THE "Big Five" Canadian banks have returned to healthy profitability this year. Three had suffered heavy loan losses last year, mainly from loan exposure to the collapsed Olympia and York property empire.
Canadian banking is dominated by these banks, which do more than 80 percent of banking business in Canada. The profitability of the big Canadian banks is, in many ways, a report card on Canada's economy.
Despite some losses, commercial and residential real estate loans performed well for the banks so far this year. The real earnings boost came from the liveliness of the Toronto Stock Exchange, which has been outperforming Wall Street this year. Deregulation in the 1980s allowed Canada's banks to buy or start brokerage subsidiaries.
In the second quarter of 1993, almost all of these subsidiaries have turned in record earnings.
"With the exception of Toronto Dominion, every bank's investment operation has grown," says Alain Tuchmaier, a banking analyst with the Toronto brokerage firm of McLean McCarthy.
The Canadian Imperial Bank of Commerce (CIBC) is the latest to report a profit. The CIBC reported earnings of $180 million (Canadian; US $141 million) in the second quarter of this year; it lost $440 million for the same period last year.
The CIBC was the largest Canadian lender to Olympia and York. In the second quarter of last year, it had loan loss provisions of $1.19 billion. The growth of its brokerage subsidiary, Wood Gundy Inc., helped push up the bank's non-interest income by 22 percent.
The Royal Bank of Canada, the largest in the country, earned $243 million, up 15 percent from the same period last year. The Royal was also heavily exposed to Olympia and York and other property loans.
The bank is performing poorly in traditional banking - loans - while making money in "non-banking" areas such as its brokerage subsidiary, according to one analysis. RBC Dominion Securities Inc. had profits of $30 million.
Analysts say the Royal and the Toronto Dominion, the fifth largest bank, still have too many commercial real estate loans, especially in Toronto and southern Ontario where the recession and the collapse of Olympia and York have devastated commercial real estate. The Toronto Dominion had profits of $90 million, up from $79 million a year earlier.
But the Toronto Dominion, the best performing of the Canadian banks until the recession, has been hit by a double whammy.
"The results so far this year continue to be hurt by high levels of non-performing loans, loan loss provisions, and losses on securities," says Toronto Dominion president Robin Korthals.
While the other banks made money on their brokerage operations, the Toronto Dominion lost $18 million; that is on top of a loss of $59 million in the same area a year ago.
The two best-performing banks are the Bank of Nova Scotia, the fourth largest bank, and the Bank of Montreal, No. 3 in terms of assets.
The Bank of Montreal had few loans to Olympia and York, even though its head office is in First Canadian Place, the flagship building of Olympia and York in downtown Toronto. Profits doubled at its brokerage subsidiary, Nesbitt Thomson Inc.
The Bank of Nova Scotia has been the most profitable bank in Canada over the past two years and analysts expect it to hold that position for 1993 and 1994. It had almost no loans to Olympia and York and its brokerage subsidiary, Scotia McLeod, had record earnings in the quarter.
Some of the big banks have made major acquisitions this year. The Royal Bank of Canada will pay $1.64 billion for part of Royal Trust, taking over many of its branches and its mutual fund business and leaving behind shaky real estate loans. Integration cost of the two "Royals" is expected to be $300 million.
In January, the Toronto Dominion Bank acquired Central Guaranty Trust for $125 million. The bank says the acquisition is contributing positively to its earnings.