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Or sign-in if you have an account.Many banks had expected provisions for credit loses to improve in the second half of the year, but analysts expected the banks to change that outlook following the war on Iran's economic impact. Photo by Peter J Thompson/PostmediaCanada’s biggest banks comfortably beat analysts’ second-quarter earnings expectations, but their results didn’t do much for their share prices, and two of the Big Six posted notable declines.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorCanadian Imperial Bank of Commerce and National Bank of Canada declined by 5.3 per cent and four per cent, respectively, on earnings day, while shares of the other four banks were more or less flat.Analysts had expected such a scenario going into the earnings week because the banks’ share prices have surged over the past year and various metrics suggested the lenders could potentially be overvalued. That seems to have raised the bar for investors.Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try again“It would have taken a lot to garner any outside positive reaction, just because of where we sit with the macro, as well as the bank valuations,” John Aiken, an analyst at Jefferies Inc., said. “That upside was going to be very difficult to achieve, and we saw that play out.”The composition of the earnings also mattered. For example, if a bank beat expectations mainly because of gains from its capital markets business, that wouldn’t have been enough to push investors into buying more shares.Aiken said that’s because capital market revenues are much more volatile than other business lines, so investors generally won’t pay up for any gains in that sector.The provisions for credit loss (PCLs) — the amount of money banks keep aside to tackle potentially bad loans — were also expected to play a role in share price valuations.Many banks had earlier expected PCLs to improve in the second half of the year, but analysts expected the banks to change that outlook following the war on Iran, which has put more pressure on the economy.In the case of CIBC, some of these factors seemed to have played a role in its share price decline.“Given recent performance and relative valuation, a moderating outlook for net interest margins, domestic consumer stress and the nature of the beat (heavy in capital market), we understand why the stock checked back,” Mario Mendonca, an analyst at Toronto-Dominion Bank, said in a note on Thursday.“Having said that, we feel good about CIBC’s strong capital position, improving loan growth and low (loan-to-value ratio) on the large mortgage book.”CIBC also kept aside a higher amount of money to tackle impaired loans, those that banks no longer have a reasonable assurance about timely collecting the full amount of principal and interest.“PCLs were 14 per cent above our forecast,” Gabriel Dechaine, an analyst at National Bank of Canada, said. “Upward pressure came from the Canadian personal banking segment… due mainly to higher losses on cards and unsecured personal loans. With increasing scrutiny of Canadian consumer financial health, this quarter’s performance could weigh on sentiment for the foreseeable future.”National Bank of Canada also beat expectations after posting strong performance in its capital markets segment, but faced a bit of a backlash due to a decline in its net interest margin (NIM), which is the difference in the interest a bank earns on loans and securities and the interest it pays out on deposits.“It was an overall solid quarter other than the downside surprise on NIM,” Paul Holden, an analyst at CIBC World Markets Inc., said in a note on Thursday. “Sequential NIM compression of eight basis points overshadowed otherwise strong results.”The bank’s expense growth was also elevated in the quarter, Mendonca said, which stood out in a period when most banks were generating near record operating leverage.Bank of Montreal’s share price increased by 0.84 per cent on its earnings day, the highest among the Big Six, but Aiken said its reliance on capital markets may compel some investors to pause.“While we do not believe that this will fully take away from BMO’s perceived results, it does remove some of the lustre,” he said in a note on Wednesday.However, Dechaine said BMO’s earnings were not just a one-trick pony.“Other positive elements included a rebound in United States loan growth, with guidance for continued volume growth in the second half,” he said. “Additionally, credit performance was better than expected.” Get the latest from Naimul Karim straight to your inbox Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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