaves significant monetary stimulus
in play, most analysts believe that the Bank will
continue to stay on the sidelines well into 2011, as
a result of subdued inflationary pressures, a strong
Canadian dollar and global economic uncertainty.
The Loonie—gaining strength
1.2
US$ / CDN $
2009
2010
2011
1.0
0.8
The recovery of the
Canadian economy is well
underway.
0.6
1
2
3
4
5
6
7
8
9
10 11 12 1 2
3
4
5
6
7
8
9
10 11 12 1
Last Observation: January 4, 2011
Source: Bank of Canada
Equity markets back to pre-Lehman levels
15,000
12,000
S&P/TSX
2,000
S&P 500
Lehman’s
collapse
9,000
1 1
Ja
n0
Ju 4
l0
Ja 4
n0
5
Ju
l0
5
Ja
n0
Ju 6
l0
Ja 6
n0
Ju 7
l0
7
Ja
n0
8
Ju
l0
Ja 8
n0
9
Ju
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n1
Ju 0
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0
6,000
Source: Yahoo Finance
The Canadian dollar – Parity and beyond
1,500
1,000
500
After fluctuating wildly in 2009, the Canadian dollar
flirted with parity for most of last year, hovering
around 95 cents to $1 compared to the US greenback.
To bring in the New Year, the Canadian dollar leaped
ahead of the US dollar. The loonie’s strength reflects
a variety of factors including rising commodity prices,
widening Canadian to US interest rate differentials
and generalized US dollar weakness. But the soaring
loonie also poses a risk to exporters and the recovery in
general – an issue flagged consistently by the Bank of
Canada.
Financial markets – Back to pre-crisis
levels at last
After a strong rebound in the second half of 2009,
the Canadian financial system continued to show
its strength and resilience through 2010. Financial
markets had fully recovered from their March 2009
lows; bond issuance and corporate yields returned
to pre-crisis levels; and bank credit continued to flow
normally to businesses and households.
The Canadian equity market exhibited a solid
performance in 2010, as investors’ appetite for risk,
especially through commodities, slowly revived. The
resource-heavy S&P/TSX index gained 13.4% in 2010,
outperforming other advanced economies’ indices and
returning to the levels observed before the collapse of
Lehman Brothers in September 2008. In the US, the
S&P 500 gained 12.7% for the year.
Perspectives on the Canadian banking industry
17
Effective borrowing costs
8%
7
Wholesale funding rates
Household effective borrowing rate
Business effective borrowing rate
6
5
6%
5
4
3
2
3
0
Notes: The effective interest rate for households is a weighted-average of
various mortgage and consumer credit interest rates. The weights are derived
from residential mortgage and consumer credit data, adjusted for additional
information provided by financial institutions. The effective interest rate for
businesses is a weighted-average borrowing rate for new lending to non-financial
businesses, estimated as a function of bank and market interest rates. The
weights are derived from business credit data.
Source: Bank of Canada
Ju
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7
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8
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8
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9
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9
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Ap 0
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4
3-month overnight index swap
3-month Canadian dollar offering rate
5 year debt swaped into 3 month floating rate debt
Notes: The 3-month CDOR is the average bid-side rate for Canadian bankers’
acceptances determined daily from a survey of market makers and can be used
as a proxy for the cost of three-month bank funding. Five-year debt swapped
into three-month floating rate debt is an indicator of the rate for senior deposit
notes, and provides an indication of the longer-term cost of bank funding. The
three-month OIS rate represents the expected overnight interest rate over the
three-month period and can be used as a point of reference to compare the two
measures of the cost of wholesale bank funding.
Source: Bank of Canada
Canadian banks – Expansion mode and
ready for Basel III
In 2010, and for the third consecutive year, the
World Economic Forum rated Canada’s banking
system the soundest in the world. The Big Six banks
posted healthy profits in 2010, while remaining well
capitalized and increasing their credit extension to
households and businesses. Overall credit conditions
were generally supportive throughout the year, as
reflected by lower and stable banks’ wholesale funding
rates and household and business borrowing costs.
However, as Canadians continue to accumulate debt—
household debt hit an all-time record of 148.1% of
disposable income in the third quarter of 2010—asset
quality could become a concern for Canadian banks,
especially if the housing market continues to cool.
18 Canadian Banks 2011
Canadian banks are capitalizing on their strength by
expanding abroad, particularly south of the border.
Two notable acquisition moves in 2010 were the Bank
of Montreal purchase of US-based Marshall and Ilsley
Corp. for over US$4 billion; and the TD Financial
announcement of a US$6.3 billion bid for Chrysler
Financial. With this purchase, TD Financial will become
the fifth largest financier of vehicle purchases in the US.
Finally, as global regulators decide on new and more
stringent capital rules to prevent the world from sliding
into another financial crisis, most analysts expect that
Canadian banks will have enough capital to meet the
new Basel III rules well before they are implemented.
Outlook for the Canadian economy – Out of
the woods and almost into the clear
The Great Recession left its mark on Canada, hurting
household and corporate balance sheets and the
government fiscal position. But conditions are
gradually improving, and the Canadian economy
will start to find its footing in 2011. A stronger labour
market and near record-low interest rates will continue
to support consumer spending in 2011. Business
investment will likely expand at a solid pace, supported
by rising profits, stronger credit conditions and a
more upbeat outlook. Even as fiscal stimulus fades, a
tremendous amount of monetary stimulus will remain
in play. The US Federal Reserve’s second round of
quantitative easing, known as QE2 (the purchase of
$600 billion of US treasuries), will help lift the US
economy, and is widely expected to delay any further
interest rate increases from the Bank of Canada.
The soaring loonie poses
a risk to exporters and the
recovery in general.
But 2011 will not be without its challenges. Canadians
are heavily indebted, limiting their capacity to spend
and making them susceptible to inevitable interest
rate hikes. The remarkably resilient housing market
has started to show signs of cooling, and many
analysts believe it is set for a soft landing. The strong
loonie will continue to put pressure on exporters,
partially offsetting external demand increases.
Canada is well positioned to weather these challenges,
anchored by our solid fiscal situation and healthy
financial sector. The Bank of Canada is calling for
growth of 2.4% in 2011 followed by 2.8% in 2012.1
Canadian banks, the best capitalized in the world, are
coming out the recession stronger than their peers,
and are sure to benefit from expansion opportunities
abroad and a more upbeat global economic outlook
in 2011.
Contributing economists:
Mark Parsons
Economics and Statistics Practice, Edmonton
780 441 6860
[email protected]
Diego Mesa Puyo
Economics and Statistics Practice, Vancouver
604 806 7780 ext 4417
[email protected]
1 Bank of Canada Monetary Policy Report, January 2011
Perspectives on the Canadian banking industry
19
Happy
comparative
year
20 Canadian Banks 2011
As we all raised a glass to celebrate the New Year 2011, the largest
Canadian banks were already two months into their comparative
year that will be required to be published early in fiscal 2012
under International Financial Reporting Standards (IFRS). So, on
November 1, 2010, they faced a milestone and welcomed in their
new accounting regime.
Canadian public companies will be required to
prepare their financial statements in accordance
with IFRS, as issued by the International
Accounting Standards Board (IASB), for fiscal
years beginning on or after January 1, 2011. This
means that, for the six largest Canadian banks,
the first full set of IFRS compliant financial
statements will be published for the year ending
October 31, 2012. IFRS compliant quarterly
reporting for the interim period beginning
November 1, 2011 will also need to be prepared
with comparative numbers also presented under
the new standards. Therefore, the first quarter
under IFRS will be the three month period ended
January 31, 2012 with comparatives recast
under IFRS principles and certain reconciliations
from previously reported Canadian Generally
Accepted Accounting Principles (GAAP) figures
to current IFRS results. Disclosures will also
need to be compliant with IFRS. In summary, if
one uses the European experience for first-time
reporting under IFRS, one might expect up to
40% more pages of information published in the
first quarter reports of Canadian banks when
compared to the same period in previous years.
As required by the Canadian Securities
Administrators (CSA), the banks have reported
for the past two years the anticipated impacts of
adopting IFRS in the Management Discussion and
Analysis (MD&A) sections of their annual and
quarterly reports. These discussions have become
more detailed the closer we have come to the
date of adoption of IFRS, reflecting the fact that
the banks are well into their transition project
plans and have started to quantify the impact of
adopting IFRS.
This article will set out certain highlights of the
Bank’s disclosures of the IFRS areas that will
have the most significant impacts on their results
when recast in IFRS as compared to GAAP as
well as those areas that, while IFRS and GAAP
have differences in general, the banks do not
believe will have a material impact on their
financial statements. Also, we will summarize the
items noted as having an impact on systems and
processes as a result of the above. We will provide
a road map to October 31, 2012 to highlight what
users of the financial statements can expect to see
between now and October 31, 2012.
The following table shows a summary of the
disclosed areas of difference for these banks, split
between differences which have been reported as
having the highest and lowest impacts:
If one uses the European experience
for first-time reporting under IFRS,
one might expect up to 40% more
pages of information published in
the first quarter reports of Canadian
banks when compared to the same
period in previous years.
Disclosed areas of accounting difference—likely highest impacts
BMO BNS
CIBC NBC
RBC TD
Derecognition of financial
instruments
✓*
✓
✓*
✓
✓
✓*
Employee future benefits
✓*
✓
✓*
✓
✓
✓*
Consolidation
✓
✓
✓
✓
✓
✓
✓
✓
Goodwill and Intangible asset
impairment
✓
Business combinations
✓
Translation of foreign operations
✓
✓
✓
✓
✓*
✓
✓* ✓*
*Banks have quantified the adjustment
Disclosed areas of difference—likely lower impacts
BMO BNS
CIBC NBC
Income taxes
RBC TD
✓
Loan loss provisioning
✓
Share-based payments
✓
✓
✓
✓
Provisions and contingent
liabilities
✓
Impairment of Available-for-Sale
(AFS) Securities
Customer loyalty programmes
✓
✓
✓
Perspectives on the Canadian banking industry
21
One of the most talked about areas in
the banking industry is derecognition
of financial instruments.
Key impacts
Based on a review of the MD&A presented with
the 2010 financial statements of the six banks, the
transition project teams at each of the banks have
generally been consistent in terms of identification of
the biggest impacts to accounting policies on adoption
of IFRS. Of these areas, the following were generally
concluded to have no material differences between
current accounting and future IFRS accounting:
capital assets; leases; intangible asset recognition;
revenue recognition; earnings per share; borrowing
costs and investment properties. There are differences
between GAAP and IFRS for these accounting
standards but the banks have typically reported that
these differences are likely to be immaterial.
There is a common theme across the six banks in
terms of the key differences between GAAP and IFRS.
The main areas to note, which are highlighted as key
areas of change for most of the banks, are as follows:
derecognition of financial instruments; impairment
of financial instruments; employee future benefits;
consolidation; impairment of goodwill and intangible
assets; share-based payments; business combinations
and gain or loss on translation of foreign operations.
Derecognition of financial instruments
One of the most talked about areas in the banking
industry is derecognition of financial instruments.
Securitization programs, especially those offered by
the Canadian Mortgage and Housing Corporation
(CMHC) have been actively used in Canada. Banks
have also performed securitizations of credit card
loans through bank-sponsored special purpose
entities. GAAP uses a controls based approach
to assess derecognition of financial instruments
so assets securitized under these programs have
typically met the requirements for derecognition.
Under IFRS, the derecognition model is different
and a risk and rewards analysis is required before
the concept of control over the asset transferred is
factored in. If substantially all the risks and rewards
in relation to the financial instrument in question
have been retained, then the asset must remain
on the balance sheet and the transaction would
be treated as a secured borrowing.1 This change
impacts the bank’s financial statements in two
ways: firstly, the assets transferred remain on the
balance sheet along with a corresponding liability
to represent the borrowing (effectively grossing up
the balance sheet) and secondly; the gains or losses
previously recognized on sale of loans have to be
reversed and this will be reflected as an adjustment
to opening retained earnings on transition to IFRS.
Not all of the banks have quantified the impact of
bringing previously securitized assets back onto the
balance sheet. However, BMO gives a preliminary
indication that assets and liabilities would increase
by $18 billion and the IFRS transition adjustment
to opening retained earnings would be a reduction
of $100 million. CIBC predicts that its opening
balance sheet would be grossed up by $29 billion
and TD noted an increase of $50 billion.
1 If the entity has transferred some substantial amount of but not
substantially all of the risks and rewards, control must be then assessed
and the accounting can become more complex.
22 Canadian Banks 2011
Increased assets on the balance sheet mean an
increased need for capital in order to meet the
financial leverage ratio prescribed by OSFI. In
recognition of this, OSFI issued guidance that allows
institutions to exclude from the leverage ratio all assets
sold and derecognized under GAAP before March 31,
2010 under CMHC securitization programs only. Any
reduction in retained earnings due to the transition
adjustment for reversal of gains or losses on sales will
impact Tier 1 capital and OSFI has allowed this impact
to be phased in over five quarters.
It is worth noting that the IASB issued an amendment
to the standard which addresses IFRS conversion
options for first-time adopters in December 2010.
The amendment requires the application of the
derecognition requirements set out under IFRS
prospectively from the date of transition to IFRS
(November 1, 2010 for the Canadian banks),
unless certain conditions are met that allow earlier
application. On the face of it, this appears to mean
that banks could ignore the derecognition rules
under IFRS for transactions before November 1, 2010
and grandfather their previous GAAP off-balance
sheet accounting. However, OSFI has said that
regulated banks must nevertheless apply the IAS39
derecognition rules retroactively from 2004.
Perspectives on the Canadian banking industry
23
Most of the banks have noted that they expect to see more entities
being consolidated under IFRS relative to GAAP.
Consolidation
GAAP determines consolidation of an entity using
two different frameworks: the variable interest entity
(VIE) and voting control models. Furthermore,
GAAP provides an exemption for the consolidation
of qualifying special purpose entities (QSPE). Under
IFRS, an entity will be consolidated based solely on
control, which is evidenced by the power to govern the
financial and operating policies of an entity to obtain
benefit. Unlike GAAP, there is no concept of QSPEs
under IFRS.
The above frequently results in more entities being
consolidated under IFRS than was the case under
GAAP. VIEs which may have been used in securitization
transactions may now need to be consolidated. This
will result in an increase in assets, liabilities, and
non-controlling interests, with the offset to opening
retained earnings. Most of the banks have noted that
they expect to see more entities being consolidated
under IFRS relative to GAAP, without disclosing any
quantitative impacts of this. BMO has identified that
its Credit Protection Vehicle and various structured
investment vehicles will likely be consolidated under
IFRS. Similar capital considerations arise as outlined
above while OSFI has given no capital relief related to
the impact of consolidation of additional entities.
Employee future benefits
This is consistently one of the key areas of difference
for Canadian companies. There are two main impacts:
a transition election and then an accounting policy
choice available under IFRS, which depending on what
option is chosen under IFRS and what is done today
under GAAP will impact banks.
There is a transition election that allows entities to
charge any remaining unamortized actuarial gains
and losses with respect to defined benefit plans as
calculated under GAAP as at November 1, 2010 to
retained earnings on transition to IFRS. However,
use of this election may negatively impact retained
earnings for some of the banks and this in turn has an
impact on Tier 1 capital. Not all of the banks’ MD&A
disclosures estimate the effects of this election, nor do
they state whether they will make use of the election
or not. However, CIBC, TD and BMO state that the
net impact of the election (combined with a number
of other less significant IFRS differences) would be a
reduction to Tier 1 capital in the range of $1 billion
after-tax.
IFRS requires an entity to make an accounting policy
choice regarding the treatment of actuarial gains and
losses with respect to defined benefit pension plans,
subsequent to the transition date to IFRS. Under IFRS,
actuarial gains and losses may either be:
• deferred and amortized, subject to certain limiting
provisions (corridor approach);
• immediately recognized in profit or loss; or
• immediately recognized in other comprehensive
income without subsequent impact on income.
24 Canadian Banks 2011
IFRS uses a one-step approach for
impairment testing of non-financial
assets by comparing the asset’s
carrying value to its recoverable
amount.
IFRS also requires the identification of Cash
Generating Units (CGUs) to be the level at which you
test goodwill for impairment. In some cases under
IFRS, the CGUs will be at a more granular level thereby
increasing impairment risk compared to when being
assessed at a higher level, capturing more cash flows
in your impairment analysis under GAAP. Most of the
banks have noted that these differences in impairment
testing could result in the identification of impairment
more frequently under IFRS. RBC has detailed what its
new CGUs will be.
Business combinations
Under GAAP, most of the banks follow the corridor
approach in recognizing actuarial gains and losses.
BNS and BMO state that they have not yet finalized
their decision as to which option to take under IFRS.
RBC and TD indicated they will continue to apply the
corridor approach. CIBC and NBC do not disclose their
proposed approach at this time.
Impairment of goodwill and intangible assets
IFRS uses a one-step approach for impairment
testing of non-financial assets by comparing the
asset’s carrying value to its recoverable amount. The
recoverable amount is the higher of fair value less costs
to sell, and value in use (which uses discounted future
cash flows). GAAP, however, uses a two-step approach
for impairment testing: first comparing an asset’s
carrying value with undiscounted future cash flows
to determine whether impairment exists; and then
measuring any impairment by comparing the asset’s
carrying value with its fair value.
As noted in the earlier tables, most of the banks
consider this a high impact issue on transition to
IFRS. Under IFRS, there is a greater use of fair
value measurement in the accounting for business
combinations, including the measurement of noncontrolling interests and contingent consideration
and the use of the closing date, rather than the
announcement date, to value share consideration. In
addition, transaction costs and certain restructuring
costs that were able to be capitalized in the purchase
equation under GAAP must be expensed under
IFRS. These differences will impact purchase price
allocations and the amount of goodwill recorded
on the consolidated balance sheet. However, IFRS 1
allows entities to only apply these changes to business
acquisitions that occur after transition.
Perspectives on the Canadian banking industry
25
In the provisioning for impaired loans, IFRS and GAAP are aligned in
principle, as they both require an incurred loss provisioning model.
Gain or loss on translation of foreign operations
On transition to IFRS, an entity can elect to charge the
cumulative translation account (CTA) for all foreign
operations to retained earnings. Most of the banks
have disclosed that they will likely elect to use this
option. Based on 2010 numbers, some of the banks
have disclosed the estimated impact (CIBC - $575
million, RBC - $1.7 billion and TD - $2.9 billion). This
adjustment would not impact Tier 1 capital.
Loan loss provisioning
In the provisioning for impaired loans, IFRS and
GAAP are aligned in principle, as they both require
an incurred loss provisioning model. However, under
IFRS, loan losses and allowances will be presented
based on whether they are assessed individually or
collectively. Banks have typically been working to
refine their loan loss provisioning methodologies to
ensure that they meet the requirements of IFRS. As a
result, we will likely not see significant quantitative
adjustments overall but will see changes in terminology
used as well as potential changes in classification of
provisions between specific and general allowances
versus individual and collective allowances.
We note that none of the banks have disclosed that
they consider this area to be a significant area of
change on adoption of IFRS.
26 Canadian Banks 2011
Changes to business activities, systems
and processes
Most of the banks have considered this question in their
MD&A and have noted that, although the financial
statements may look quite different on transition to
IFRS, the adoption of IFRS is not expected to impact
their business activities in any significant way.
Not all of the banks cover the impact on systems and
processes in their MD&A. However, those that do
merely state that they have developed processes to
track transition adjustments as well as IFRS numbers
in the transition year when both GAAP and IFRS
numbers will be needed. The Canadian banks are
subject to certification over their internal controls
over financial reporting and it is likely that they are
focussed on ensuring that changes to systems and
processes, while not expected to be significant, will
be executed with the requirements of robust internal
controls in mind.
We did note certain areas above where accounting
choices are or could be different for the Canadian
banks. The ultimate application of IFRS principles
is also dependent on individual banks’ facts and
circumstances both of which could reasonably differ
from institution to institution. This is arguably not too
different from today. However, we do understand that
comparability is a goal of the users of the financial
statements. Under IFRS, disclosures are designed
to assist users in understanding the application of
accounting principles and we expect to see greater
emphasis on bank’s disclosures going forward. While
the European experience saw improvements in
comparability driven largely by market pressures over
the time since adoption of IFRS in Europe, the timeline
to adoption has been longer in Canada and there is
already a foundation laid by previous IFRS adopters.
This will help to facilitate a Canadian banking
community adoption that will likely take the user’s
needs into greater account.
What’s next?
Conclusion
Contributing authors:
Banks are in their comparative year and will be
essentially running parallel GAAP and IFRS accounts
readying themselves for the next phase of their IFRS
transition outlined below.
The banks have been disclosing more detailed
information with respect to IFRS in their MD&A
throughout 2010. The information is largely
comparable in terms of the issues noted, with some
exceptions depending on the activities of the banks.
Some banks have provided more detail than others in
terms of quantification of transition adjustments and
this gives useful information to stakeholders on the
expected changes to the financial statements. It will be
important for banks to keep up this momentum in 2011
as we approach the first IFRS reporting date.
Sandra Mundy
We know that banks have their eyes on the horizon
as standard setters have not stopped issuing exposure
drafts and deliberating on the next wave of accounting
changes. But, for now, the focus will be on the key
dates below.
Partner, Banking and Capital Markets
416 947 8951
[email protected]
Kirsty Merath
Manager, Banking and Capital Markets
416 941 8394
[email protected]
Based on October 31 year end
Nov. 2011
IFRS Adoption
date
International
Financial Reporting
Standards (IFRS)
Quarterly MD&A
Disclosures on
IFRS
January 31, 2012
First IFRS financials (Q1) will contain:
• Q1/12 IFRS Financial Statements
• Opening November 1, 2010
comparative balance sheet
• Reconciliation of 2011 comparative
Financial Statements from CGAAP
to IFRS
• Supporting selected note disclosure
October 31, 2010
Annual Canadian
GAAP financial
statements
October 31, 2011
Last year of
annual Canadian
GAAP financial
statements
Canadian
GAAP
External Reporting
Internal
Nov 1. 2010
• Opening IFRS
balance sheet
• Start collection
of comparatives
October 31, 2012
First IFRS annual report will contain:
• Fiscal 2012 IFRS Financial
Statements
• Opening November 1, 2010
comparative balance sheet
• Reconciliation of 2011 comparative
Financial Statements from CGAAP
to IFRS
• Supporting full note disclosure
Perspectives on the Canadian banking industry
27
Analysis of
2010 results
28 Canadian Banks 2011
Overview
Canadian banks closed out 2010 with stabilized results after coming
off a volatile two-year period in the banking world. Combined net
income for the Big Six banks (the banks) was $20.4 billion, a record
for the group.
Digging deeper into these numbers the
results were propelled by improvements
in the credit markets which allowed the
banks to release provisions set aside in
the previous years for credit losses. These
one-time gains were offset by weak trading
revenue, especially when compared to the
strong 2009 results earned as the markets
turned.
With the banks receiving more clarity
surrounding future capital requirements
under Basel III, they have been active in
seeking out acquisition opportunities. Only
National Bank increased its dividend in
2010, but many banks predicted that their
payout ratios will increase during 2011.
The 2010 at-a-glance on the following page
provides a high level overview of some of
the bank’s key operating metrics. We also
examine each bank’s results in more detail,
highlighting key messages, results, and
information regarding their priorities and
areas of focus.
Capital
Canadian banks have a keen eye on the
potential impacts of Basel III, despite
demonstrating that their current capital
ratios are fundamentally in-line with
the revised standards. As investors and
regulators increase their demands for
returns and transparency, the banks will
maintain their sensitivity to managing both
economic and regulatory capital.
Impact of Basel III on capital ratios
Ratios
Basel III
Basel II/OSFI proposed
requirements through 2013
Basel III
proposed
through 2019
Tier 1 capital
7.0
4.5
8.5*
Total capital
10.0
8.0
10.5**
Common equity/Core Tier 1
n/a
3.5
7.0***
Leverage
n/a
3.0
3.0
* The Tier 1 capital ratio represents 6% attributable to a minimum Tier 1
capital ratio and 2.5% related to the capital conservation buffer
** Total capital ratio represents 8% attributable to minimum Total capital
ratio and 2.5% related to the capital conservation buffer
*** Common equity represents 4.5% related to minimum Tier 1 common
equity ratio and 2.5% related to the capital conservation buffer
Even though all of the regulatory guidance is
not yet finalized the banks are already trying to
isolate the impact of the new standards. In its
current form, the major elements that Basel III
attempts to improve on are the quality of capital
that banks are required to maintain, raising the
capital requirements for counterparty credit risk
and market risk, and increasing the minimum
capital requirements. Minimum capital
calculations will also contemplate a conservation
buffer to absorb additional losses in times of
systemic stress.
An additional capital buffer that will contemplate
counter-cyclicality may also be imposed in the
event of significant systemic credit growth.
Perspectives on the Canadian banking industry
29
2010 at-a-glance
Comparison across key criteria
BMO
Key factors
impacting
earnings
BNS
CIBC
NBC
RBC
TD
• Net income up 57%
year-over-year.
• Net income up 20%
year-over-year.
• Net income up 109%
year-over-year.
• Net income up 21%
year-over-year.
• Net income up 35%
year-over-year.
• Net income up 49%
year-over-year.
• Improved results in
all segments.
• Declines in capital
markets compared
to record 2009.
• Lower loan losses.
• Strong growth in
retail and commercial
banking.
• Biggest driver of
performance: record
earnings in Canadian
banking, growth in
wealth management
and Insurance,
significant reduction in
trading revenues, and
higher expenses.
• Declines in capital
markets, tax
agreement with CRA,
project write downs.
• Securitization gains.
• Higher net interest
margin.
• Weaker wholesale
earnings.
• Declines in capital
markets due to
normalizing market
conditions.
• Sale of Liberty Life.
Provisions for
Credit Losses (PCL)
• $1,049 million
(down 34.6%)
• $1,239 million
(down 29%)
• $1,046 million
(down 36.6%)
• $144 million
(down 52.8%)
• $1,861 million
(down 45.5%)
• $1,625 million
(down 34.5%)
Capital
• Regulatory capital up
3.1% year-over-year.
• Regulatory capital up
3.5% year-over-year.
• Regulatory capital up
0.7% year-over-year.
• Regulatory capital up
3.5% year-over-year.
• Regulatory capital up
7.9% year-over-year.
• Regulatory capital up
9.6% year-over-year.
Canadian
banking
results
• BMO achieved higher
earnings in Canadian
banking as a result
of volume growths
in most products,
improvement in net
interest margins and
inclusion of the Diners
Club business in 2010
results.
• Scotiabank achieved
record earnings in
Canadian banking as
a result of growth in
wealth management
revenues, retail
mortgages, personal
lending and deposits,
and a wider interest
margin.
• CIBC achieved higher
earnings in Canadian
banking as a result of
volume growth across
most lines of business,
acquisition of the
MasterCard portfolio
from Citigroup, wider
lending spreads and
strong equity markets.
• NBC achieved higher
earnings in Canadian
banking due to strong
volume growth in
loans and bankers
acceptances.
• RBC achieved record
earnings in Canadian
banking due to
higher revenues from
increased volumes in
home equity products,
personal deposit
products and credit
card transactions; and
lower PCL.
• TD achieved higher
earnings in Canadian
banking as a result
of higher margins in
real estate secured
lending and increases
in volume in personal
and business
deposits.
Efficiency Ratio
changes
• Decrease of 4.5%
to 62.2%.
• Decrease of 2%
to 52.8%.
• Decrease of 9.0%
to 58.1%.
• Increase of 1.3%
to 65.7%.
• Increase of 1.5%
to 62%.
• Decrease of 6.2%
to 62.2%.
30 Canadian Banks 2011
2010 key metrics
Total revenue1 ($ billions)
Tier 1 capital ratio (%)
12.21
BMO
BNS
CIBC
NBC
RBC
TD
4.28
12.09
15.51
23.22
19.57
BMO
BNS
CIBC
NBC
RBC
TD
With the exception of RBC, all banks reported higher revenues when
compared to FY 2009.
1
12
Earnings per share (EPS) ($)
2.810
1.034
4.239
2.452
4.644
5.223
BMO
BNS
CIBC
NBC
RBC
TD
All banks reported increased net incomes compared to FY 2009.
6
2.881
3.0
5.89
5.99
3.49
5.13
Dividends declared ($ per share)
7.59
8.182
7.027
12.163
14.393
With the exception of minor declines in RBC and TD’s NIE, all banks
reported higher expenditures when compared to FY 2009.
2.5
4.78
3.91
Compared to 2009, all banks grew their EPS.
Non-interest expense (NIE) ($ billions)
BMO
BNS
CIBC
NBC
RBC
TD
13.90
14.00
13.00
12.20
Tier 1 capital ratios experienced minor fluctuations but remained relatively flat.
15
Net
income ($ billions)
5
13.50
Total revenue is defined as net interest income plus other income.
BMO
BNS
CIBC
NBC
RBC
TD
4
11.80
BMO
BNS
CIBC
NBC
RBC
TD
2.80
1.96
2.00
2.48
3.48
2.44
No changes in dividends year-over-year.
Return on equity (ROE) (%)
3.5
BMO
BNS
CIBC
NBC
RBC
TD
14.5%
12.0%
18.1%
19.2%
16.9%
15.0%
Compared to 2009 all banks experienced an increase in ROE.
Perspectives on the Canadian banking industry
31
A call for more disclosure is
advised so that markets can
participate in the monitoring of
the banks.
Release of dividends given strong capital positions
Capital plans composition
Regulatory Capital Ratios
RBC
Tier 1 capital
13.0% 12.2% 11.8% 13.5% 14.0%
Total capital
14.4% 15.5% 13.8% 15.9% 17.5%
Assets-to-capital multiple 16.5
TD
17.5
BNS
17.0
BMO
14.5
NBC
15.9
RBC has a dividend payout ratio target of 40% to
50%. In 2010, the ratio was 57%, a 21% drop yearover-year due to the goodwill impairment charge and
higher credit provisioning in 2009. Common share
dividends were $2.8 billion. NBC also has a dividend
payout target of 40% to 50%. In 2010, the dividend on
common shares was $2.48 per share. This represented
a ratio of 39%, consistent with the prior year of 40%.
By contrast BMO set a target of 45% to 55% due
to their confidence in their abilities to continue to
increase earnings. In 2010, they declared a dividend of
$2.80 per common share or 58.8% of net income. On
the lower end, TD’s target payout range is between 35%
to 45% of earnings. However, 2010 dividends declared
and paid were consistent year-over-year at $2.44 per
common share. BNS paid $1.96 per common share in
2010 which is consistent to 2009. CIBC has a dividend
payout ratio target of 40% to 50%. In 2010, they
achieved 59.1% or $3.48 per share.
Information on global peers and more clarification
from Regulators (OSFI)
In February 2011, OSFI issued guidance for the
treatment of non-qualifying capital instruments
under Basel III. As a result of expected changes to
the definition of capital, banks may have capital
32 Canadian Banks 2011
instruments that would no longer be included in the
calculation of regulatory capital beginning January
31, 2013. The Big Six banks responded by issuing
press releases clarifying their intention on utilizing
redemption rights under regulatory event clauses
in non-qualifying capital instruments. Only TD and
CIBC indicated they expected to exercise a regulatory
event redemption right only in 2022 for innovative
non-common capital instruments that will not qualify
as capital under Basel III and had not matured by that
date. Under the Basel III rules text, any non-qualifying
capital instruments outstanding as of 2022, the final
year of the phase-out period, will not be recognized as
regulatory capital.
On December 8, 2010, Julie Dickson spoke in Geneva
about the following concerns and observations related
to Basel III. Caution should be observed as Basel
III is implemented since unintended or unforeseen
consequences are possible. Consideration of levelling
the equity requirements globally is being included
and more effort should be made in areas with
lower standards. The Committee is in the process of
developing a methodology with both qualitative and
quantitative indicators for evaluating systemically
important financial institutions at a global level. Lastly,
a call for more disclosure for banks is advised so that
markets can participate in the monitoring of the banks.
Overall, loans outstanding increased
during the year from $1,180 billion to
$1,250 billion, a gain of 5.9%.
As at October 31, 2010, the banks’
combined allowance for credit losses
fell to $12.3 billion from $12.9 billion
the previous year.
Credit losses
Canadian banks benefited from improved credit
conditions during 2010, as seen by a $4.2 billion
reduction in provisions for credit losses as
compared to 2009.
One of the major factors behind the bank’s strong
earnings during 2010 was the reduction in each of
their provisions for credit losses (PCL). Each of the
banks reported a decline in this expense, from a
combined $11.19 billion in 2009, to $6.96 billion
in 2010.
PCLs are inherently linked to the allowance for credit
losses, a related balance sheet account. It represents
the amount that is required to bring the allowance
for credit losses to a suitable level and is charged to
income.
PCLs are not necessarily indicative of the credit
quality of the underlying portfolio at a bank as they
are impacted by loan growth, timing of recognition
of losses and existing reserve levels. Other things
remaining equal, they can be a useful leading indicator
of changes in credit quality.
Losses on various parts of a bank’s portfolio take
different periods of time to emerge. Banks model
their loan loss allowances using historical information
under Canadian GAAP’s incurred loss methodology.
This methodology requires objective evidence of
loss events before an allowance can be recorded.
This evidence can be in the form of losses in a
bank’s portfolio, or other economic factors such as
increases in unemployment rates where it has been
demonstrated there is a strong correlation between
that economic factor and losses in a bank’s portfolio.
Depending on the type of loan, the occurrence of a loss
event will require a different period of time for that
loss event to actually produce a write-down or loss
on a loan. For instance, a job loss that will eventually
lead to a default may cause a consumer to default
on their unsecured debt first before their secured
mortgage. Each bank will estimate the time period
for these losses to emerge which will directly impact
their provision levels. However, this information
is not publicly disclosed at this time. As we move
towards IFRS reporting for financial institutions, this
emergence period will take on increased importance as
each bank’s estimates in this area can have a significant
impact on the overall level of their allowance.
Overall, loans outstanding increased during the year
from $1,180 billion to $1,250 billion, a gain of 5.9%.
A larger loan balance requires the need for a higher
balance sheet allowance, as there are more loans to
provide for. Despite this gain, the overall allowance
level dropped, due to other credit factors. During 2009,
a number of bad loans were written off and the banks
revisited their lending strategies including reducing
available credit to certain customers. These actions,
along with a more stable credit environment, helped
improve the overall credit quality of their portfolios
resulting in the need for lower provisions.
As at October 31, 2010, the banks’ combined allowance
for credit losses fell to $12.3 billion from $12.9 billion
the previous year. When examined as a percentage
of outstanding loans, the ratio drops from 1.095% to
0.986%. This represents a 10% drop in the balance
sheet allowance.
The allowances held across the residential mortgage
portfolios of the banks continue to be very low. This
demonstrates the quality of the banks lending, as the
Canadian market has largely avoided subprime lending
in this space. Furthermore, many mortgages are
insured by institutions such as the Canadian Mortgage
and Housing Corporation (CMHC) which limits a
bank’s liability in case of default.
Business and government loans (or wholesale) was
one area that showed an improvement in credit quality
during the year. Many of the banks recorded significant
reductions in their allowances in these areas. For
instance, TD recorded a $32 million reduction in their
allowance covering their business and government
segment despite adding over $7.3 billion in new
business and government loans. Also in this segment,
BMO experienced a $103 million allowance decline,
including a reduction in write-offs of $343 million.
Finally, CIBC saw an improvement of $142 million and
also grew its business and government loan book by
over 4% at the same time.
Perspectives on the Canadian banking industry
33
Allowances for other areas of consumer credit including
personal loans and credit cards remain high. These
are often unsecured lines of credit and of higher
risk to the banks. With overall consumer debt levels
remaining very high, consumers run the risk of being
over-extended, and unsecured lending products such as
credit cards would be the most exposed in the event of
default.
As many of the banks seek to grow their loan portfolios
through foreign acquisitions, the levels of allowances
required for loans in each foreign jurisdiction may vary.
Foreign lending practices can be quite different than
those familiar to Canadians, each having their own
credit risks. While historically, the bank’s allowances
have generally been directionally consistent, this trend
may change in the future as the significance of foreign
operations increase.
Results by business segment
2010 was a year of increased consumer
confidence. The first half of the year saw strong
volume growth in the personal and commercial
banking segments at most of the banks. However,
2010 has also been a year of increased volatility
in the capital markets segments as banks were
hit by the strong Canadian dollar and, to some
extent, by the European sovereign debt crisis.
2010 was an interesting year for Canadian banks. The
year started with improved consumer confidence and
a general improvement in the Canadian economy. This,
along with low interest rates, led to volume growth in
home equity products and personal lending at most of
the banks.
There was also a general improvement in global capital
markets, as compared to 2009. This has contributed
to increased assets under management at most of the
banks and therefore, improved mutual fund revenues.
However, the European sovereign debt crisis and US
regulatory reforms increased capital market volatility
and impacted trading volumes.
Headcount across all segments gives an indication of
areas the banks are investing in. Most of the banks
have been increasing headcounts across the board,
following the headcount reduction in 2009. Some are
now returning to 2008 levels.
The banks all report their operating segments slightly
differently. However, they are typically split into the
following categories:
• Personal and commercial banking
• Wealth management or private client management
• Capital markets
Personal and commercial banking
There was also a general
improvement in global capital
markets, as compared to 2009.
34 Canadian Banks 2011
Across all six banks, there was an increase in both
revenues and profits in the personal and commercial
banking area. This is the largest segment in four out
of six of the banks and usually offers the strongest
return on assets. The increase was generally significant
and was the strongest area of growth for 2010, as
compared to the other operating segments. The
improvement in this segment comes mostly from
increased volumes in the products offered by banks
largely secured real estate lending. The banks also
benefited from wider interest margins and higher fees.
On the expense side, PCLs were lower than in 2009,
reflecting the improvement in the Canadian economy.
The increase in volumes occurred mostly in the first
half of 2010 – this was due to consumer confidence,
low interest rates as well as the rush to buy property
in Ontario before HST implementation in July. The
increase in volumes slowed in the latter half of the year
once rates increased.
Some of the large banks invested heavily in this
segment in 2010. We have seen marketing campaigns
focused on encouraging the use of savings accounts
and are a contributing factor to increased deposit bases
at these banks.
Wealth management or private client management
In terms of the private client and wealth management
segment, most of the banks saw an increase in assets
under management in 2010 which led to an increase
in fee revenues as well as higher transaction volumes
reflecting growing investor confidence. However, the
banks were also hit by the strong Canadian dollar
and this offset some of the benefits of increased
assets under management. In this highly competitive
area, some of the banks have been acquiring wealth
management companies to improve their position,
most notably was BNS’s acquisition of DundeeWealth
subsequent to year-end. RBC has also been acquiring
wealth management companies in various territories.
Most of the banks saw an
increase in assets under
management in 2010.
Capital markets
All of the banks have experienced significant volatility in
their capital markets segments over the past three years.
2010 was a mixed year with some of the banks seeing
improved results in the capital markets area and some
seeing worsened results since 2009. Overall, Canadian
capital markets were strong, despite the negative
backdrop of global economic uncertainty and volatility
due to the European sovereign debt crisis. Some of the
banks noted that 2009 had been an exceptional year for
their capital markets segments which would have been
difficult to beat in 2010. Strengths noted in 2010 were
the increased number of IPOs, increased M&A activity,
significant corporate debt issuances and the general
appreciation in the stock markets. These factors all
contributed positively to the banks.
Overall, 2010 has been a strong year for all of the banks
and despite continued volatility in various segments,
the overall results are strong. The banks appear to be
cautiously optimistic as they move into 2011.
Results by geographic segment
The strong Canadian dollar has been the culprit
for the deteriorating results in many of the banks’
US business activities. This is also a time of
significant regulatory change across the different
jurisdictions the banks operate in, most notably
the US.
Foreign operations are an important part of the
Canadian banks’ results. Some of the banks are active
in the US and results have all been adversely impacted
by the strong Canadian dollar in 2010. On a positive
note, PCLs have generally decreased following the
high levels of 2009.
2010 was a year of significant regulatory change
in Canada and the US. One of the most important
developments is in the US, due to the appetite to
address offshore account reporting. The Obama
Administration recently passed the Foreign Account
Tax Compliance Act (FATCA). Most notably, when
implemented FATCA will require foreign banks to
report and disclose US interests in Foreign Financial
Institutions (FFI) and they will enforce reporting by
mandating a 30% withholding on US source income
(including gross sales proceeds) – should any account
holder or FFI not comply. FATCA’s impact on global
withholding and reporting is sweeping and the costs
of implementing systems changes, monitoring and
reporting will be borne primarily by non-US financial
institutions. The cost of tax reporting, compliance
and the cost of errors are likely to rise dramatically
and this will have an impact on the competitiveness of
Canadian banks in the US.
Also impacting operations in the US is
Regulation E, which requires banks to notify customers
when an ATM or debit-card transaction will result in
an overdraft or insufficient funds fee. The effect of
this regulation has been reduced fees from overdrafts
as customers are informed of the fact that they are
overdrawn so can take action to remedy this before
the transaction is approved. TD has the most assets
invested in the US and they have been, to some extent,
negatively impacted by this regulation.
Perspectives on the Canadian banking industry
35
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act) signed by
President Obama ushers in a new financial regulatory
architecture. The Act makes significant changes to the
prudential supervision framework for the banking
industry and imposes a number of new requirements
and limitations on business activities. While many
changes are incremental in nature or will be phased
in over time, collectively they will have a material
influence on the financial services landscape.
All of the banks saw an increase in net income from US
operations in 2010, despite the strong Canadian dollar.
Many of them had losses in this segment in 2009 due
to the economic crisis and 2010 has been a year of
improvement.
The banks range from having 2% to 26% of assets
invested outside of Canada and the US. Out of all of
the banks, BNS has the most assets invested outside
of North America, largely focusing on Latin America
and increasingly, Asia. In 2010, BNS entered the
Columbian market through an acquisition. None of
the banks have seen a large shift in the proportion
of assets invested outside of North America in 2010
but BNS and RBC have the most focus in this area, as
compared to the other banks.
The banks increased their activities in foreign markets
through a mixture of organic growth and acquisitions.
RBC has been particularly acquisitive in 2010 in the
area of wealth management with acquisitions in
London, Hong Kong and the US. RBC also generates
60% of its capital markets revenues outside of Canada
and has invested heavily in the US, UK and continental
Europe in 2010.
36 Canadian Banks 2011
Over the past few years, it is clear the banks are picking
their core areas of differentiation, with a clearer focus
on geographic areas. In 2010, banks acquired assets
in line with their overall strategy expanding where it
makes sense and where they already have a footprint.
The following outlines the main geographic acquisition
strategies for the banks:
BMO
Last year, BMO’s Harris Bank subsidiary acquired
the assets and liabilities of US lender Amcore Bank,
expanding its presence in Illinois and Wisconsin.
With the acquisition of AMCORE Bank and its recent
acquisition of Wisconsin-based bank Marshall & Ilsley
Corp, BMO is positioned in the US Mid-West for future
growth as the US emerges from recession. In the
Chicago area, BMO ranked second in personal banking
deposits which is a key indication of its strength in that
geographic region.
BNS
BNS continued to expand its presence in Latin America
by recently announcing its acquisition of one of the
largest banks in Uruguay, Nuevo Banco Comercial,
which would make them the first Canadian bank with a
retail presence in Uruguay if the deal is approved.
CIBC
While most of CIBC’s operations have focused on
domestic operations, the Bank purchased a minority
interest in a Bermuda bank, Bank of N.T. Butterfield
& Son Ltd last year. The investment in Butterfield
is aligned with CIBC’s international focus on the
Caribbean region.
The banks increased their activities in
foreign markets through a mixture of
organic growth and acquisitions.
NBC
NBC is primarily regionally focused in Quebec and is
often referred to as a super regional bank with two
thirds of its total revenues generated from the province.
It does not have a significant international presence
which makes it unique from all of the other large
Canadian banks.
RBC
In 2010, RBC continued its expansion strategy in
the US, Europe and Asia by acquiring the wealth
management business of Fortis Wealth Management
Hong Kong Limited and UK-based Blue Bay Asset
Management plc. In addition the Bank purchased JP
Morgan Securities’ Third Party Registered Investment
Advisory Servicing Business, and RBC Dexia IS
acquired Unione di Banche Italiane Scpa’s (UBI)
depositary bank business.
TD
Figure 1: Change in market capitalization
2010
2009
2008
-30%
-20%
-10%
0%
10%
Select sample of four of the largest US banks
Largest six Canadian Banks
Source: Capital IQ
20%
30%
TD’s presence in the U.S. continues to dominate, in
2010, TD acquired three FDIC assisted banks, and
closed on the purchase of South Financial thereby
increasing their presence in South Carolina and
Florida. Three years ago, TD had nine locations in
Florida. With the purchase of South Financial, their
footprint increases to 169 branches. In addition, TD
plans to open 30 new locations across Boston, New
York, Florida and Washington. TD also recently
announced a US$6.3 billion bid for Chrysler Financial.
With this purchase, TD Financial will become the fifth
largest financier of vehicle purchases in the US.
Market capitalization
The gains in the Canadian banks’ market
capitalization has been primarily related to the
banks’ better than average financial performance
relative to the US banks, both during and
subsequent the global financial crisis.
Market capitalization is the product of a company’s
equity price and its number of outstanding shares. It
defines the size and value of a company as viewed by
the market.
The Big Six banks have performed relatively well over
recent years from the perspective of increasing their
market capitalization. Their market capitalization grew
at a faster rate in 2010, relative to some of the largest
US banks (JP Morgan Chase, Citi Bank, Wells Fargo
and Bank of America). In each of the last three years,
Canadian banks have outperformed this group of US
banks, earning a 9% average market capitalization
return.
The gains in the banks’ market capitalization has been
primarily related to the banks’ better than average
financial performance relative to the US banks, both
during and subsequent to the global financial crisis.
The banks’ profitability, healthy balance sheets, and
overall strong reputation in the aftermath of the
financial crisis have helped increase the value of its
stock prices in the market place.
Figure 1 describes the percentage change in market
capitalization on a year-over-year basis with the
underlying data preserved in its base currency to
eliminate the effects of foreign exchange volatility.
Figure 1 compares a sample of US banks and the six
largest Canadian banks.
Perspectives on the Canadian banking industry
37
BMO highlights
“We are investing strategically to raise the bar on
customer experience. It’s differentiating us in the
marketplace and positioning us for future growth.
Good results this quarter and for our 2010 fiscal
year, as well as a strong balance sheet, reflect the
consistent execution of our strategy – and the
benefits of our diversified business mix,” said
William Downe, President and Chief Executive
Officer, BMO Financial Group.
The financial results for BMO on a consolidated
basis were strong in 2010. The key operating groups
(personal and commercial banking, private client
group, and capital markets) contributed positively to
the consolidated revenue growth of 10% (an increase
of $1,146 million) to $12.2 billion. Consolidated net
income for 2010 was $2.81 billion, up from $1.787
billion in 2009.
Consolidated net income for 2010
was $2.81 billion, up from $1.787
billion in 2009.
PCL fell to $1,049 million (2009 -$1,603) and specific
provisions decreased $494 million. The decrease in
the PCL is a reflection of improved credit conditions
overall and is consistent with the other Canadian
banks. Looking ahead, BMO remains cautious as credit
conditions do remain challenging, particularly in the
US real estate sector where the slower pace of the
economic recovery has continued to add pressure.
Applying the 2010 financial results against internal
performance measures used to assess shareholder
return, BMO reported a one year total shareholder
return of 26.4%, significantly above comparable S&P
and TSX indices, and a five year average TSR of 5.9%,
which is a significant improvement relative to the 1.8%
five year average for the period ended October 31,
2009. BMO also outperformed relative to 2009 when
measured on EPS, ROE and net economic profit.
The Canadian P&C banking group had a strong
year in 2010. Net income from this group increased
$229 million which is up 16% from a year ago. The
Canadian P&C group experienced an increase in
revenue from all its businesses which includes the
personal banking business, the commercial banking
business and the cards and payment services business.
Revenue increased 10% to $5,830 million, primarily
driven by volume growth in most products and
improvements in net interest margin. Furthermore,
the inclusion of ten months of results from the Diners
Club business (acquired by BMO in 2010) helped
increase revenues, specifically related to the cards
business.
BMO also has a US P&C group. The US P&C group did
not have as strong a year relative to the Canadian P&C
group. Net income in 2010 decreased $111 million
or 39% from 2009. The significant decrease in net
income year-over-year is partly related to increased
charges for impaired loans, changes to the Visa
litigation accrual and acquisition integration costs
from the business’ acquisition in Q2 of AMCORE Bank,
NA. However, with the acquisition of AMCORE Bank,
NA and its recent acquisition of Wisconsin-based bank
Marshall & Ilsley Corp., BMO is positioned in the US
Mid-West for future growth as the US emerges from
recession. In the Chicago area, BMO ranked second in
personal banking deposits which is a key indication of
its strength in that geographic region.
38 Canadian Banks 2011
The private client group (PCG), BMO’s wealth
management group had a solid year with net income
of $470 million, an increase of 31% compared
to 2009. The PCG group includes various lines
of business which are full-service investing, selfdirected investing, private banking, retail investments,
asset management and insurance. PCG net income,
excluding the insurance business was up 62% or $118
million, noting a one-time pre-tax charge in 2009 of
$17 million. Net income for the insurance business
was $164 million, which was down $7 million from
a year ago, however a $23 million recovery for prior
periods’ income taxes was included in 2009.
All businesses had increased revenues, which on a
group level were up $233 million or 12%. Revenue
growth in all lines of business, excluding insurance,
was primarily driven by improvements in assets under
management and administration. Insurance business
revenue increased due to higher premiums and the
inclusion of 12 months of BMO Assurance results.
BMO Assurance was acquired in Q2 of 2009.
Revenue growth in all lines of
business, excluding insurance,
was primarily driven by
improvements in assets under
management and administration.
The US PCG operations reported net income of
US$16 million compared to a net loss of US$4 million
in 2009. Net income has increased due to a 16%
increase in revenues in 2010 and expenses which
remained relatively unchanged. This is a reflection of
effective expense management initiatives taking hold
in 2010.
BMO capital markets net income decreased to $820
million in 2010 from $873 million in 2009, despite
increases in revenues which were offset by a higher
PCL and increases in expenses. It should be noted
that there were pre-tax charges of $521 million
in 2009 related to the difficult capital markets
environment, and no similar charges were taken in
2010. A weaker US currency has reduced the group’s
revenue by $140 million.
Net income from BMO capital markets’ US business
was $US67 million, decreasing $US238 million. The
primary reason for the decrease in net income was
related to significantly lower trading revenue and
decreased revenues from the interest-rate-sensitive
businesses.
BMO is continually working towards growing their
existing operating groups. From a US operations
perspective, the bank is focused on ensuring it is
well positioned for future growth as the US economy
emerges from recession.
More specifically, growth is expected to be achieved by
delivering a distinctive customer experience through
client-focused planning. The following outlines key
strategic priorities echoed from BMO’s Management
Discussion and Analysis in the 2010 Annual Report:
•
Maximize earnings growth across all North
American personal and commercial banking
businesses, focusing on industry-leading customer
experience and sales force productivity.
•
Accelerate the growth of our wealth management
business through client-focused financial planning
and by investing for future growth.
• Deliver strong, stable returns in our capital markets
business by providing highly targeted solutions to
our core clients from a single integrated platform.
• Develop our business in select global markets to
grow with our clients, expand our capabilities and
reach new customers.
• Sustain a culture that focuses on customers, high
performance and our people.
BMO continues to concentrate on a customer-focused
culture, centered on understanding and responding
to customers’ most important financial needs, a one
team mindset that brings the entire organization’s
capabilities to customers.
Perspectives on the Canadian banking industry
39
BNS highlights
“Scotiabank’s strategy of diversification by
business and geography enabled us to achieve
record results for 2010, and I am very pleased to
report that we have met or exceeded all of our
targets and reported a record year, We have seen
good contributions from all our business lines,
demonstrating our diversification and strong
execution strategy,” said Rick Waugh, Scotiabank
President and CEO.
Scotiabank – the third largest Canadian bank by total
assets, revenues and net income, reported record net
income of $4.2 billion in 2010. Scotiabank met or
exceeded all of its targets, including 18.3% ROE, 18.1%
EPS growth, 52.8% Productivity Ratio and 11.8% Tier
1 capital ratio.
Scotiabank delivered a year-over-year increase of 20%
in net income attributable to common shareholders
and experienced a 21% increase in its share price at
October 31, reaching its highest share price during
2010 compared to the past five years. Scotiabank’s
productivity ratio, measuring the bank’s efficiency
by comparing non-interest expenses as a percentage
of total revenue on a taxable equivalent basis, was a
record low at 52.8% in 2010, an improvement from
53.7% in 2009.
This segment reflects an area of opportunity
for the bank, which will be supported by its
recent acquisition of DundeeWealth Inc.
40 Canadian Banks 2011
Despite record profitability, results were adversely
impacted by foreign exchange fluctuations. The
stronger Canadian dollar had a negative impact of
$129 million on earnings. The PCL fell by 29% yearover-year, but remain well above historic levels with
the specific PCL as a percentage of average loans and
acceptances as follows:
RBC
TD
BNS
BMO
NBC
0.48%
0.54%
0.24%
0.13%
14.0%
Canadian banking had a record year in 2010, with
net income of $2.3 billion, an increase of 25%
over the prior year. Canadian banking accounts for
approximately 55% of the bank’s total income. Growth
in the Canadian banking segment was driven by
substantial growth in wealth management revenues,
retail mortgages, personal lending and deposits, along
with a wider interest margin. Solid performances
were achieved in each of retail and small business
banking, commercial banking and wealth management.
Scotiabank’s strong results in the Canadian banking
sector are consistent with the other Canadian banks’
results in 2010.
International banking reported net income of $1.3
billion, a decrease of 4% year-over-year, largely due to
the impact of a 10% stronger Canadian dollar. Growth
in international banking reflects recent international
acquisitions and strong earnings in Asia, Mexico and
Chile, partially offset by slower economic recovery in
the Caribbean. Excluding the impacts of the stronger
Canadian dollar, earnings in this segment increased
by $76 million or 6%. Scotiabank is benefitting from
recent acquisitions and the diversification of their
business, as Canada’s most international bank.
Scotia Capital reported net income of $1.4 billion in
2010, below prior year’s record earnings by 7% given
the exceptional trading results arising from market
conditions in 2009. Despite the decline in net income
in 2010, Scotia Capital had its second best year ever.
Strong trading results continued in the first half of 2010
and normalized for the remainder of the year. Scotia
Capital also recorded a recovery in their PCL of $43
million. Capital markets results in Canada were mixed
in 2010, with only BMO and CIBC reporting positive
results on growth.
Scotiabank launched a new business line towards the
end of 2010, the global wealth management division,
combining its wealth management and insurance
businesses both in Canada and internationally. This
segment reflects an area of opportunity for the bank,
which will be supported by its recent acquisition of
DundeeWealth Inc.
CIBC reported a one year total
shareholder return of 32.4%,
which was the highest among the
major Canadian banks.
CIBC highlights
Acquisitions in the current year focused on
international growth with acquisitions in Thailand,
Puerto Rico and Chile supporting Scotiabank’s
international growth and diversification strategies.
Strategic initiatives for Scotiabank include:
• Achieving superior growth in the deposits and
payment businesses;
• Growth in international banking through organic
and inorganic growth;
“2010 was a good year for CIBC and our
stakeholders. Against the backdrop of economic
and industry conditions that improved from 2009
but remained challenging, CIBC reported solid
financial results including delivering the highest
total shareholder return of the Canadian banks
while furthering progress against our strategic
priorities,” said Gerry McCaughey, CIBC President
and CEO.
2010 was a solid year financially for CIBC. The bank’s
net income increased 109% to $2.452 billion from
$1.174 billion in 2009, as revenue increased $2,157
million to $12,085 million and PCL decreased $603
million, despite growth in the bank’s loan portfolio.
The common share price increased to $78 (2009, $62)
and market capitalization increased to $30.724 billion.
•
Implementation of the recent reorganization
of wholesale activities under Scotia Capital for
long-term expansion and capturing growth
opportunities; and
The overall results were very positive and are
consistent with the other Canadian banks in terms of
reporting growth in net income, revenues, share price,
market capitalization and a decrease in PCL.
•
Leveraging global strengths in global wealth
management, insurance and global transaction
banking to drive organic growth.
Applying the 2010 financial results against common
measures applied by the Canadian banks to assess
shareholder value, CIBC reported a one year total
shareholder return of 32.4%, which was the highest
among the major Canadian banks. However, CIBC’s
rolling five year average Total Shareholder Return
Perspectives on the Canadian banking industry
41
Canadian business banking and
wealth management also experienced
strong revenue growth of 6% and 8%
respectively.
(TSR) was 36.6%, significantly below the S&P/TSX
Composite Banks Index which was at 50.2% over
the same period. CIBC reported a ROE of 19.4%,
significantly up from the 9.4% returned in 2009. On a
cash diluted EPS, CIBC reported $5.95 which was up
from $2.73 in 2009.
CIBC retail markets is comprised of CIBC’s personal
banking, business banking and wealth management
businesses. Overall net income for this unit was up
$296 million or 16% from 2009. Revenue primarily
increased as a result of volume growth across most
lines of business, higher fees, and wider spreads. CIBC
retail markets is expected to face slower demand
growth for mortgages and household credit, with a
modest recovery in demand for business credit. Credit
quality will continue to improve as the impacts from
the earlier recession continue to fade, allowing for
an improvement in delinquencies and a reduction
in personal bankruptcies. Demand for investment
products is expected to improve gradually as consumer
confidence recovers.
42 Canadian Banks 2011
Canadian business banking and wealth management
also experienced strong revenue growth of 6%
and 8% respectively. This domestic growth can be
attributed to higher volume growth in deposits, higher
banking and management fees, wider margins, and
increase in market values of managed assets. This
is consistent with the other Canadian banks’ results
for 2010. The wealth management division saw solid
fund performance with 62% of funds with one year
returns above the median. CIBC Wood Gundy assets
under administration increased to $110.7 billion from
$98.6 billion in 2009. CIBC has had growth in its high
net worth client base. Fee income was higher due to
increased market value of assets.
Canadian personal banking had strong revenue
growth of $6,413 million, up $481 million from 2009.
The growth was led by volume across most products,
wider spreads in lending products and the positive
impact on revenues from the acquisition of Citi Cards
Canada Inc’s Canadian Mastercard portfolio. The
acquisition was completed on September 1, 2010,
therefore, impacting the results for the last two
months of fiscal 2010 and making CIBC the largest
dual credit card issuer in Canada.
Within its capital markets segment,
CIBC expanded its equity research
coverage, with a focus on the
energy, mining and materials, and
financial services sectors.
On April 30, 2010, CIBC acquired from CIT Financial
Ltd (CIT) the 50% interest in CIT Business Credit
Canada Inc (CITBCC) that it did not already own. This
acquisition is consistent with CIBC’s trend to grow its
business banking operations in Canada.
Included in the retail market unit are the results of First
Caribbean International bank. CIBC owns over 90%
equity interest in the subsidiary. First Caribbean is a
major Caribbean bank with assets of US$9.8 billion in
2010. Revenue was down in 2010 by $123 million or
17%, primarily driven by the stronger Canadian dollar,
as well as lower treasury allocations and volumes, and
narrower spreads. The decrease in revenue was offset
partially by higher securities gains. Unlike RBC, TD and
BMO, CIBC doesn’t have a significant footprint in the
US retail banking space.
On March 2, 2010, CIBC purchased a minority interest
in a Bermuda bank, Bank of N.T. Butterfield & Son Ltd.
The investment in Butterfield is aligned with CIBC’s
international focus on the Caribbean region.
CIBC wholesale banking is comprised of CIBC’s capital
markets, and corporate and investment banking
businesses. Overall net income for this unit was
$342 million compared to a net loss of $472 million
in 2009. This is primarily related to lower losses in
the structured credit run-off business, lower Markto-Market (MTM) losses on corporate loan hedges,
gains in legacy merchant banking and other run-off
businesses compared to losses in the prior year as
well as lower PCL. Furthermore, revenues for both
capital markets, corporate and investment banking
were down in 2010, primarily related to lower fixed
income trading, global derivatives, foreign exchange,
new equity issuances and strategic risk in the capital
markets business and lower revenue from US real
estate finance due to market and economic conditions.
The overall positive results for the business unit as a
whole came from an improvement in credit quality, a
healthier tone in the financial markets, coupled with
lower losses on the structured credit run-off business
and MTM on corporate hedges, and active wholesale
debt markets due to government debt financing.
Within its capital markets segment, the company
expanded its equity research coverage, with a focus
on the energy, mining and materials, and financial
services sectors. The company improved its foreign
exchange market share. Revenue was down $254
million, driven by lower revenue from fixed income
trading, global derivatives, strategic risk, foreign
exchange revenue, and equity new issuances.
On July 28, 2010, CIBC Mellon Trust Company (CMT),
a 50/50 joint venture between CIBC and The Bank
of New York Mellon, announced it had signed an
agreement to sell its Issuer Services business. The
transaction closed on November 1, 2010. CMT’s Issuer
Services business results are not considered significant
to CIBC’s consolidated results.
Corporate credit demand should be supported by
growth in capital spending, although internal cash
flows and the public debt market will remain a
competitive source of funding. US real estate finance
is expected to remain slow due to a weak housing
market. Corporate default rates may remain contained
as the global recovery takes hold.
Perspectives on the Canadian banking industry
43
NBC highlights
Similar to some of the other financial
institutions in Canada, the central
component to NBC’s strategy is its one
client, one bank initiative.
44 Canadian Banks 2011
“Implementation of the one client, one Bank strategy
continued at a steady pace, as can be seen in the
fourth quarter results of 2010. The personal and
commercial segment has enjoyed solid growth
in loan volumes, and wealth management and
financial markets have both posted quarter-overquarter increases in earnings. Such solid results,
combined with our strong capital position and the
quality of our credit portfolio, have allowed us to
raise shareholder dividends,” stated Louis Vachon,
President and CEO.
Corporate and investment banking maintained strong
positions in mergers and acquisitions, equity and
debt underwriting, and improved market position in
syndicated lending. Revenues were down $149 million,
primarily due to lower revenue from US real estate
finance and equity new issuances.
The National Bank is primarily regionally focused in
Quebec and is often referred to as a super regional
bank with two thirds of its total revenues generated
from the province. It does not have a significant
international presence which makes it unique from all
the other large Canadian banks.
According to CIBC’s 2010 management discussion and
analysis, CIBC’s strategic focus and priorities going
forward is to:
Similar to some of the other financial institutions in
Canada, the central component to NBC’s strategy is
its one client, one bank initiative. The purpose of this
strategic initiative adopted in 2008 is to become a
leader in client experience, with the ability to provide
financial advice, solutions, and services to its clients,
regardless of their point of entry into the Bank. NBC
wants to encourage working closely together across
business channels to maximize client relationships and
grow the business outside of Quebec.
•
Achieve and maintain no less than the #3 position,
and target #1 or #2, in their core Canadian-based
retail and wholesale businesses;
•
Grow in certain areas where CIBC has competitive
capabilities and market opportunities that can
generate sustainable earnings; and
•
Underpin the core business with strong capital and
funding, competitive productivity measures and
sound risk management.
NBC continued to have strong financial results in
20101 which was a continuation from 2009. The
Bank recorded net income of $1,034 million in 2010
compared to $854 million in 2009. Total revenues
have increased, $205 million or 5% from 2009 to
$4,484 million, primarily due to growth from the
P&C, and wealth management business segments. PCL
decreased year-over-year, down $35 million to $144
million which is consistent with the other Canadian
banks. The decline was primarily related to recoveries
of losses in commercial and corporate credit. Of note,
NBC ended the year with the lowest loan loss ratio,
in both absolute and relative terms, of any Canadian
financial institution.
1 Financial results are reported based on NBC’s MD&A. Refer to page 18
and 19 of the MD&A for non-GAAP measures.
The wealth management segment
plays an important role in NBC’s
strategy for pursuing revenue
growth outside of Quebec.
When reviewing the measures commonly applied
to shareholder value, NBC reported diluted EPS of
$5.94 compared to $4.94 in 2009. ROE was 17%
versus 15.6% in 2009. On an adjusted basis, excluding
specified items, the adjusted ROE was 17.7% and
diluted EPS of $6.25. The bank maintained a strong
balance sheet and is well capitalized with a Tier 1
capital ratio of 14%. NBC was the first major Canadian
bank to increase dividends in the aftermath of the
financial crisis, and has increased its quarterly dividend
beginning in Q1 2011 to $0.66 per share, up 6%.
If we look at the geographic distribution of total
revenues, excluding specified items, the majority of
revenues are generated within the province of Quebec
at 68% (2009, 64%), 20% (2009, 25%) from other
provinces within Canada, and 12% (2009, 11%) from
international and other unallocated sources. The
distribution pattern reflects the significance of Quebec
as a primary source of revenue.
NBC’s P&C business segment reported net income of
$587 million, up 22% and total revenues of $2,426
million, up 6% from 2009. Growth has been mainly
driven by higher loan volumes, which more than
offset tighter spreads on deposits. NBC is looking
to grow its P&C business outside of Quebec within
selected markets and business sectors. In 2010, 25
new distribution agreements were signed with various
brokers/dealers.
The wealth management segment’s net income
decreased 3% to $110 million relative to 2009,
mainly due to lower net interest income which has
been impacted by historically low interest rates.
Total revenues are up $769 million or 2% from
2009. Revenues have been driven by growth in fees
due to strong stock market gains and steady sales
performance. As a result, assets under management
have significantly increased by 20% to $231 billion,
driving the increase in fees.
Wealth management offers excellent business
opportunities for the bank as individual wealth
continues to grow, and an aging population is driving
greater demand for financial advice and retirement
solutions. Although there is intense competition, the
bank’s objective is to be a larger player in this market
by gaining market share in Quebec and expanding
its presence across Canada. The wealth management
segment plays an important role in the bank’s strategy
for pursuing revenue growth outside of Quebec.
The financial markets segment’s net income decreased
8% to $471 million and total revenues were down $48
million to $1,384 million. The decrease in net income
and revenues was primarily driven by a significant
decrease in trading activity revenues related to fixed
income. In 2010, revenues from trading activity of
fixed income was $199 million compared to $388
million in 2009. This decline was partially offset by
an increase of $38 million or 19% in trading activity
revenues generated by equities. A decline in income in
this segment is relatively consistent with some of the
other Canadian banks due to a significant decrease in
trading activity in the marketplace.
Financial markets will continue to leverage its current
strengths and relationships through focusing on client
needs. Key priorities for 2011 for growth include
re-focusing resources in all targeted sectors for midmarket companies, further solidifying its leadership
position in fixed income; deploy risk management
solutions to corporate and commercial clients, and
continuing its leadership of expanding the market for
structured products.
Perspectives on the Canadian banking industry
45
RBC highlights
“RBC once again demonstrated the power of our
diversified business model, delivering strong
earnings of $5.2 billion in a year characterized by
economic, regulatory, and market uncertainty. We
continue to extend our leading market positions
and grow our business in Canada and globally by
focusing on serving our client’s needs,” said Gordon
M. Nixon, RBC President and CEO.
RBC, Canada’s largest bank as measured by assets and
market capitalization reported net income of $5,223
million up $1,365 million or 35% from the prior year.
RBC’s Tier 1 capital ratio remained at 13% while ROE
was up 300 basis points (bps) at 14.9%.
RBC’s domestic performance, as it relates to its P&C
division benefited from increased volume growth in
home equity and personal deposit products, and higher
credit card transaction volumes. As a result, total
revenue topped $10,555 million, which is an increase
of $665 million or 14% year over year. Combined with
a decrease in their PCL of $84 million, or 7% year-overyear, attributed to improving market conditions, RBC
increased their net income by $381 million over prior
year to $3,044 million. Non-interest expense items
were higher than 2009 by $266 million or 6%, due to
increased marketing cost associated with the Olympics,
higher performance related commissions and the
introduction of the Harmonized Sales Tax (HST).
Outside of Canada, RBC’s wealth management division
was the only other division to realize the same positive
growth in revenues and earnings. Higher average
Outside of Canada, RBC’s wealth
management division was the only other
division to realize the same positive growth
in revenues and earnings.
46 Canadian Banks 2011
fee-based client assets and transaction volumes were
recognized as contributing to increases in revenues of
$108 million to $4,188 million over prior year. However
this increase was offset by a stronger Canadian dollar
and spread compression. Net income grew by $86
million to $669 million.
RBC’s international banking division continued to
realize losses year-over-year. In 2010 net losses of $317
million were recorded, as a result of higher losses
on Available-For-Sale (AFS) securities and a strong
Canadian dollar. While this is an improvement over
2009’s losses of $1,129 million, it is noted that last
year’s losses were impacted by an impairment charge
to goodwill and improvements in loan loss provisions.
It is noted that RBC is actively managing a reduction in
their US banking portfolio. As a result, total revenues
were down by $354 million to $2,236 million.
RBC’s capital markets division was adversely impacted
by the strong Canadian dollar and tighter credit
spreads for the lower client volumes. 60% of capital
market revenues are generated outside of Canada
and as a result net income is down year-over-year by
$121 million to $2,719 million, on revenues of $5,887
million, which are lower than 2009 by $1,036 million.
PCL totals $20 million, which is down by $682 million
over prior year. This is attributed to certain large
recoveries.
In 2010, RBC became the first
Canadian bank to issue both Visa
and Mastercard co-branded
credit cards.
In 2010, RBC became the first Canadian bank to issue
both Visa and Mastercard co-branded credit cards. Also
in 2010, RBC sold its US life insurance business, Liberty
Life, to Athene Holding Ltd for $628 million generating
a loss of $116 million. Going forward, RBC plans to
increase its expansion into emerging markets noting a
focus on Hong Kong, Singapore, and Latin America.
RBC anticipates that the Canadian economy will grow
by 2.9% in the next year, with the Bank of Canada
holding its overnight rate at 1% but increasing it to
2% by the end of 2011. Outside of Canada, RBC is
expecting that the US economy will grow by 2.8% with
the Federal Reserve keeping the funding rate between
0% and 0.25%. In the Eurozone, RBC economists
expect 1.7% growth with the European Central Bank
holding the lending rate at 1%.
In 2010, RBC completed the following acquisitions:
•
Purchased UK-based BlueBay Asset Management plc
to expand Global Asset Management business;
•
Acquired the wealth management business of Fortis
Wealth Management Hong Kong Limited to expand
in Asia;
•
Purchased the JP Morgan Securities’ Third Party
Registered Investment Advisory Servicing Business,
and;
•
RBC Dexia IS acquired Unione di Banche Italiane
Scpa’s (UBI) depositary bank business.
Perspectives on the Canadian banking industry
47
RBC anticipates that some of the key challenges for
them in the coming year relates to the sustainability of
the growth in the Canadian housing market. Since the
recent growth in the domestic banking business has
been fuelled partly by the increased mortgage lending,
increasing or sustaining this performance may prove
difficult if the housing market is expected to slow.
Continued weakness in the US economy will also prove
to be challenging. This will be further exaggerated
by increased regulatory costs, elevated PCL, and low
home values.
According to RBC’s 2010 Annual Report, its strategic
goals are:
•
In Canada, to be the undisputed leader in financial
services;
•
Globally, to be a leading provider of capital markets
and wealth management solutions; and
•
In targeted markets, to be a leading provider of
select financial services complementary to our core
strengths.
TD wealth management
realized net income of $641
million, an increase of $4
million year-over-year.
TD’s assets under management and
assets under administration were
up 7% and 17% to $183 billion and
$224 billion, respectively.
48 Canadian Banks 2011
TD highlights
“The fourth quarter completed a great year for TD,
with our retail operations delivering a record $4.8
billion in adjusted earnings for 2010. Canadian
personal and commercial banking had yet
another strong quarter, while our US operations
continued to perform very well despite new
regulatory challenges and ongoing weakness in
the economy,” said Ed Clark, Group President
and CEO.
TD, Canada’s second largest bank, as ranked by
assets, reported net income of $4,644 million for the
year ended 2010. TD’s Tier 1 capital ratio was 12.2%
compared to 11.3% in 2009. Capital quality remained
very high, with tangible common equity comprising
about 75% of Tier 1 capital. The Bank’s efficiency ratio
improved to 62.2% compared with 68.4% last year
while ROE was 12.1%.
TD’s Canadian P&C division posted earnings of $3,095
million on revenues of $10,371 million an increase of
$623 million and $922 million, respectively. This was
due to higher margins on real estate secured lending
and increases in volume in personal and business
deposits.
Outside of Canada, both wealth management and US
P&C saw performance improvements compared to
prior year. Wealth management realized net income
of $641 million, an increase of $4 million year-overyear. Revenues were also up to $2,457 million from
$2,205 million in the prior year. This is attributable
to higher fee-based revenue from higher average
client assets and increases in net interest margin
TD remains positive about their growth prospects.
Market conditions are expected to remain moderate
characterized by low interest rates and volatility. This
should translate into increases in debt and equity
originations and more M&A and advisory fees.
TD plans to expand by adding increased functionality
to enhance customers’ online experience, expanding
products in their P&C businesses, and create
efficiencies in their wealth management division, both
operationally and technologically. In addition, TD
plans to expand their presence in the US by opening
30 new locations across Boston, New York, Florida
and Washington.
from various treasury management strategies. By
comparison, assets under management and assets
under administration were up 7% and 17% to $183
billion and $224 billion, respectively. US P&C net
income was up $340 million to $973 million. This
increase is attributable to higher fee-based revenue,
increased volumes associated with loans and deposits
and reduced PCL on debt securities. The year-over-year
increases would have been greater, had it not been for
the introduction of Regulation E on overdraft revenue
and resultant increases in non-interest expenses.
TD’s wholesale banking division was the only division
to see net income decrease year over year. The division
realized net income of $866 million, which was a
reduction of $271 million or 24%. Similar to RBC, this
decrease was attributable to lower trading volumes,
lower credit volumes, and spread compression.
Related revenue metrics yield similar results with
revenue totalling $2,874 million, a decrease of $347
million. The lower volumes were more prominent
in fixed income and currency trading. PCL also
decreased by $139 million to $25 million. This was
largely attributable to large recoveries in the corporate
lending portfolio.
In 2010, TD recorded $161 million in charges relating
to several Canada Revenue Agency tax matters relating
to certain wholesale banking strategies, which they
no longer participate in. In addition, TD incurred
$69 million in integration and restructuring charges
associated with their US P&C banking acquisitions.
In 2010, TD acquired three FDIC assisted banks, and
closed on the purchase of South Financial thereby
increasing their presence in South Carolina and
Florida. Three years ago, TD had nine locations in
Florida. With the purchase of South Financial, their
footprint increases to 169 branches. TD also recently
announced a US$6.3 billion bid for Chrysler Financial.
With this purchase, TD Financial will become the fifth
largest financier of vehicle purchases in the US.
TD is focused on the known and unknown impacts
of the Dodd-Frank Act on their growth strategies in
the US. They acknowledge that the full impact of the
legislation will not be known until all the regulations
are released. TD is concerned that slower growth in
the US economy may continue to negatively impact
equity markets with low interest rates putting pressure
on margins. In addition, the European sovereign debt
crisis will continue to have a negative impact on credit
markets.
TD’s 2010 Annual Report outlines the following key
priorities for its personal and commercial segment
in 2011:
•
Extend our lead on customer service and
convenience.
• Create an integrated customer service experience
across all channels.
• Prepare TD Canada Trust for a period of slower
growth, exercising expense discipline while
eliminating waste and simplifying technology,
process and controls.
• Continue to support under-represented businesses
while identifying new sources of revenue.
Perspectives on the Canadian banking industry
49
Appendix
52
Shareholder value summary
54
Regulatory capital
56
Balance sheet highlights
58
Balance sheet ratios
60
Income statement highlights
62
Derivatives
64
Credit risk summary
66
Statement of comprehensive income (loss)
and changes in shareholders’ equity
68
Interest income and related ratios
70
Income, expense and other ratios
72
Diversification and segmentation highlights
74
Assets of banks registered with the Office of the
Superintendent of Financial Institutions Canada (OSFI)
50 Canadian Banks 2011
PricewaterhouseCoopers LLP 51
Shareholder value summary
(in millions of Canadian dollars)
BMO
BNS
CIBC
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
Stock performance
Common share price as at October 31
Book value of outstanding common shares
Trading premium above book value
Market price to book value
60.23
34.11
26.12
1.77
20.3%
6.8%
44.1%
50.06
31.93
18.13
1.57
43.02
32.02
11.00
1.34
54.67
22.92
31.75
2.38
20.8%
10.2%
29.8%
45.25
20.79
24.46
2.18
40.19
19.03
21.16
2.11
78.23
32.17
46.06
2.43
26.2%
11.1%
39.4%
62.00
28.96
33.04
2.14
54.66
29.41
25.25
1.86
Earnings
Net income attributable to common shareholders
Basic earnings per share as reported
Price / earnings ratio
2,674
4.78
12.6
60.4%
54.7%
-22.2%
1,667
3.09
16.2
1,905
3.79
11.4
4,038
3.91
14.0
20.1%
17.8%
2.6%
3,361
3.32
13.6
3,033
3.07
13.1
2,283
5.89
13.3
125.6%
122.3%
1,012
2.65
23.4
(2,179)
(5.89)
n/a
Returns
Return on basic equity1
14.5%
9.9%
12.6%
18.1%
16.9%
16.9%
19.2%
9.1%
-19.5%
Return on assets
Return on risk-weighted assets2
Total market return3
0.6%
1.7%
25.9%
0.4%
1.0%
22.9%
0.5%
1.0%
-34.0%
0.8%
1.9%
25.1%
0.7%
1.5%
17.5%
0.6%
1.2%
-14.6%
0.6%
2.1%
31.8%
0.3%
0.9%
19.8%
-0.6%
-1.8%
-33.6%
Dividends
Dividend paid
Dividend yield4
Dividend payout ratio5
2.80
4.6%
59%
0.0%
-16.9%
-35.4%
2.80
5.6%
91%
2.80
6.5%
74%
1.96
3.6%
50%
0.0%
-17.2%
-15.1%
1.96
4.3%
59%
1.92
4.8%
63%
3.48
4.4%
59%
0.0%
-20.7%
-55.0%
3.48
5.6%
131%
3.48
6.4%
-59%
Shares outstanding at end of year (millions)
566
2.5%
552
505
1,032
1.9%
1,013
987
393
2.3%
384
381
Market capitalization at October 31 (billions)
34.1
23.4%
27.6
21.7
56.4
23.1%
45.8
39.7
30.7
29.0%
23.8
20.8
Total assets per dollar of market capitalization
12.1
14.1
19.2
9.3
10.8
12.8
11.5
14.1
17.0
52 Canadian Banks 2011
NBC
RBC
TD
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
67.13
37.54
29.59
1.79
19.0%
12.2%
29.1%
56.39
33.47
22.92
1.69
45.21
29.70
15.51
1.52
54.39
23.96
30.43
2.27
-0.7%
5.8%
-5.4%
54.80
22.63
32.17
2.42
46.84
20.86
25.98
2.25
73.45
44.29
29.16
1.66
19.1%
7.7%
41.9%
12.9%
61.68
41.13
20.55
1.50
56.92
38.72
18.20
1.47
971
5.99
11.2
22.1%
20.8%
-1.4%
795
4.96
11.4
744
4.69
9.6
4,965
3.49
15.6
37.0%
34.7%
-26.3%
3,625
2.59
21.2
4,454
3.41
13.7
4,450
5.13
14.3
50.7%
47.0%
-19.0%
2,953
3.49
17.7
3,774
4.90
11.6
16.9%
15.7%
16.6%
15.0%
12.1%
17.7%
12.0%
9.1%
14.9%
0.7%
1.9%
23.4%
0.6%
1.4%
30.2%
0.6%
1.3%
-22.1%
0.7%
1.9%
2.9%
0.6%
1.5%
21.3%
0.6%
1.6%
-1.9%
0.7%
2.2%
23.0%
0.5%
1.6%
12.6%
0.7%
1.8%
-8.9%
2.48
3.7%
41%
0.0%
-16.0%
-17.2%
2.48
4.4%
50%
2.48
5.5%
53%
2.00
3.7%
57%
0.0%
0.8%
-25.8%
2.00
3.6%
77%
2.00
4.3%
59%
2.44
3.3%
48%
0.0%
-16.0%
-32.0%
2.44
4.0%
70%
2.36
4.1%
48%
163
1.2%
161
159
1,425
0.5%
1,418
1,341
879
2.3%
859
770
10.9
20.5%
9.1
7.2
77.5
-0.3%
77.7
62.8
64.5
21.8%
53.0
43.8
14.6
17.9
9.4
8.4
11.5
9.6
10.5
12.9
13.3
Notes
1. Return on equity has been
calculated as net income attributable
to common shareholders divided
by average common shareholders’
capital.
2. Return on risk weighted assets
has been calculated as net income
attributable to common shareholders
divided by risk weighted
assets.
3. Total market return has been
calculated as (change in share price
+ dividends paid) divided by opening
share price and does not include
the assumed rate of return on the
investment of dividends.
4. Dividend yield has been calculated
as dividends paid divided by the
common share price at the fiscal
year end.
5. Dividend payout ratio has been
calculated as dividends paid divided
by earnings per share.
Perspectives on the Canadian banking industry
53
Regulatory capital1
(in millions of Canadian dollars)
BMO
2010
Tier 1 capital
Common shareholders' equity
OCI – accumulated foreign currency translation losses
Non-cumulative preferred shares
Innovative Tier 1 capital
Non-controlling interests
Less: Goodwill and excess intangible assets
Adjustments to Tier 1 capital
Total Tier 1 capital
Tier 2 capital
Subordinated debt
Trust subordinated notes
Accumulated unrealized gain from AFS securities
Eligible general allowance for credit losses
Other adjustments to capital 2
Total Tier 2 capital
Change
BNS
2009
2008
2010
18,753
17,132
15,974
2,571
2,542
23
(1,619)
(592)
21,678
2,571
2,907
26
(1,569)
(605)
20,462
4,236
800
5.9%
Change
CIBC
2009
2008
2010
23,199
20,945
20,197
1,996
2,486
39
(1,635)
(131)
18,729
3,975
3,400
579
(3,050)
(2,769)
25,334
7.1%
3,710
3,400
554
(2,908)
(2,051)
23,650
2,860
2,750
502
(2,273)
(773)
23,263
12,995
(575)
3,156
1,599
168
(1,913)
(579)
14,851
4,175
800
–
494
(877)
4,592
5,790
1,000
176
574
(3,275)
4,265
-13.6%
5,833
1,000
6
570
(2,471)
4,938
4,227
1,000
–
534
(1,177)
4,584
4,674
–
4
126
(689)
4,115
3.5%
28,588
27,847
18,966
Change
2009
2008
4.9%
11,489
(495)
3,756
1,599
174
(1,997)
(372)
14,154
11,642
(357)
3,231
–
174
(2,100)
(225)
12,365
5,022
6,425
-11.9%
–
–
(349)
4,673
–
–
(661)
5,764
0.7%
18,827
18,129
3,776
800
10
292
(919)
3,959
-10.0%
296
(935)
4,397
Total regulatory capital
25,637
3.1%
24,859
23,321
29,599
Risk weighted capital ratio
Tier 1
Total capital ratio
13.5%
15.9%
12.2%
14.9%
9.8%
12.2%
11.8%
13.8%
10.7%
12.9%
9.3%
11.1%
13.9%
17.8%
12.1%
16.1%
10.5%
15.4%
136,290
5,217
19,658
161,165
-3.6%
143,098
6,578
17,525
167,201
163,616
11,293
16,699
191,608
180,500
10,500
24,000
215,000
-3.0%
187,800
11,400
22,400
221,600
214,500
15,500
20,600
250,600
86,782
1,625
18,256
106,663
-9.1%
97,190
1,321
18,787
117,298
95,161
2,928
19,857
117,946
14.5
2.8%
14.1
16.4
17.0
2.4%
16.6
18.0
17.0
4.3%
16.3
17.9
11.6%
13.6%
10.2%
8.3%
10.8%
14.2%
9.5%
8.1%
12.2%
24.4%
9.8%
9.9%
255.4%
9.9%
232.3%
217.1%
245.0%
9.3%
224.1%
202.6%
330.0%
15.2%
286.4%
300.1%
0.80%
0.78%
0.69%
0.66%
0.65%
0.53%
1.08%
1.11%
0.92%
1,297
1,306
1,321
1,410
1,450
1,323
1,153
1,307
1,080
Risk-weighted assets
Credit risk
Market risk
Operational risk
Total risk-weighted assets
Assets to capital multiple
Tangible common equity to risk-weighted assets
Total assets to risk-weighted assets
Total general allowance as a percentage
of risk adjusted assets
Total general allowance
54 Canadian Banks 2011
NBC3
2010
5,934
(133)
1,089
975
25
(744)
(176)
6,970
RBC
Change
2009
2008
2010
11.3%
5,282
(100)
1,089
971
19
(781)
(215)
6,265
4,797
(71)
774
828
18
(740)
(126)
5,480
2009
2008
2010
36,229
33,790
30,324
4,810
3,327
351
(8,064)
(2,681)
33,972
4,811
3,991
353
(8,368)
(2,803)
31,774
2,657
3,857
357
(9,977)
(2,187)
25,031
37,903
(2,901)
3,944
3,844
–
(14,460)
(3,944)
24,386
1,894
1,897
2,153
13
79
(259)
1,727
-19.1%
–
456
(219)
2,134
–
331
(285)
2,199
517
(4,528)
3,653
8,697
3.5%
8,399
7,679
37,625
14.0%
17.5%
10.7%
14.3%
9.4%
13.2%
39,811
3,226
6,794
49,831
-15.0%
48,589
3,894
6,124
58,607
15.9
3.2%
11.9%
291.6%
Change
TD
6.9%
6,641
1,023
Change
2009
13.9%
34,310
(1,539)
3,945
4,588
31
(15,015)
(4,913)
21,407
2008
31,448
(1,633)
2,425
2,765
20
(15,123)
777
20,679
8,123
1,027
–
488
(3,959)
5,679
11,812
11,948
12,186
17.6%
6,461
1,017
–
575
(4,946)
3,107
66
915
(6,109)
6,684
-3.6%
42
877
(5,936)
6,931
53
490
(8,060)
4,669
7.9%
34,881
30,710
31,070
9.6%
28,338
25,348
13.0%
14.4%
13.0%
14.2%
9.0%
11.0%
12.2%
15.5%
11.3%
14.9%
9.8%
12.0%
45,509
6,623
5,937
58,069
197,195
24,828
38,433
260,456
6.4%
185,051
23,321
36,465
244,837
229,537
17,220
31,822
278,579
167,297
4,474
28,139
199,910
5.4%
160,465
3,735
25,385
189,585
177,552
9,644
24,554
211,750
15.4
16.7
16.5
1.2%
16.3
20.1
17.5
2.3%
17.1
19.3
32.1%
9.0%
8.3%
13.9%
0.8%
13.8%
10.9%
19.0%
4.8%
18.1%
14.9%
29.3%
225.5%
222.7%
278.8%
4.2%
267.5%
259.8%
309.9%
5.4%
293.9%
266.0%
0.86%
0.78%
0.57%
0.76%
0.83%
0.55%
0.82%
0.95%
0.56%
429
456
331
1,985
2,023
1,532
1,632
1,810
1,184
Notes
1. Regulatory capital and risk weighted
assets are calculated under Basel II
guidelines. 2. Includes requirements for insurance
entities, non-consolidated
subsidiaries, substantial
investments, securitization-related
deduction, expected loss in
excess of allowance, and other
deductions. 3. For NBC, off-balance sheet assets
have been included with market
risk. Perspectives on the Canadian banking industry
55
Balance sheet highlights
(in millions of Canadian dollars)
BMO
BNS
CIBC
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
20,554
54.6%
13,295
21,105
46,027
6.4%
43,278
37,318
12,052
72.0%
7,007
8,959
50,543
71,710
1,146
143,953
0.6%
21.4%
-22.8%
16.0%
50,257
59,071
1,485
124,108
32,115
66,032
1,991
121,243
47,228
64,684
4,651
162,590
-15.2%
11.4%
31.8%
1.3%
55,699
58,067
3,528
160,572
38,823
48,292
920
125,353
26,621
28,557
22,430
89,660
-33.7%
89.0%
0.6%
6.0%
40,160
15,110
22,306
84,583
13,302
37,244
28,625
88,130
28,102
-22.0%
36,006
28,033
27,920
57.1%
17,773
19,451
37,342
14.0%
32,751
35,596
Loans
Residential mortgages
Personal and credit card loans
Business and government loans
Allowance for credit losses
Total loans
48,715
54,467
68,338
(1,878)
169,642
7.0%
12.5%
0.2%
-1.3%
5.9%
45,524
48,398
68,169
(1,902)
160,189
49,343
45,857
84,151
(1,747)
177,604
120,482
62,548
103,981
(2,787)
284,224
18.6%
2.5%
-2.4%
-2.9%
6.7%
101,604
61,048
106,520
(2,870)
266,302
115,084
50,719
125,503
(2,626)
288,680
93,568
46,462
38,582
(1,720)
176,892
8.6%
1.7%
3.3%
-12.2%
5.8%
86,152
45,677
37,343
(1,960)
167,212
90,695
42,953
39,273
(1,446)
171,475
Customers’ liability under acceptances
Unrealized gains on trading derivatives
Other assets
Total assets
7,001
49,759
13,183
411,640
-8.4%
3.9%
4.5%
6.0%
7,640
47,898
12,617
388,458
9,358
65,586
14,226
416,050
7,616
24,778
19,529
526,657
-20.5%
5.1%
4.3%
6.1%
9,583
23,570
18,716
496,516
11,969
41,028
21,144
507,625
7,684
22,034
18,428
352,040
-8.5%
3.4%
-15.1%
4.8%
8,397
21,300
21,701
335,944
8,848
25,576
24,305
353,930
Liabilities
Deposits
Individuals
Business and government
Banks
Total deposits
99,043
130,773
19,435
249,251
-0.4%
15.0%
-15.4%
5.5%
99,445
113,738
22,973
236,156
91,213
136,111
30,346
257,670
128,850
210,687
22,113
361,650
4.1%
3.5%
-4.1%
3.2%
123,762
203,594
23,063
350,419
118,919
200,566
27,095
346,580
113,294
127,759
5,618
246,671
4.6%
19.2%
-25.9%
10.6%
108,324
107,209
7,584
223,117
99,477
117,772
15,703
232,952
7,001
16,438
47,110
47,970
17,414
-8.4%
36.3%
1.7%
8.7%
5.1%
7,640
12,064
46,312
44,139
16,564
9,358
18,792
32,492
59,802
14,317
7,616
21,519
40,286
28,293
33,223
-20.5%
46.5%
10.2%
16.2%
11.9%
9,583
14,688
36,568
24,342
29,700
11,969
11,700
36,506
37,407
36,969
7,684
9,673
28,220
22,809
16,420
-8.5%
63.5%
-24.7%
-1.6%
-8.0%
8,397
5,916
37,453
23,175
17,854
8,848
6,924
38,023
28,490
17,604
3,776
–
800
389,760
-10.9%
–
-30.4%
5.8%
4,236
–
1,150
368,261
4,315
250
1,150
398,146
5,939
–
500
499,026
-0.1%
–
0.0%
5.8%
5,944
–
500
471,744
4,352
–
500
485,983
4,773
–
–
336,250
-7.4%
-100.0%
–
4.5%
5,157
600
–
321,669
6,658
600
–
340,099
2,571
6,927
92
12,848
(558)
21,880
0.0%
11.8%
16.5%
9.4%
39.8%
8.3%
2,571
6,198
79
11,748
(399)
20,197
1,746
4,708
69
11,632
(251)
17,904
3,975
5,775
7.1%
16.8%
3,710
4,946
2,860
3,829
21,932
(4,051)
27,631
10.1%
6.6%
11.5%
19,916
(3,800)
24,772
18,549
(3,596)
21,642
3,156
6,804
96
6,095
(361)
15,790
0.0%
9.0%
4.3%
18.2%
-2.4%
10.6%
3,156
6,241
92
5,156
(370)
14,275
2,631
6,063
96
5,483
(442)
13,831
411,640
6.0%
388,458
416,050
526,657
6.1%
496,516
507,625
352,040
4.8%
335,944
353,930
Assets
Cash resources (including deposits with banks)
Securities
Available-for-sale (including loan substitutes)
Held-for-trading
Other
Total cash resources and securities
Securities purchased under resale agreements
Other
Acceptances
Securities – short sales
Securities – repos
Unrealized losses on trading derivatives
Other liabilities (including non-controlling interests)
Subordinated debt
Preferred share liability
Trust securities
Total liabilities and debt
Shareholders’ Equity
Preferred share capital
Common share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and shareholders’ equity
56 Canadian Banks 2011
NBC
RBC
TD
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
2,274
2.1%
2,228
3,660
22,582
30.7%
17,276
31,127
21,710
0.9%
21,517
17,946
10,997
43,271
–
56,542
-17.2%
17.1%
–
7.8%
13,281
36,952
–
52,461
12,322
33,863
–
49,845
43,776
149,555
–
215,913
-5.3%
6.8%
–
6.1%
46,210
140,062
–
203,548
48,626
122,508
–
202,261
102,355
59,542
9,715
193,322
20.6%
9.6%
0.5%
13.5%
84,841
54,320
9,662
170,340
75,121
59,497
9,507
162,071
10,878
42.4%
7,637
7,868
72,698
74.8%
41,580
44,818
50,658
53.8%
32,948
42,425
15,806
20,549
21,469
(636)
57,188
5.6%
12.2%
7.3%
-0.6%
8.6%
14,961
18,313
20,003
(640)
52,637
15,366
15,695
21,149
(469)
51,741
128,832
90,284
76,087
(2,997)
292,206
5.5%
12.5%
-7.0%
-6.0%
4.0%
122,130
80,243
81,778
(3,188)
280,963
122,991
69,660
99,104
(2,215)
289,540
71,507
109,750
91,072
(2,309)
270,020
8.9%
7.1%
4.3%
-2.5%
6.7%
65,665
102,509
87,322
(2,368)
253,128
57,596
86,997
76,567
(1,536)
219,624
5,946
7,309
7,438
145,301
3.7%
7.5%
8.2%
10.0%
5,733
6,798
6,872
132,138
4,274
9,241
6,363
129,332
7,371
102,112
35,906
726,206
-18.3%
18.5%
6.5%
10.9%
9,024
86,165
33,709
654,989
11,285
129,061
46,894
723,859
7,757
41,368
56,420
619,545
-22.0%
1.8%
12.4%
11.2%
9,946
40,654
50,203
557,219
11,040
75,807
52,247
563,214
34,112
41,985
5,688
81,785
-1.4%
14.4%
47.2%
8.8%
34,609
36,698
3,863
75,170
33,098
36,872
6,052
76,022
161,693
247,197
24,143
433,033
6.1%
12.0%
-4.2%
8.7%
152,328
220,772
25,204
398,304
139,036
269,994
29,545
438,575
249,251
168,212
12,508
429,971
11.7%
3.6%
128.2%
10.0%
223,228
162,326
5,480
391,034
192,234
173,780
9,680
375,694
5,946
18,292
12,513
6,418
11,106
3.7%
38.4%
-1.8%
9.5%
1.7%
5,733
13,221
12,736
5,859
10,925
4,274
15,829
7,151
8,502
9,790
7,371
46,597
41,582
104,834
46,430
-18.3%
12.7%
18.3%
31.5%
-0.5%
9,024
41,359
35,150
79,747
46,643
11,285
27,507
32,053
123,762
50,508
7,757
23,695
25,426
45,674
31,632
-22.0%
34.3%
54.4%
11.3%
10.9%
9,946
17,641
16,472
41,049
28,529
11,040
18,518
18,654
69,562
24,192
2,033
–
–
138,093
0.8%
–
–
9.9%
2,017
–
–
125,661
2,255
–
–
123,823
6,681
727
687,255
3.4%
–
-47.9%
11.2%
6,461
–
1,395
618,083
8,131
–
1,400
693,221
12,506
582
–
577,243
1.0%
5.8%
-100.0%
11.3%
12,383
550
895
518,499
12,436
550
894
531,540
1,089
1,804
66
4,081
168
7,208
0.0%
4.3%
37.5%
16.1%
75.0%
11.3%
1,089
1,729
48
3,515
96
6,477
774
1,656
31
3,110
(62)
5,509
4,811
13,297
236
22,706
(2,099)
38,951
0.0%
2.4%
-4.1%
10.3%
22.3%
5.5%
4,811
12,980
246
20,585
(1,716)
36,906
2,658
10,280
242
19,816
(2,358)
30,638
3,394
16,639
305
20,959
1,005
42,302
0.0%
8.5%
-9.2%
12.5%
-1.0%
9.3%
3,395
15,342
336
18,632
1,015
38,720
1,875
13,241
350
17,857
(1,649)
31,674
145,301
10.0%
132,138
129,332
726,206
10.9%
654,989
723,859
619,545
11.2%
557,219
563,214
Perspectives on the Canadian banking industry
57
Balance sheet ratios1
(in millions of Canadian dollars)
BMO
BNS
CIBC
2010
2009
2008
2010
2009
2008
2010
2009
2008
3.2%
3.4%
5.1%
8.7%
8.7%
7.4%
3.4%
2.1%
2.5%
12.2%
14.4%
0.4%
35.0%
12.9%
15.2%
0.4%
31.9%
7.7%
15.9%
0.5%
29.1%
9.0%
12.3%
0.9%
30.9%
11.2%
11.7%
0.7%
32.3%
7.6%
9.5%
0.2%
24.7%
7.6%
8.1%
6.4%
25.5%
12.0%
4.5%
6.6%
25.2%
3.8%
10.5%
8.1%
24.9%
6.8%
9.3%
6.7%
5.3%
3.6%
3.8%
10.6%
9.7%
10.1%
Loans
Residential mortgages
Personal and credit card loans
Business and government loans
Allowance for credit losses
Total loans
11.8%
13.2%
16.6%
-0.5%
41.2%
11.7%
12.5%
17.5%
-0.5%
41.2%
11.9%
11.0%
20.2%
-0.4%
42.7%
22.9%
11.9%
19.7%
-0.5%
54.0%
20.5%
12.3%
21.5%
-0.6%
53.6%
22.7%
10.0%
24.7%
-0.5%
56.9%
26.6%
13.2%
11.0%
-0.5%
50.2%
25.6%
13.6%
11.1%
-0.6%
49.8%
25.6%
12.1%
11.1%
-0.4%
48.4%
Customers’ liability under acceptances
Unrealized gains on trading derivatives
Other assets
1.7%
12.1%
3.2%
2.0%
12.3%
3.2%
2.2%
15.8%
3.4%
1.4%
4.7%
3.7%
1.9%
4.7%
3.8%
2.4%
8.1%
4.2%
2.2%
6.3%
5.2%
2.5%
6.3%
6.5%
2.5%
7.2%
6.9%
Liabilities
Deposits
Individuals
Business and government
Banks
24.1%
31.8%
4.7%
25.6%
29.3%
5.9%
21.9%
32.7%
7.3%
24.5%
40.0%
4.2%
24.9%
41.0%
4.6%
23.4%
39.5%
5.3%
32.2%
36.3%
1.6%
32.2%
31.9%
2.3%
28.1%
33.3%
4.4%
Total deposits
60.6%
60.8%
61.9%
68.7%
70.6%
68.3%
70.1%
66.4%
65.8%
Other
Acceptances and securities
Unrealized losses on trading derivatives
Other liabilities
17.1%
11.7%
4.2%
17.0%
11.4%
4.3%
14.6%
14.4%
3.4%
13.2%
5.4%
6.3%
12.3%
4.9%
6.0%
11.9%
7.4%
7.3%
12.9%
6.5%
4.7%
15.4%
6.9%
5.3%
15.2%
8.0%
5.0%
Subordinated debt
Preferred share liability
Trust securities
Total liabilities and debt
0.9%
0.0%
0.2%
94.7%
1.1%
0.0%
0.3%
94.8%
1.0%
0.1%
0.3%
95.7%
1.1%
0.0%
0.1%
94.8%
1.2%
0.0%
0.1%
95.0%
0.9%
0.0%
0.1%
95.7%
1.4%
0.0%
0.0%
95.5%
1.5%
0.2%
0.0%
95.8%
1.9%
0.2%
0.0%
96.1%
2.3%
3.0%
5.3%
2.3%
2.9%
5.2%
1.6%
2.8%
4.3%
1.9%
3.4%
5.2%
1.7%
3.2%
5.0%
1.3%
2.9%
4.3%
2.8%
1.7%
4.5%
2.8%
1.5%
4.2%
2.5%
1.5%
3.9%
33,670
1.4%
6
31,016
1.9%
6
26,775
2.2%
8
22,943
1.6%
8
18,960
1.7%
9
48,602
1.5%
4
43,804
1.5%
4
43,137
1.9%
4
Assets
Cash resources (including deposits with banks)
Securities
Available-for-sale (including loan substitutes)
Held-for-trading
Other
Total cash resources and securities
Securities purchased under resale agreements
Shareholders’ Equity
Share capital
Shareholders’ equity
Total shareholders’ equity
Analysis of Investment Fund Assets 2
Assets under management (excluding general funds)
Margin earned on assets under management3
Ranking based on assets under management4
58 Canadian Banks 2011
37,089
1.5%
6
Change
10.2%
Change
16.7%
Change
11.0%
NBC
RBC
TD
2010
2009
2008
2010
2009
2008
2010
2009
1.6%
1.7%
2.8%
3.1%
2.6%
4.3%
3.5%
3.9%
3.2%
7.6%
29.8%
0.0%
38.9%
10.1%
28.0%
0.0%
39.7%
9.5%
26.2%
0.0%
38.5%
6.0%
20.6%
0.0%
29.7%
7.1%
21.4%
0.0%
31.1%
6.7%
16.9%
0.0%
27.9%
16.5%
9.6%
1.6%
31.2%
15.2%
9.7%
1.7%
30.6%
13.3%
10.6%
1.7%
28.8%
7.5%
5.8%
6.1%
10.0%
6.3%
6.2%
8.2%
5.9%
7.5%
10.9%
14.1%
14.8%
-0.4%
39.4%
11.3%
13.9%
15.1%
-0.5%
39.8%
11.9%
12.1%
16.4%
-0.4%
40.0%
17.7%
12.4%
10.5%
-0.4%
40.2%
18.6%
12.3%
12.5%
-0.5%
42.9%
17.0%
9.6%
13.7%
-0.3%
40.0%
11.5%
17.7%
14.7%
-0.4%
43.6%
11.8%
18.4%
15.7%
-0.4%
45.4%
10.2%
15.4%
13.6%
-0.3%
39.0%
4.1%
5.0%
5.1%
4.3%
5.1%
5.2%
3.3%
7.1%
4.9%
1.0%
14.1%
4.9%
1.4%
13.2%
5.1%
1.6%
17.8%
6.5%
1.3%
6.7%
9.1%
1.8%
7.3%
9.0%
2.0%
13.5%
9.3%
23.5%
28.9%
3.9%
26.2%
27.8%
2.9%
25.6%
28.5%
4.7%
22.3%
34.0%
3.3%
23.3%
33.7%
3.8%
19.2%
37.3%
4.1%
40.2%
27.2%
2.0%
40.1%
29.1%
1.0%
34.1%
30.9%
1.7%
56.3%
56.9%
58.8%
59.6%
60.8%
60.6%
69.4%
70.2%
66.7%
25.3%
4.4%
7.6%
24.0%
4.4%
8.3%
21.1%
6.6%
7.6%
13.2%
14.4%
6.4%
13.1%
12.2%
7.1%
9.8%
17.1%
7.0%
9.2%
7.4%
5.1%
7.9%
7.4%
5.1%
8.6%
12.4%
4.3%
1.4%
0.0%
0.0%
95.0%
1.5%
0.0%
0.0%
95.1%
1.7%
0.0%
0.0%
95.7%
0.9%
0.0%
0.1%
94.6%
1.0%
0.0%
0.2%
94.4%
1.1%
0.0%
0.2%
95.8%
2.0%
0.1%
0.0%
93.2%
2.2%
0.1%
0.2%
93.1%
2.2%
0.1%
0.2%
94.4%
2.0%
3.0%
5.0%
2.1%
2.8%
4.9%
1.9%
2.4%
4.3%
2.5%
2.9%
5.4%
2.7%
2.9%
5.6%
1.8%
2.4%
4.2%
3.2%
3.6%
6.8%
3.4%
3.6%
6.9%
2.7%
2.9%
5.6%
11,864
1.5%
14
10,693
1.3%
13
105,971
1.5%
1
99,800
1.3%
1
93,339
1.7%
1
59,023
1.5%
3
53,211
1.3%
3
48,384
1.8%
3
13,209
1.2%
13
Change
11.3%
Change
6.2%
Change
10.9%
2008
Notes
1. Totals may not sum to 100% due to
rounding.
2. Source for the investment funds
information is The Investment Funds
Institute of Canada (IFIC) monthly
bulletin.
3. Calculated as total mutual fund
income divided by assets under
management.
4. Represents the relative position
among all members of IFIC.
Perspectives on the Canadian banking industry
59
Income statement highlights
(in millions of Canadian dollars)
BMO
BNS
CIBC
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
Interest and dividend income
Loans
Securities
Deposits with banks
7,270
2,134
74
-8.7%
-12.1%
-60.2%
7,960
2,427
186
10,614
3,191
930
12,372
4,227
292
-13.9%
3.3%
-39.4%
14,363
4,090
482
16,618
4,615
1,083
7,481
1,562
52
-0.3%
-8.4%
-38.8%
7,507
1,705
85
10,843
2,682
638
Total interest income
9,478
-10.4%
10,573
14,735
16,891
-10.8%
18,935
22,316
9,095
-2.2%
9,297
14,163
Interest expense
Deposits
Subordinated debt
Other1
2,362
119
762
-41.5%
-11.9%
-7.9%
4,041
135
827
7,341
222
2,100
6,768
289
1,213
-18.8%
1.4%
-38.8%
8,339
285
1,983
12,131
166
2,445
2,192
188
511
-23.9%
-9.6%
-37.4%
2,879
208
816
6,853
271
1,832
Total interest expense
3,243
-35.2%
5,003
9,663
8,270
-22.0%
10,607
14,742
2,891
-25.9%
3,903
8,956
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
6,235
1,049
5,186
11.9%
-34.6%
30.7%
5,570
1,603
3,967
5,072
1,330
3,742
8,621
1,239
7,382
3.5%
-29.0%
12.1%
8,328
1,744
6,584
7,574
630
6,944
6,204
1,046
5,158
15.0%
-36.6%
37.7%
5,394
1,649
3,745
5,207
773
4,434
Other income
Capital market fees
Card service fees
Foreign exchange other than trading
Insurance income (net)
Investment management fees
AFS/investment securities gains (losses)
Lending fees
Mutual fund revenues
Securitization revenues
Service charges
Trading income (loss)
Other revenues
1,493
233
93
321
355
150
572
550
678
802
504
224
9.0%
92.6%
75.5%
8.8%
3.2%
-142.4%
2.9%
17.8%
-27.0%
-2.2%
30.3%
31.8%
1,370
121
53
295
344
(354)
556
467
929
820
723
170
1,458
291
80
237
339
(315)
429
589
513
756
546
210
561
426
337
-9.5%
0.5%
-9.7%
620
424
373
402
397
314
781
355
831
582
124
883
1,016
988
7.3%
-186.2%
-4.0%
56.9%
-69.7%
-2.4%
-3.9%
25.4%
728
(412)
866
371
409
905
1,057
788
760
(374)
579
317
130
862
188
727
900
304
683
277
459
(223)
341
751
631
756
603
399
-5.3%
-7.3%
37.7%
7.4%
9.5%
-192.1%
12.2%
14.1%
21.8%
-2.2%
213.6%
235.3%
Total other income
5,975
8.8%
5,494
5,133
6,884
12.3%
6,129
4,302
5,881
-29.7%
4,534
(1,493)
Non-interest expenses
Employee compensation and benefits
Premises and equipment costs
Other expenses
4,364
1,343
1,883
-0.5%
4.8%
9.8%
4,385
1,281
1,715
3,976
1,241
1,677
4,647
1,526
2,009
7.0%
-1.1%
-1.1%
4,344
1,543
2,032
4,109
1,417
1,770
3,871
1,651
1,505
7.2%
2.7%
4.3%
3,610
1,607
1,443
3,917
1,705
1,579
Total other expenses
7,590
2.8%
7,381
6,894
8,182
3.3%
7,919
7,296
7,027
5.5%
6,660
7,201
3,571
71.7%
2,080
1,981
6,084
26.9%
4,794
3,950
4,012
147.8%
1,619
(4,260)
687
74
216.6%
-2.6%
217
76
(71)
74
1,745
100
54.0%
-12.3%
1,133
114
691
119
1,533
27
261.6%
28.6%
424
21
(2,218)
18
2,810
57.2%
1,787
1,978
4,239
19.5%
3,547
3,140
2,452
108.9%
1,174
(2,060)
136
13.3%
120
73
201
8.1%
186
107
169
4.3%
162
119
2,674
60.4%
1,667
1,905
4,038
20.1%
3,361
3,033
2,283
125.6%
1,012
(2,179)
950
328
496
258
419
242
304
658
518
773
(531)
119
976
306
437
248
525
(289)
237
814
585
776
(6,821)
713
Dilution gain (net)
Income (loss) before income taxes and
non-controlling interest in subsidiaries
Provision for (recovery of) income taxes
Non-controlling interest
Net income (loss)
Less: Preferred dividends
Net income (loss) attributable to common shareholders
60 Canadian Banks 2011
NBC
RBC
TD
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
1,924
964
5
-5.2%
-16.5%
-58.3%
2,029
1,155
12
2,974
1,078
207
13,844
4,770
59
-4.1%
-19.8%
-63.6%
14,435
5,946
162
17,872
6,662
498
12,939
3,780
668
-5.5%
-20.5%
51.1%
13,691
4,754
442
13,501
5,454
629
2,893
-9.5%
3,196
4,259
18,673
-9.1%
20,543
25,032
17,387
-7.9%
18,887
19,584
599
100
282
-27.0%
-2.0%
-8.4%
820
102
308
1,685
98
624
5,091
307
2,298
-24.7%
-12.3%
19.4%
6,762
350
1,925
12,158
354
3,472
4,578
667
599
-21.3%
-0.6%
-44.1%
5,818
671
1,072
8,481
654
1,917
981
-20.2%
1,230
2,407
7,696
-14.8%
9,037
15,984
5,844
-22.7%
7,561
11,052
1,912
144
1,768
-2.7%
-52.8%
6.4%
1,966
305
1,661
1,852
144
1,708
10,977
1,861
9,116
-4.6%
-45.5%
12.6%
11,506
3,413
8,093
9,048
1,595
7,453
11,543
1,625
9,918
1.9%
-34.5%
12.1%
11,326
2,480
8,846
8,532
1,063
7,469
569
42
109
121
3.6%
13.5%
-0.9%
3.4%
549
37
110
117
552
42
121
119
113
314
374
289
229
(78)
284
-216.5%
21.2%
14.4%
-17.7%
-0.4%
-750.0%
5.2%
(97)
259
327
351
230
12
270
(88)
183
354
226
228
(329)
377
2,464
524
614
1,066
1,778
34
627
1,571
764
1,453
1,315
35
2.3%
-28.4%
-3.8%
-3.9%
9.8%
-105.4%
18.3%
21.5%
-34.6%
-6.6%
-50.8%
-133.7%
2,408
732
638
1,109
1,619
(630)
530
1,293
1,169
1,556
2,671
(104)
2,252
648
646
978
1,759
(617)
415
1,561
461
1,367
(96)
1,529
1,379
820
161
1,028
189
75
634
856
489
1,651
484
256
5.8%
11.9%
-19.9%
12.6%
-1.0%
-117.2%
1.9%
19.2%
4.5%
9.6%
-29.3%
-169.2%
1,303
733
201
913
191
(437)
622
718
468
1,507
685
(370)
977
589
206
927
405
331
459
863
231
1,237
(794)
706
2,366
9.3%
2,165
1,785
12,245
-5.7%
12,991
10,903
8,022
22.8%
6,534
6,137
1,624
544
643
5.6%
-6.5%
18.6%
1,538
582
542
1,454
622
619
8,824
2,053
3,516
-1.7%
-0.8%
-22.0%
8,978
2,070
4,510
7,779
1,860
2,712
5,960
2,116
4,087
2.1%
0.3%
-4.1%
5,839
2,110
4,262
4,984
1,618
2,900
2,811
5.6%
2,662
2,695
14,393
-7.5%
15,558
12,351
12,163
-0.4%
12,211
9,502
1,323
13.7%
1,164
798
6,968
26.1%
5,526
6,005
5,777
82.3%
3,169
4,104
221
68
-12.3%
17.2%
252
58
167
(145)
1,646
99
5.0%
-1.0%
1,568
100
1,369
81
1,262
(129)
423.7%
32.8%
241
(192)
537
(266)
1,034
21.1%
854
776
5,223
35.4%
3,858
4,555
4,644
48.8%
3,120
3,833
63
6.8%
59
32
258
10.7%
233
101
194
16.2%
167
59
971
22.1%
795
744
4,965
37.0%
3,625
4,454
4,450
50.7%
2,953
3,774
Notes
1. Includes interest on preferred share
liabilities, trust securities and other
liabilities. Perspectives on the Canadian banking industry
61
Derivatives
(in millions of Canadian dollars)
BMO
BNS6
CIBC
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
2,067
469
5.0%
6.0%
1,968
442
2,046
393
1,382
356
43.2%
22.2%
965
291
877
360
673
219
5.5%
48.0%
638
148
640
144
36
85
108
229
30.2%
-20.3%
-42.4%
-28.8%
28
107
187
322
37
150
373
560
35
79
19
133
24.7%
-10.7%
89.2%
5.0%
28
89
10
127
23
120
7
149
25
37
14
76
7.2%
-37.2%
15.7%
-19.6%
23
59
12
94
41
83
20
144
2,765
1.2%
2,732
3,000
1,870
35.2%
1,383
1,387
967
9.9%
880
929
Asset liability management (ALM) derivatives
Interest rate contracts
Foreign exchange contracts
Other
67
14
–
-13.9%
78
–
–
51
–
–
130
52
3
22.3%
8.6%
-32.5%
104
67
4
277
16
2
27.4%
108.4%
-39.6%
217
8
3
206
17
5
Total notional amount of ALM derivatives
81
3.9%
78
51
184
16.7%
158
175
294
29.2%
228
228
2,846
1.3%
2,810
3,050
2,055
33.3%
1,541
1,562
1,261
13.9%
1,107
1,157
97.2%
2.8%
98.3%
1.7%
91.0%
9.0%
89.7%
10.3%
88.8%
11.2%
76.7%
23.3%
79.4%
20.6%
80.3%
19.7%
436
464
207
445
483
230
982
125
1,068
89
8,090
13,199
10,821
10,255
16,544
10,551
20,435
1,918
1,767
24,120
(16,030)
8,090
21
22,861
1,626
2,566
27,053
(16,798)
10,255
18
Notional amounts (in $ billions)
Trading derivatives
Interest rate contracts
Foreign exchange contracts
Other contracts
Equity contracts
Credit contracts
Other contracts
Total other contracts
Total notional amount of trading derivatives
Total outstanding notional balances
As a percentage of total notional balances
Trading derivatives
ALM derivatives
National balances by term to maturity
Less than 1 year
1 – 5 years
More than 5 years
Notional balances by type of trading
Over-the-counter traded
Exchange traded
97.2%
2.8%
1,423
1,045
378
% of total
balance
50.0%
36.7%
13.3%
1,397
1,037
376
1,354
1,282
414
2,618
228
92.0%
8.0%
2,490
320
106
48
4
1,131
724
200
% of total
balance
55.0%
35.2%
9.7%
764
587
190
817
514
231
501
606
154
% of total
balance
39.7%
48.1%
12.2%
2,558
492
1,841
213
89.6%
10.4%
1,404
137
1,441
121
1,157
104
91.7%
8.3%
16,594
27,650
10,839
17,668
35,457
14,897
7,036
18,374
5,656
7,699
18,487
6,092
20,734
28,521
9,635
7,433
12,345
4,596
35,026
3,443
7,548
46,017
(29,423)
16,594
76
43,655
3,047
12,714
59,416
(41,748)
17,668
74
44,810
(24,076)
20,734
119
20,381
2,662
1,357
24,400
(16,967)
7,433
27
Credit risk (net of master netting agreements)
(in $ millions)
Current replacement cost 1
Credit equivalent amount 2
Risk-weighted amount 3
16,380
25,710
10,681
Replacement cost by counterparty type
Financial institutions
Governments
Other
Derivatives before master netting agreements
Impact of master netting agreements
Total derivatives after master netting agreements
37,421
4,894
5,602
47,917
31,537
79,454
74
Change
62 Canadian Banks 2011
4.1%
-207.2%
378.8%
-2.6%
Change
26,852
(19,816)
7,036
100
3.3%
8.3%
-8.6%
-12.3%
Change
25,992
(18,293)
7,699
114
1.2%
5.8%
-8.1%
28.6%
NBC4,7
2010
316
62
Change
13.3%
10.2%
RBC5
2009
279
57
2008
2010
Change
TD
2009
2008
2010
Change
2009
2008
255
55
4,844
1,342
44.3%
33.9%
3,358
1,003
3,251
1,266
1,399
792
5.4%
15.1%
1,327
688
1,466
742
-30.7%
12.2%
-4.2%
127
205
332
273
301
573
47
8
13
68
-87.1%
7.8%
-44.8%
47
64
12
122
65
220
17
302
4,692
5,091
2,258
5.7%
2,137
2,510
225
100
4
369
62
24
17.5%
-0.2%
-3.2%
314
63
25
216
52
17
60
12.9%
53
60
88
230
318
438
12.8%
389
370
6,504
38.6%
21
0.1
0
62.7%
-89.5%
27.3%
13
1
0
207
106
3
-0.8%
10.5%
-4.5%
22
49.5%
14
24
316
2.7%
308
329
456
13.5%
401
284
460
14.1%
403
394
6,820
36.4%
5,000
5,420
2,714
6.9%
2,539
2,794
96.4%
3.6%
93.9%
6.1%
95.4%
4.6%
93.8%
6.2%
93.9%
6.1%
83.2%
16.8%
84.2%
15.8%
89.8%
10.2%
1,254
927
358
1,351
1,025
419
2,246
292
2,626
169
8,023
26,793
6,726
12,814
34,203
8,158
40,192
4,374
3,976
48,542
(40,519)
8,023
21
75,357
2,370
4,158
81,885
(69,071)
12,814
18
95.3%
4.7%
22
2
0
263
151
46
% of total
balance
57.2%
32.8%
10.0%
237
130
36
235
123
35
378
82
82.3%
17.7%
316
87
3,399
6,727
3,722
4,169
7,336
2,057
3,210
2,388
1,222
% of total
balance
47.1%
35.0%
17.9%
2,075
1,835
1,090
2,688
1,765
968
1,338
1,047
329
% of total
balance
49.3%
38.6%
12.1%
329
64
6,412
408
94.0%
6.0%
4,636
364
5,027
393
2,386
328
87.9%
12.1%
2,998
5,836
3,094
28,304
51,515
20,237
26,704
47,032
17,173
54,049
82,231
25,896
8,162
26,118
7,106
8,518
(5,520)
2,998
74
68,475
11,118
25,348
104,941
(76,637)
28,304
100
59,786
8,900
21,154
89,840
(63,136)
26,704
114
82,512
6,593
42,878
131,983
(77,934)
54,049
119
40,104
6,577
4,390
51,071
(42,909)
8,162
8,162
Change
Change
3,404
1,018
7,878
(3,709)
4,169
74
9.7%
-2.0%
22.7%
-2.6%
208
96
3
7,182
(3,783)
3,399
76
16.8%
21.4%
6.0%
-12.3%
Notes
1. The current replacement cost is the
positive fair value of all outstanding
derivative financial instruments and
represents the maximum derivative
credit exposure. 2. The credit equivalent amount is the
sum of the current replacement
cost and the potential future
exposure, which is calculated by
applying factors supplied by the
Office of the Superintendent of
Financial Institutions Canada to the
notional principal amount of the
instruments. 3. The risk-weighted amount is
determined by applying standard
measures of counterparty credit
risk to the credit equivalent
amount.
4. NBC does not indicate the split
between equity, credit and other
contracts.
5. RBC does not indicate the
split between equity and other
contracts.
6. BNS does not split replacement cost
by counterparty type in 2010, 2009
and 2008. 7. NBC shows split by counterparty
type, net of master netting
agreements in 2010, 2009 and
2008.
Change
5.2%
Perspectives on the Canadian banking industry
63
Credit risk summary
(in millions of Canadian dollars)
BMO3
BNS1,2
CIBC2
2010
Change
2009
2008
2010
Change
2009
2008
2010
Change
2009
2008
Balance sheet credit risk
Consumer loans
Residential mortgages
Personal loans
Credit cards1
48,715
51,159
3,308
7.0%
11.6%
28.5%
45,524
45,824
2,574
49,343
43,737
2,120
120,482
62,548
18.6%
2.5%
101,604
61,048
115,084
50,719
93,568
34,335
12,127
8.6%
1.4%
2.7%
86,152
33,869
11,808
90,695
32,124
10,829
Corporate loans
Business and government loans
Customers’ liability under acceptances
Securities purchased under resale agreement
68,338
7,001
28,102
0.2%
-8.4%
-22.0%
68,169
7,640
36,006
84,151
9,358
28,033
103,981
7,616
27,920
-2.4%
-20.5%
57.1%
106,520
9,583
17,773
125,503
11,969
19,451
38,582
7,684
37,342
3.3%
-8.5%
14.0%
37,343
8,397
32,751
39,273
8,848
35,596
206,623
0.4%
205,737
216,742
322,547
8.8%
296,528
322,726
223,638
6.3%
210,320
217,365
Allowance for credit losses
Specific provision
General provision
581
1,297
-2.5%
-0.7%
596
1,306
426
1,321
1,386
1,410
-2.7%
-2.8%
1,425
1,450
1,311
1,323
631
1,153
-14.1%
-11.8%
735
1,307
443
1,080
Total notional amount of ALM derivatives
1,878
-1.3%
1,902
1,747
2,796
-2.7%
2,875
2,634
1,784
-12.6%
2,042
1,523
Gross impaired loans
Impaired loans net of specific allowance
3,221
2,640
-2.3%
-2.3%
3,297
2,701
2,387
1,961
4,421
3,035
12.2%
20.7%
3,939
2,514
2,494
1,183
1,836
1,205
-3.9%
2.5%
1,911
1,176
983
540
0.9%
58.3%
0.9%
57.7%
0.8%
73.2%
0.9%
63.2%
1.0%
73.0%
0.8%
105.6%
0.8%
97.2%
1.0%
106.9%
0.7%
154.9%
1.6%
1.6%
1.1%
1.37%
1.33%
0.77%
0.8%
0.9%
0.5%
120,259
37,480
10,090
123,809
51,276
11,897
234,670
32,987
101,074
64%
9%
27%
210,866
39,790
97,542
199,672
34,262
112,184
262,043
29,283
44,934
78%
9%
13%
242,487
32,225
42,927
242,981
46,453
43,259
23,896
18,220
9,548
46%
35%
18%
43,719
15,172
5,660
44,376
17,949
10,085
102,704
5,629
4,317
91%
5%
4%
86,830
5,183
2,265
94,707
5,413
3,764
22,418
22,109
11,815
40%
39%
21%
25,283
25,378
11,690
34,722
37,240
15,751
9,636
5,720
9,044
39%
23%
37%
9,334
6,281
8,505
11,172
7,797
8,084
Total loans
Credit related ratios
Allowance for loan losses as a percentage of
Total loans
Gross impaired loans
Gross impaired loans as a percentage of total loans
Concentration of Credit Risk
On balance sheet
Canada
US
Other countries
133,717
33,680
9,246
76%
19%
5%
Off balance sheet
Canada
US
Other countries
Derivatives
Canada
US
Other countries
64 Canadian Banks 2011
19,202
12,450
16,265
40%
26%
34%
19,640
11,783
14,594
21,022
17,351
21,043
NBC1,3
2010
Change
RBC2
2009
2008
2010
Change
TD4
2009
2008
2010
Change
2009
2008
Notes
1. BNS and NBC include credit card
balances in personal loans.
15,806
20,549
5.6%
12.2%
14,961
18,313
15,366
15,695
128,832
80,174
10,110
5.5%
12.1%
16.2%
122,130
71,542
8,701
122,991
60,727
8,933
71,507
100,880
8,870
8.9%
6.9%
8.8%
65,665
94,357
8,152
57,596
79,610
7,387
21,469
5,946
10,878
7.3%
3.7%
42.4%
20,003
5,733
7,637
21,149
4,274
7,868
76,087
7,371
72,698
-7.0%
-18.3%
74.8%
81,778
9,024
41,580
99,104
11,285
44,818
91,072
7,757
50,658
4.3%
-22.0%
53.8%
87,322
9,946
32,948
76,567
11,040
42,425
74,648
12.0%
66,647
64,352
375,272
12.1%
334,755
347,858
330,744
10.8%
298,390
274,625
207
429
12.5%
-5.9%
184
456
138
331
1,111
1,985
-13.1%
-1.9%
1,279
2,023
767
1,532
677
1,632
21.3%
-9.8%
558
1,810
352
1,184
636
-0.6%
640
469
3,096
-6.2%
3,302
2,299
2,309
-2.5%
2,368
284
369
162
-9.3%
-27.4%
407
223
307
169
4,999
3,888
-8.4%
-6.9%
5,457
4,178
2,923
2,156
3,456
2,779
49.5%
58.5%
2,311
1,753
1,157
805
0.9%
172.4%
1.0%
157.2%
0.7%
152.8%
0.8%
61.9%
1.0%
60.5%
0.7%
78.7%
0.7%
66.8%
0.8%
102.5%
0.6%
132.8%
0.5%
0.6%
0.5%
1.33%
1.63%
0.84%
1.04%
0.77%
0.42%
267,945
51,147
56,180
71%
14%
15%
245,193
50,463
39,099
240,620
56,382
50,856
72%
26%
2%
71%
23%
6%
73%
25%
2%
197,405
59,546
29,243
69%
21%
10%
196,506
56,717
43,582
202,137
73,979
47,851
56%
36%
8%
62%
32%
6%
64%
27%
9%
13,608
25,067
66,259
13%
24%
63%
14,668
19,854
55,190
24,033
27,106
80,444
34%
20%
46%
34%
21%
45%
24%
23%
53%
2. General allowance includes amount
recorded in other liabilities (BNS: $9
in 2010, $5 in 2009 and $8 in 2008;
CIBC: $64 in 2010, $82 in 2009 and
$77 in 2008; RBC: $99 in 2010, $114
in 2009 and $84 in 2008).
3. BMO does not disclose geographic
allocation for off-balance sheet
credit instruments; NBC does
not disclose geographic split for
concentration of credit risk.
4. For concentration of credit risk, TD
discloses percentages only . For
on-balance sheet risk, only loans
and customers’ liabilities under
acceptances are included.
Perspectives on the Canadian banking industry
65
Statement of comprehensive income (loss) and changes in shareholders’ equity
BMO3
Statement of comprehensive income
Net income (loss)
Other comprehensive income (loss)
Net change from AFS securities
Net change from cash flow hedges
Net gain (loss) on translation of net foreign operations
Total comprehensive income
Changes in shareholders’ equity
Preferred shares – net changes
Common shares – net changes
Contributed surplus
Retained earnings
Impact of adopting new accounting requirements
Net income (loss) less dividends
Premium paid on shares repurchased
Other
Increase (decrease) in retained earnings
Changes in accumulated other comprehensive income (AOCI)
AFS securities
Cash flow hedges
Translation of net foreign operations
Impact of adopting new accounting requirements
Increase (decrease) in retained earnings
2010
Change
2009
2008
2010
2,810
7.0%
11.6%
28.5%
1,787
1,978
554
(244)
(458)
1,639
–
729
13
825
1,490
10
–
1,103
–
(3)
1,100
848.3%
–
137
–
(21)
116
-7.4%
35
48
(242)
2,651
61.7%
35
48
(242)
(159)
Increase (decrease) in shareholders’ equity
1,683
Total shareholders’ equity – closing balance
21,880
66 Canadian Banks 2011
BNS1,2
8.3%
Change
CIBC2
2009
2008
2010
4,239
3,547
3,140
(109)
424
967
3,260
278
62
(591)
3,988
894
43
(1,736)
2,748
2009
2008
2,452
1,174
(2,060)
(1,588)
(519)
2,368
3,401
73
16
(80)
2,461
226
(16)
(138)
1,246
(36)
(44)
730
(1,410)
550
297
11
265
804
25
850
1,117
–
1,225
263
–
–
563
4
525
178
(4)
300
2,926
–
–
495
–
(29)
466
2,015
–
1
2,016
47.5%
–
1,371
–
(4)
1,367
–
1,137
(37)
(11)
1,089
–
933
–
6
939
-387.2%
(6)
(316)
–
(5)
(327)
(66)
(3,464)
–
(4)
(3,534)
554
(244)
(458)
–
(148)
(109)
424
967
–
1,282
278
62
(591)
–
(251)
(1,588)
(519)
2,368
–
261
73
16
(80)
23.0%
894
43
(1,736)
595
(204)
87.5%
226
(16)
(138)
–
72
(36)
(44)
730
–
650
2,293
2,606
2,859
3,130
2,838
1,515
444
342
20,197
17,904
27,631
24,772
21,642
15,790
14,275
13,831
45.1%
11.5%
9
Change
97.5%
10.6%
NBC1,3
2010
2009
2008
2010
1,034
854
776
61
44
(33)
1,106
171
16
(29)
1,012
–
75
18
–
569
–
(3)
566
Change
RBC2
2009
2008
2010
5,223
3,858
4,555
4,644
3,120
3,833
(207)
199
109
877
180
(252)
(311)
4,840
992
118
(572)
4,396
(1,003)
(554)
2,405
5,403
454
898
(1,362)
4,634
1,386
458
(72)
4,892
(1,778)
1,360
440
3,855
315
73
17
374
81
(1)
–
317
(10)
2,153
2,700
4
614
3,081
7
(1)
1,297
(31)
1,520
2,116
(29)
1,450
6,664
231
–
350
–
(33)
317
2,122
–
(1)
2,121
160.6%
66
806
–
(58)
814
–
1,830
(49)
(87)
1,694
–
2,332
39.8%
–
397
–
8
405
(5)
2,327
200.3%
(55)
878
–
(48)
775
–
1,923
–
(20)
1,903
54.4%
171
16
(29)
–
158
(207)
199
109
–
101
180
(252)
(311)
–
(383)
164.2%
992
118
(572)
59
597
(1,003)
(554)
2,405
(45)
803
454
898
(1,362)
–
(10)
-100.4%
1,386
458
(72)
892
2,664
(1,778)
1,360
440
–
22
968
872
2,045
6,268
6,199
3,582
7,046
10,270
6,477
5,509
38,951
36,906
30,638
42,302
38,720
31,674
9.3%
9.3%
61
44
(33)
72
731
7,208
11.3%
Change
TD4
10.1%
5.5%
Change
-5.3%
9.3%
2009
2008
Perspectives on the Canadian banking industry
67
Interest income and related ratios1
BMO
2010
Change
BNS2
2009
2008
2010
Change
CIBC4
2009
2008
2010
Change
2009
2008
Interest and dividend income
Loans
Securities
Deposits with banks
Total interest income
47.0%
13.8%
0.5%
61.3%
49.5%
15.1%
1.2%
65.8%
53.4%
16.1%
4.7%
74.2%
52.0%
17.8%
1.2%
71.0%
57.3%
16.3%
1.9%
75.5%
62.4%
17.3%
4.1%
83.8%
50.0%
10.4%
0.3%
60.7%
54.3%
12.3%
0.6%
67.2%
85.6%
21.2%
5.0%
111.8%
Other income
38.7%
34.2%
25.8%
29.0%
24.5%
16.2%
39.3%
210,320
-11.8%
Interest expense
Deposits
Subordinated debt
Other liabilities
Total interest expense
21.8%
1.1%
7.0%
29.9%
32.6%
1.1%
6.7%
40.4%
44.3%
1.3%
12.7%
58.4%
41.1%
1.8%
7.4%
50.3%
45.0%
1.5%
10.7%
57.3%
55.0%
0.8%
11.1%
66.9%
22.1%
1.9%
5.2%
29.1%
27.3%
2.0%
7.7%
36.9%
42.4%
1.7%
11.3%
55.4%
Other expenses
70.1%
59.6%
41.6%
49.7%
42.7%
33.1%
70.9%
63.1%
44.6%
Revenue
Total revenue
12,210
11,064
10,205
15,505
14,457
11,876
12,085
9,928
3,714
50%
50%
50%
50%
56%
44%
58%
42%
64%
36%
51%
49%
54%
46%
n/m
n/m
338,073
100,475
438,548
323,918
73,691
397,609
457,600
58,400
516,000
440,200
72,900
513,100
398,900
56,600
455,500
297,226
48,717
345,943
287,724
62,982
350,706
294,478
50,387
344,865
1.56%
1.27%
1.28%
1.73%
1.68%
1.75%
1.79%
1.54%
1.51%
4,692
11,030
1,722
(17,444)
4,843
11,235
(247)
(15,831)
6,934
6,295
1,164
(14,393)
10,000
(5,400)
16,200
(7,700)
17,300
(11,100)
(4,600)
(8,500)
(6,200)
(2,298)
3,738
(590)
(850)
(1,558)
1,440
(1,889)
2,007
(8,520)
4,727
(3,548)
7,341
3,613
(5,687)
486
1,588
3,254
(4,210)
(1,162)
2,118
(4,914)
2,738
147
2,029
5,200
11,800
(2,400)
13,400
(4,500)
22,600
(17,000)
(11,000)
(18,100)
(1,035)
401
366
268
(5,063)
2,189
320
2,554
(2,942)
(885)
(113)
3,940
Net interest income to total revenue
Other income to total revenue
Average assets ($ millions)
Average interest bearing assets
Average non-interest bearing assets
Total average assets
Interest rate spread3
Interest rate gap position ($ millions)
Canadian currency
0-12 months (including floating rate)
1-5 years
Over 5 years
Non-interest sensitive
Foreign currencies
0-12 months (including floating rate)
1-5 years
Over 5 years
Non-interest sensitive
68 Canadian Banks 2011
10.4%
51%
49%
328,552
69,922
398,474
-2.8%
-30.4%
-9.1%
7.2%
4.0%
-19.9%
0.6%
21.7%
3.3%
-22.6%
-1.4%
NBC
2010
2009
2008
2010
36.6%
18.3%
0.1%
55.0%
37.8%
21.5%
0.2%
59.6%
49.2%
17.8%
3.4%
70.5%
45.0%
40.4%
15.8%
2.6%
7.4%
25.9%
74.1%
2008
2010
44.8%
15.4%
0.2%
60.4%
43.0%
17.7%
0.5%
61.3%
49.7%
18.5%
1.4%
69.7%
50.9%
14.9%
2.6%
68.4%
53.9%
18.7%
1.7%
74.3%
52.5%
21.2%
2.4%
76.1%
29.5%
39.6%
38.7%
30.3%
31.6%
25.7%
23.9%
21.1%
2.6%
7.9%
31.6%
33.0%
1.9%
12.2%
47.2%
23.0%
1.4%
10.4%
34.8%
27.5%
1.4%
7.8%
36.7%
42.9%
1.2%
12.3%
56.4%
25.4%
3.7%
3.3%
32.5%
29.4%
3.4%
5.4%
38.2%
41.3%
3.2%
9.3%
53.8%
68.4%
52.8%
65.2%
63.3%
43.6%
67.5%
61.8%
46.2%
4,131
3,637
23,222
24,497
19,951
19,565
17,860
14,669
48%
52%
51%
49%
47%
53%
47%
53%
45%
55%
59%
41%
63%
37%
58%
42%
117,404
23,574
140,978
112,189
16,130
128,319
547,184
135,816
683,000
523,645
171,655
695,300
530,464
119,836
650,300
490,247
101,753
592,000
446,256
134,744
581,000
385,028
98,972
484,000
1.51%
1.49%
1.54%
1.61%
1.66%
1.39%
2.31%
2.51%
2.17%
4,097
(13,109)
2,841
8,247
9,856
(2,542)
2,095
(2,595)
(9,606)
8,006
2,164
(1,286)
(70,335)
46,692
26,578
(2,982)
(70,607)
47,003
33,334
(9,741)
(63,198)
31,164
24,247
7,788
26,900
17,000
8,100
(60,700)
33,600
10,300
(4,100)
(69,300)
3,000
31,500
1,900
(59,900)
(1,777)
(3,438)
457
2,682
(8,039)
(386)
46
1,565
(2,297)
(159)
407
2,771
(91)
127
34
(23)
139
83
35
(246)
157
56
34
(248)
4,300
42,500
16,000
(54,100)
(7,200)
38,600
17,800
19,700
(24,900)
26,500
12,400
9,500
3.6%
45%
55%
119,830
20,528
140,358
2.1%
-12.9%
-0.4%
Change
TD3
2009
4,278
Change
RBC
-5.2%
4.5%
-20.9%
-1.8%
Change
9.5%
9.9%
-24.5%
1.9%
2009
2008
Notes
1. Totals may not sum to 100% due
to rounding.
2. BNS does not differentiate the
interest rate gap position between
1-5 years and over 5 years.
3. TD interest rate spread is based
on average earning assets only,
whereas all other banks show
spread based on average assets
(including non-earning).
4. Due to negative other income in
2008, the ratios for net interest
income and other income to total
revenue are not meaningful (n/m)
for CIBC.
Perspectives on the Canadian banking industry
69
Income, expense and other ratios1
BMO
2010
Change
BNS
2009
2008
2010
Change
CIBC
2009
2008
2010
Change
2009
2008
Other income
Capital market fees
Card service fees
Foreign exchange other than trading
Insurance income
Investment management fees
Investment securities gains (losses)
Lending fees
Mutual fund revenues
Securitization revenues
Service charges
Trading income
Other fees
25.0%
3.9%
1.6%
5.4%
5.9%
2.5%
9.6%
9.2%
11.3%
13.4%
8.4%
3.7%
24.9%
2.2%
1.0%
5.4%
6.3%
-6.4%
10.1%
8.5%
16.9%
14.9%
13.2%
3.1%
28.4%
5.7%
1.6%
4.6%
6.6%
-6.1%
8.4%
11.5%
10.0%
14.7%
10.6%
4.1%
8.1%
6.2%
4.9%
0.0%
11.3%
5.2%
12.1%
8.5%
1.8%
12.8%
14.8%
14.4%
10.1%
6.9%
6.1%
0.0%
11.9%
-6.7%
14.1%
6.1%
6.7%
14.8%
17.2%
12.9%
9.3%
9.2%
7.3%
0.0%
17.7%
-8.7%
13.5%
7.4%
3.0%
20.0%
4.4%
16.9%
15.3%
5.2%
11.6%
4.7%
7.8%
-3.8%
5.8%
12.8%
10.7%
12.9%
10.3%
6.8%
21.0%
7.2%
10.9%
5.7%
9.2%
5.3%
6.7%
14.5%
11.4%
17.0%
-11.7%
2.6%
-65.4%
-20.5%
-29.3%
-16.6%
-35.2%
19.4%
-15.9%
-54.5%
-39.2%
-52.0%
456.9%
-47.8%
Non-interest Expenses
Salaries and staff benefits
Employee compensation
Employee benefits
Total employee compensation and benefits
49.3%
8.2%
57.5%
50.6%
8.8%
59.4%
50.0%
7.7%
57.7%
49.4%
7.4%
56.8%
47.9%
7.0%
54.9%
48.7%
7.6%
56.3%
47.0%
8.1%
55.1%
47.7%
6.5%
54.2%
46.9%
7.5%
54.4%
Premises and equipment costs
Premises
Equipment
Total premises and equipment costs
8.1%
9.6%
17.7%
8.2%
9.1%
17.4%
8.2%
11.9%
20.0%
7.4%
11.3%
18.7%
7.9%
11.6%
19.5%
7.7%
11.8%
19.4%
9.2%
14.3%
23.5%
9.0%
15.2%
24.1%
8.5%
15.2%
23.7%
Other expenses
Business and capital taxes
Communications
Professional fees
Travel and relocation
Miscellaneous
Subtotal
Amortization of intangible assets
Restructuring costs (including writeoff of goodwill)
Total other expenses
0.7%
3.0%
4.9%
4.5%
9.0%
22.1%
2.7%
0.0%
24.8%
0.6%
3.0%
4.9%
4.2%
7.9%
20.6%
2.8%
-0.1%
23.2%
0.6%
2.9%
5.6%
4.8%
7.9%
21.8%
0.6%
-0.1%
22.3%
2.1%
4.2%
2.7%
1.4%
13.0%
23.4%
1.2%
0.0%
24.6%
2.2%
4.4%
2.7%
1.3%
13.8%
24.4%
1.2%
0.0%
25.7%
1.6%
4.5%
3.1%
1.6%
12.4%
23.1%
1.1%
0.0%
24.3%
1.3%
4.1%
3.0%
2.8%
9.7%
20.9%
0.6%
0.0%
21.4%
1.8%
4.3%
2.8%
2.6%
9.5%
21.0%
0.6%
0.0%
21.7%
1.6%
3.9%
3.2%
3.0%
9.6%
21.3%
0.6%
0.0%
21.9%
Efficiency ratio 2
62.2%
66.7%
67.6%
52.8%
54.8%
61.4%
58.1%
67.1%
n/m
19.2%
10.4%
-3.6%
28.7%
23.6%
17.5%
38.2%
26.2%
52.1%
Effective tax rate
3
Number of full-time equivalent (FTE) employees
37,947
4.9%
36,173
37,073
70,772
4.4%
67,802
69,049
42,354
1.0%
41,941
43,293
Total assets per FTE ($000)
Total revenue per FTE ($000)
Non-interest expense per FTE ($000)
Salaries and Benefits per FTE ($000)
Contribution per FTE ($000)
10,848
322
200
115
122
1.0%
5.2%
-2.0%
-5.1%
19.6%
10,739
306
204
121
102
11,222
275
186
107
89
7,442
219
116
66
103
1.6%
2.7%
-1.0%
2.5%
7.3%
7,323
213
117
64
96
7,352
172
106
60
66
8,312
285
166
91
119
3.8%
20.5%
4.5%
6.2%
53.3%
8,010
237
159
86
78
8,175
86
166
90
(81)
70 Canadian Banks 2011
NBC
2010
Change
RBC
2009
2008
2010
24.0%
1.8%
4.6%
5.1%
25.4%
1.7%
5.1%
5.4%
30.9%
2.4%
6.8%
6.7%
4.8%
13.3%
15.8%
12.2%
9.7%
-3.3%
12.0%
-4.5%
12.0%
15.1%
16.2%
10.6%
0.6%
12.5%
-4.9%
10.3%
19.8%
12.7%
12.8%
-18.4%
21.1%
20.1%
4.3%
5.0%
8.7%
14.5%
0.3%
5.1%
12.8%
6.2%
11.9%
10.7%
0.3%
Change
TD4
2009
2008
2010
18.5%
5.6%
4.9%
8.5%
12.5%
-4.8%
4.1%
10.0%
9.0%
12.0%
20.6%
-0.8%
20.7%
5.9%
5.9%
9.0%
16.1%
-5.7%
3.8%
14.3%
4.2%
12.5%
-0.9%
14.0%
17.2%
10.2%
2.0%
12.8%
2.4%
0.9%
7.9%
10.7%
6.1%
20.6%
6.0%
3.2%
Change
2009
19.9%
11.2%
3.1%
14.0%
2.9%
-6.7%
9.5%
11.0%
7.2%
23.1%
10.5%
-5.7%
2008
15.9%
9.6%
3.4%
15.1%
6.6%
5.4%
7.5%
14.1%
3.8%
20.2%
-12.9%
11.5%
50.2%
7.6%
57.8%
50.3%
7.5%
57.8%
46.5%
7.5%
54.0%
52.9%
8.4%
61.3%
50.1%
7.6%
57.7%
53.5%
9.5%
63.0%
41.8%
7.2%
49.0%
41.1%
6.8%
47.8%
45.5%
6.9%
52.5%
6.4%
12.9%
19.4%
7.9%
14.7%
22.5%
7.1%
16.5%
23.6%
7.3%
6.9%
14.3%
6.7%
6.6%
13.3%
7.5%
7.6%
15.1%
10.2%
7.2%
17.4%
9.9%
7.3%
17.3%
9.8%
7.2%
17.0%
2.1%
2.5%
7.3%
3.1%
7.8%
22.8%
0.0%
0.1%
22.9%
1.9%
2.9%
6.8%
2.4%
5.7%
19.7%
0.0%
0.0%
19.7%
2.0%
2.9%
7.9%
2.3%
4.8%
20.0%
0.0%
2.4%
22.4%
1.0%
5.6%
4.5%
0.0%
9.8%
21.0%
3.5%
0.0%
24.4%
1.2%
4.9%
5.5%
0.0%
1.6%
13.2%
9.4%
6.4%
29.0%
1.0%
6.1%
7.3%
0.0%
4.7%
19.1%
2.9%
0.0%
22.0%
1.8%
2.1%
6.6%
6.0%
12.2%
28.6%
4.9%
0.1%
33.6%
2.2%
2.0%
6.1%
5.8%
13.2%
29.3%
5.3%
0.3%
34.9%
2.5%
2.2%
6.0%
6.3%
7.0%
23.9%
6.1%
0.5%
30.5%
65.7%
64.4%
74.1%
62.0%
63.5%
61.9%
62.2%
68.4%
64.8%
16.7%
21.6%
20.9%
23.6%
28.4%
22.8%
21.8%
7.6%
13.1%
15,298
3.0%
14,851
14,420
72,126
1.3%
71,186
73,323
68,725
4.2%
65,930
58,792
9,498
280
184
106
96
6.7%
0.5%
2.5%
2.5%
-3.1%
8,898
278
179
104
99
8,969
252
187
101
65
10,069
322
200
122
122
9.4%
-6.4%
-8.7%
-3.0%
-2.5%
9,201
344
219
126
126
9,872
272
168
106
104
9,015
285
177
87
108
6.7%
5.1%
-4.4%
-2.1%
25.7%
8,452
271
185
89
86
9,580
250
162
85
88
Notes
1. Totals may not sum to 100% due
to rounding.
2. The efficiency (or productivity) ratio
is calculated as total other expenses
divided by total revenue. Total
revenue is defined as net interest
income before provisions for credit
losses plus other income.
3. The effective tax rate is defined as
the provision for income taxes per
the income statement divided by
income before income tax provision
and non-controlling interest in
subsidiaries. 4. TD discloses average number of
employees. Perspectives on the Canadian banking industry
71
Diversification and segmentation highlights
BMO
Diversification of corporate loans by industry1,2
Agriculture
Commercial mortgages / real estate
Communications
Financial institutions
Government (including social services)
Manufacturing (including automotive)
Media and entertainment
Natural resources
Service industries / retail and wholesale trade
Transportation
Other
Diversification by business segment ($millions)
Average assets2
Personal and commercial
Capital markets / Investment banking
Corporate and other
Total average assets
Diversification by geographic segment ($millions)
Average assets2
Canada
US
Other
Total average assets
Net income
Canada
US
Other
Total net income
72 Canadian Banks 2011
CIBC
2010
2009
2008
2010
2009
2008
2010
2009
2008
5.0%
24.5%
1.2%
22.5%
0.8%
8.1%
0.0%
5.6%
22.7%
3.1%
6.6%
4.5%
23.4%
1.3%
23.0%
0.8%
9.0%
0.0%
7.8%
21.4%
3.3%
5.6%
3.9%
21.2%
1.5%
24.7%
0.9%
9.7%
0.0%
10.8%
19.5%
3.5%
4.3%
4.1%
9.6%
3.3%
17.4%
7.4%
5.8%
1.7%
14.1%
15.6%
10.8%
10.3%
3.7%
10.1%
4.0%
16.2%
6.3%
5.5%
2.3%
14.7%
16.9%
12.0%
8.2%
3.9%
9.9%
4.7%
13.6%
6.1%
6.4%
3.4%
16.2%
16.9%
10.8%
8.0%
8.8%
31.7%
0.8%
8.5%
7.2%
6.1%
1.1%
8.5%
19.2%
6.7%
1.3%
7.8%
31.0%
0.6%
10.4%
6.6%
5.0%
1.4%
11.2%
18.6%
6.3%
1.3%
6.7%
25.3%
1.8%
13.3%
6.5%
5.5%
1.4%
14.8%
17.8%
5.7%
1.2%
266,649
142,478
29,421
438,548
236,495
129,260
31,854
397,609
291,000
164,000
61,000
516,000
282,000
183,000
48,000
513,000
254,000
164,000
37,000
455,000
268,148
105,142
(27,347)
345,943
265,043
110,832
(25,169)
350,706
262,951
99,398
(17,484)
344,865
1,895
(472)
(249)
1,174
2,321
(4,199)
(182)
(2,060)
265,670
19,828
65,208
350,706
252,235
25,727
66,903
344,865
1,599
(19)
(406)
1,174
1,445
320
(3,825)
(2,060)
256,611
114,334
27,529
398,474
Net Income
Personal and commercial
Capital markets / Investment banking
Corporate and other
Total net income
BNS
2,289
820
(299)
2,810
256,611
114,334
27,529
398,474
2,536
59
215
2,810
% of total
48%
50%
1%
Return on
assets
1.19%
0.41%
0.71%
% of total
64%
29%
7%
Return on
assets
0.99%
0.05%
0.78%
0.71%
2,060
873
(1,146)
1,787
1,757
711
(490)
1,978
3,577
1,350
(688)
4,239
266,649
142,478
29,421
438,548
236,495
129,260
31,854
397,609
337,000
47,000
132,000
516,000
66.7%
67.6%
2,700
464
1,075
4,239
% of total
56%
32%
12%
Return on
assets
1.23%
0.82%
0.82%
% of total
65%
9%
26%
Return on
assets
0.80%
0.99%
0.81%
0.82%
3,166
1,451
(1,070)
3,547
2,910
787
(557)
3,140
2,191
342
(81)
2,452
335,000
44,000
134,000
513,000
293,000
30,000
132,000
455,000
276,930
18,820
50,193
345,943
1,977
320
1,250
3,547
2,038
(84)
1,186
3,140
1,854
119
479
2,452
% of total
78%
30%
-8%
Return on
assets
0.82%
0.33%
0.71%
% of total
80%
5%
15%
Return on
assets
0.67%
0.63%
0.95%
0.71%
NBC
2010
2009
9.4%
12.8%
4.4%
16.6%
2.0%
9.8%
0.0%
3.4%
26.5%
2.3%
12.9%
61,611
92,990
(14,243)
140,358
697
471
(134)
1,034
RBC
% of total
44%
66%
-10%
Return on
assets
1.13%
0.51%
0.74%
130,477
7,288
2,593
% of total
93%
5%
2%
987
9
38
1,034
Return on
assets
0.76%
0.12%
1.47%
0.74%
2008
2010
9.6%
15.0%
0.0%
15.1%
6.3%
10.8%
0.0%
5.9%
20.5%
4.2%
12.6%
9.2%
12.4%
0.0%
16.2%
5.5%
10.5%
0.0%
7.4%
23.4%
4.2%
11.1%
6.0%
22.7%
0.0%
8.3%
4.7%
9.0%
3.2%
9.1%
7.3%
4.7%
25.1%
56,943
97,805
(13,770)
140,978
53,143
87,207
(12,021)
128,329
380,300
354,400
(8,500)
726,200
619
503
(268)
854
657
387
(268)
776
3,801
1,647
(225)
5,223
130,130
5,848
5,000
140,978
108,152
8,902
11,275
128,329
404,200
145,600
176,400
726,200
898
(73)
29
854
866
(27)
(63)
776
4,232
130
861
5,223
TD
2009
% of total
52%
49%
-1%
Return on
assets
1.00%
0.46%
0.72%
% of total
56%
20%
24%
Return on
assets
1.05%
0.09%
0.49%
0.72%
2008
2010
5.8%
23.9%
0.0%
6.9%
3.2%
8.7%
2.9%
11.0%
7.0%
5.0%
25.7%
4.9%
21.4%
0.0%
13.1%
2.3%
8.4%
3.0%
12.3%
6.9%
3.9%
23.8%
3.3%
34.9%
1.1%
9.2%
14.8%
6.5%
1.5%
5.4%
8.3%
5.1%
10.0%
361,800
306,500
(13,300)
655,000
316,000
324,700
83,200
723,900
398,498
188,824
32,223
619,545
2,296
1,768
(206)
3,858
3,563
1,170
(178)
4,555
4,709
866
(931)
4,644
368,600
127,000
159,400
655,000
435,100
126,600
162,200
723,900
355,021
207,755
56,769
619,545
4,282
(1,132)
708
3,858
3,987
152
416
4,555
2,637
502
1,505
4,644
2009
% of total
64%
30%
5%
Return on
assets
1.18%
0.46%
0.75%
% of total
57%
34%
9%
Return on
assets
0.74%
0.24%
2.65%
0.75%
2008
3.2%
33.8%
1.5%
11.6%
11.6%
6.4%
2.0%
7.4%
9.2%
5.0%
8.3%
3.3%
31.5%
2.1%
12.1%
9.4%
6.7%
2.8%
10.7%
9.2%
4.7%
7.6%
357,648
164,939
34,632
557,219
314,784
215,013
33,417
563,214
3,702
1,137
(1,719)
3,120
3,915
65
(147)
3,833
329,454
177,593
50,172
557,219
352,418
154,418
56,378
563,214
2,256
(541)
1,405
3,120
2,486
487
860
3,833
Notes
1. Diversification of corporate
loans by industry may have been
presented differently among the
banks. Securities purchased under
resale agreements have been
excluded. 2. Totals may not sum to 100% due
to rounding.
Perspectives on the Canadian banking industry
73
Assets of banks registered with the Office of the
Superintendent of Financial Institutions of Canada (OSFI)1 By total assets – in millions of Canadian dollars
1
2010
2009
Bank Name
1
1
2
2
Percentage
change
Oct. 31/10
Oct. 31/09
Royal Bank of Canada
726,206
654,989
10.9%
The Toronto-Dominion Bank
619,545
557,219
11.2%
3
3
The Bank of Nova Scotia
526,657
496,516
6.1%
4
4
Bank of Montreal
411,640
388,458
6.0%
5
5
Canadian Imperial Bank of Commerce
352,040
335,944
4.8%
145,301
132,138
10.0%
72,699
72,355
0.5%
6
6
National Bank of Canada
7
7
HSBC Bank Canada
8
8
ING Bank of Canada
30,843
28,521
8.1%
9
9
Laurentian Bank of Canada
23,800
22,165
7.4%
10
10
Manulife Bank of Canada
16,696
16,441
1.6%
11
14
Canadian Western Bank
12,702
11,636
9.2%
12
12
Bank of America, National Association
11,469
12,563
-8.7%
13
11
CitiBank Canada
10,018
13,267
-24.5%
14
13
Citibank, N.A.
9,386
12,459
-24.7%
15
15
Dundee Bank of Canada
7,956
7,578
5.0%
16
16
MBNA Canada Bank
7,394
7,141
3.5%
17
18
JPMorgan Chase Bank, National Association
5,558
6,400
-13.2%
18
20
Société Générale (Canada branch)
5,345
5,281
1.2%
19
21
BNP Paribas (Canada)
4,988
5,039
-1.0%
20
17
Deutsche Bank AG
4,920
6,411
-23.3%
21
19
ICICI Bank Canada
4,902
5,746
-14.7%
22
22
Amex Bank of Canada
4,744
4,490
5.7%
23
23
State Street Bank and Trust Company
3,788
4,484
-15.5%
24
24
Bank of Tokyo-Mitsubishi UFJ (Canada)
3,121
3,605
-13.4%
25
31
Credit Suisse AG
3,086
1,558
98.0%
Total of 25 largest OSFI registered banks
3,024,805
2,812,404
7.6%
Total of all OSFI registered banks
3,051,346
2,842,245
7.4%
Ranking of banks per OSFI website, including domestic and foreign banks
74 Canadian Banks 2011
Perspectives on the Canadian banking industry
75
Recent PwC financial services publications
To view these publications, please visit our website at www.pwc.com and click on Publications.
Banking Review:
A Canadian perspective
IFRS Readiness in Canada:
2010 Executive Research Report
Banking Banana Skins 2010:
The Canadian results
Top 10 issues facing the Canadian
asset management industry
Our quarterly publication of Banking
Review offers a Canadian perspective on
the challenges and opportunities in the
banking and capital markets sector. Our
latest issue includes articles focused on the
following:
The IFRS Readiness in Canada: 2010 –
Executive Research Report was prepared
by the Canadian Financial Executives
Research Foundation (CFERF) and was
sponsored by PwC. It comprises the
results of a survey of senior financial
executives from across Canada and the
insights obtained through an Executive
Research Forum held in Toronto on April
22, 2010. The study is the third in the
series covering conversion activities in
Canada, beginning in 2008.
The most pressing threat facing
Canada’s banking industry is credit
risk, according to the latest survey
conducted by the Centre for the Study of
Financial Innovation in association with
PricewaterhouseCoopers.
Global trends in the industry may be a
precursor of what’s to come in Canada—
and companies must be prepared to
address them, both in the short and long
term. The good news is that opportunities
exist for firms to adapt their business
models to the current environment to
gain competitive advantage.
• Social media
• Reaction to the Basel III
announcement of September 2010
• Foreign Account Tax Compliance Act
— New US rules that will affect nonUS entities
To subscribe to our quarterly publication,
please email [email protected].
76 Canadian Banks 2011
Visit www.pwcifrs.ca to download
your copy.
The Canadian results in Banking Banana
Skins 2010 focused on risks spurred by
the financial crisis, and respondents
shared a similar response to their global
counterparts, but with a different
emphasis. Read the survey results for
the other differences between Canadian
respondents and the rest of the world.
In an effort to better understand the
Canadian asset management industry’s
perspective, PwC conducted an openended survey to fund companies and
money managers to identify the key
issues and challenges facing the asset
management industry. Read this
publication to find out what respondents
identified as the top 10 issues facing their
business and the industry.
The Journal:
Capital management in banking –
The way forward
A closer look series:
Financial regulatory reform –
The Dodd-Frank Act of 2010
The future of banking is becoming
clearer. It is a future of more capital,
more liquidity, and less risk. And,
inevitably, it is a future with lower
returns on capital, higher costs of doing
business, and slower growth with
ultimate effects to be felt by shareholders
and end consumers. Greater scrutiny
by investors, regulators, and other
stakeholders regarding balance sheet
usage is also expected.
The Dodd-Frank Wall Street Reform
and Consumer Protection Act is one of
the most complex pieces of legislation
ever written. Financial service firms and
other impacted organizations are just
beginning to understand the Act’s many
facets and its full impact.
This article discusses how Basel III is
set to redraw the banking landscape,
having a profound impact on profitability
and how this may force many banks
to transform their business models, as
well as how firms will be required to
undertake significant process and system
changes.
Through this series, leaders in our
Regulatory practice will take A Closer
Look at how the Act will impact several
distinct market segments.
Visit www.pwcregulatory.com to view the
complete series
Global CEO survey 2011:
Growth reimagined – Prospects
in emerging markets drive CEO
confidence
The 2011 Global CEO Survey documents a
surprising level of confidence. Despite the
uncertain environment, chief executives
were nearly as confident of growth this
year as they were in the boom years
before the crisis.
The survey reveals where CEOs foresaw
growth in 2011, and how they expected
to achieve it. In Growth re-imagined:
Prospects in emerging markets, we show
how CEO confidence is being driven
by investments in targeted emerging
markets—often far from home.
The world in 2050
The global financial crisis has accelerated
the shift in economic power to emerging
economies.
In the latest in a series of PwC’s World
in 2050 reports, analysis reveals that
the E7 emerging economies (China,
India, Brazil, Russia, Mexico, Indonesia
and Turkey) are set to overtake the G7
economies (US, Japan, Germany, UK,
France, Italy and Canada) before 2020.
Perspectives on the Canadian banking industry
77
Financial services leadership team
PwC Canada
Financial Services
Consulting
John MacKinlay
416 815 5117
[email protected]
Contributors
Jean Enright, Nina Godard, Tamara Jones, Ryan Leopold,
Jade Leung, Rob Marsh, Kirsty Merath, Diego Mesa Puyo,
Diana Moore, Sophia Moore, Sandra Mundy, Mark Parsons,
Carmelo Scali.
Banking and Capital Markets
Tax
Publication Design
Jessica Kim
George Sheen
416 815 5060
[email protected]
Diane Kazarian
416 365 8228
[email protected]
Jillian Welch
416 869 2464
[email protected]
Asset Management
Montréal
Caroline Emond
514 205 5103
[email protected]
Insurance
Calgary
Raj Kothari
416 869 8678
[email protected]
Jonathan Simmons
416 869 2460
[email protected]
Private Equity
Ajay Chadha
416 814 5788
[email protected]
78 Canadian Banks 2011
Michael Godwin
403 509 7322
[email protected]
Vancouver
Paul Challinor
604 806 7218
[email protected]
If you would like to receive additional copies of this publication,
please email [email protected].
This publication can be viewed on our website
at www.pwc.com/ca/canadianbanks.
Perspectives on the Canadian banking industry
79
© 2011 PricewaterhouseCoopers LLP. All rights reserved. “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership,
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