Bitcoin $100,000, a beat for CIBC, misses for BMO & TD, retailers hurting
Apologies for the double email yesterday. Trust me, no one is having a worse day than someone who accidentally sends the same email twice.
Markets: Bitcoin is now the 7th most valuable asset class in the world after crossing $100,000 and sporting a market cap of $2 trillion. Quite an expensive pet rock. Bitcoin shot up after the appointment of Paul Atkins as Chair of the SEC. Atkins is pro-crypto and has served as Chair of a crypto advocacy group since 2017. Yesterday, Coinbase put out a letter saying they would fire any law firm that hired anti-crypto people who are now presumably looking for jobs since Gensler will be out. How the tables have turned. The crypto rally comes against a tepid backdrop for stocks this morning, futures are mildly lower. Jerome Powell said the US economy is in “remarkably good shape”, markets are still pricing in a 74% chance of a rate cut at the December 18th meeting but a pause after that. On the TSX, we got earnings from CIBC, TD and BMO this morning. We got EQB last night which could come under pressure as earnings missed expectations by a wide margin ($2.51 vs $3.01) and credit seems to be weaker on financings in the trucking industry. Still, earnings for the year were at a record and it boosted its dividend and forecast. Let’s get into the others.
Marching to the beat: CIBC handily beat earnings expectations on the back of lower provisions for credit losses and higher revenue. Recall, CIBC had exposure to the US commercial real estate market and it seems that losses there have moderated. It also boosted its dividend by double the expectation. CIBC has rallied 40% this year, is trading near an all-time high and above its historical trading range. “Steady credit metrics support a higher P/E multiple relative to most of its peers,” wrote Mario Mendonca of TD in a note to clients. “Although some in the market may take exception to CM’s strong beat being driven by lower than forecast provisions,” wrote John Aiken of Jefferies, “we take the view that other banks have had lower performing provisions in the quarter and CM’s strong underlying earnings should be rewarded. Further, the largest dividend increase to date should underscore management’s confidence in its outlook.” If there is a blemish it is that they reduced their medium-term return on equity forecast from 16% to 15%.
Swing and a miss: BMO missed profit expectations by a wide margin on the back of higher provisions for credit losses. While gross impaired loans were down from the last quarter, they rose nearly 50% from last year. The provisions for losses that could go sour was higher than what analysts were forecasting. Credit concerns have plagued BMO all year and have consistently showed up in quarterly results. The question for investors will be whether today’s announcement to set aside a larger amount of money is good news or bad news. “There is no way to sugar coat a 20% miss to the Street,” wrote Meny Grauman at Scotia, “but if there is a silver lining to BMO’s weak year-end result (capping off a very tough year) it is that the market is forward-looking.” BMO is the second worst performing Canadian bank so far this year, but deciding whether we have seen the worst of it could inform whether we are at an entry point. As my former colleague and good friend Frances Horodelski says, put it on the homework list.
Clearing the decks: TD is lower in the pre-market after profit missed expectations, it boosted its dividend a little less than expected, and it suspended all growth targets. TD says it will be undergoing a strategic review of its opportunities. This comes after its anti-money laundering fines, asset cap and ahead of a new CEO taking over in April. Profit unexpectedly fell this quarter driven by weakness in its US retail business and wealth management. Its capital ratio improved. John Aiken at Jefferies says this doesn’t matter. “In our opinion, TD’s earnings in the fourth quarter were irrelevant to its outlook. What is important for TD is the expectations for 2025 and beyond,” he wrote in a note to clients. Needless to say, this will be a spicy conference call when it gets under way at 9:30amET.
Clipped: There is a laundry list of retailers that are down and out this morning. Shares of American Eagle are plunging 14% after the retailer missed sales expectations and cut its sales forecast going forward. JP Morgan is downgrading the stock. American Eagle isn’t the only one feeling the pinch. Calvin Klein owner PVH is down nearly 7% in the pre-market even as profit beat expectations. The concern is the profit forecast was significantly below expectations as they called for a 6-7% drop in sales. Signet Jewelers (which owns Zales and Kay Jewelers) is falling after cutting its sales and profit forecast on a “competitive environment.” Lands’ End is also in the red this morning on a weaker sales outlook.
