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(Reuters) -Three of Canada's big five lenders - Royal Bank of Canada, TD Bank and CIBC - on Thursday beat analyst expectations for quarterly profit, boosted by strong wealth management and capital markets earnings.
Lower interest rates increased appetite for dealmaking, underwriting and other corporate banking activities while the wealth management business, a capital-light and fee-based business, has also boomed recently, powered by a rise in the number of high net-worth individuals and increasing investments.
But heightened geopolitical uncertainty and an ongoing tariff threat from the U.S. government could potentially hurt the Canadian economy, slow loan growth and pressure consumers with mortgages.
"We did take some steps to bolster our PCL (provision for credit losses) reserves to reflect this uncertainty, and this situation remains fluid, and there are many potential scenarios that could play out," TD CFO Kelvin Tran said in an interview.
RBC and TD set aside bigger rainy day funds to shield against potential bad loans as U.S. tariffs could impact some manufacturing and industrial loan books. RBC's provision for credit losses rose to C$1.05 billion from C$813 million a year ago and TD's reserves of C$1.21 billion grew from C$1 billion.
"We are seeing signs of lower business confidence, with some of our commercial banking clients opting to delay certain investment decisions," RBC CEO Dave McKay told analysts.
CIBC's reserves were down by C$12 million to C$573 million.
Jefferies analyst John Aiken said RBC's quarter was "simply an impressive performance" also noting it benefited from a strong US dollar.
On TD, Aiken said the quarter was "not as strong as the results from some of its peers," adding that the lender saw elevated expenses.
TD is going through a remediation program after the lender pleaded guilty to anti money-laundering lapses in its U.S. retail business that enabled drug traffickers to launder millions from selling fentanyl.
The lender was ordered to pay a $3 billion fine and has made a number of changes, including replacing its CEO, naming a new anti-money laundering chief, selling its stake in Charles Schwab and making new investments to boost its anti-money laundering systems.
"U.S. AML remediation remains our top priority... The strategic review is advancing as planned, and we have taken early action," TD's newly appointed CEO Raymond Chun said, highlighting the Schwab divestiture.
The lender also appointed U.S.-based Guidepost Solutions as its government-ordered compliance monitor.