By Ketki Saxena
Investing.com -- Despite the rising expenses and loan loss provisions that have marked the first set of third-quarter earnings from Canadian banks, industry insiders remain optimistic about the future. TD Bank (TSX:TD) and RBC (TSX:RY), two major players in the sector, reported their results on Thursday, with TD Bank falling short of analyst expectations and RBC exceeding them.
TD Bank's performance was affected by increasing expenses and loan loss provisions. However, the bank announced it would be buying back nearly five per cent of its shares, a move that John Aiken, head of Canada research at Barclays (LON:BARC), believes will likely offset any disappointment. "TD modestly missed estimates, however, any disappointment will likely be offset by the significant share repurchase program (4.9 per cent) announced in conjunction with earnings," Aiken wrote in a note to clients on Thursday.
RBC, on the other hand, beat expectations despite grappling with elevated costs. The bank also announced planned layoffs as part of its strategy to manage costs through restructuring plans.
Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, expressed confidence in Canadian banks' ability to weather economic downturns and predicted their stocks would rise again. “You own them here, not sell them here,” Harris told BNN Bloomberg on Thursday.
Harris further argued that Canadian bank stocks are trading at discounted levels and investors will be rewarded if they hold onto them. He highlighted TD Bank as being particularly well positioned to make future gains due to its strong capital base. “(TD) certainly have the ability to buy other assets because of their capital base, which allows them to maybe grow their business a lot more than other Canadian banks,” he said.
However, Chris Kerlow, portfolio manager at Canaccord Genuity (TSX:CF)'s Team LWC, suggested that bank stocks could fall further due to potential seasonality headwinds. Despite this outlook, he acknowledged the overall strength Canadian banks hold within a portfolio. “We'll always probably have a couple of these bellwether Big Six banks, they're just such a large part of the (TSX),” he told BNN Bloomberg on Thursday.
Despite near-term challenges and differing opinions among industry experts, the general consensus is that Canadian banks are more diversified than ever before in terms of revenue streams and management strategies. This diversification is expected to help them navigate potential economic downturns and position them for future success.