TEXT-Fitch on major Canadian banks

(The following statement was released by the rating agency)
Sept 6 - The six major Canadian banks' (the 'Big Six') better than expected
third quarter 2012 (3Q'12) earnings were neutral to the banks' ratings,
according to Fitch Ratings.

The earnings were primarily driven by volume growth in retail and commercial
banking and modest provisioning expenses. Asset quality remained sound, combined
with a solid rebound in capital markets related activities.

The current ratings and Outlooks of the Big Six incorporate the maintenance of
solid results, although Fitch still expects earnings growth to moderate. The
banks' ratings also take into consideration Canada's resilient economic
environment. However, household debt and the housing market could present
downward risk to the banks' ratings.

Fitch classifies the following as the six major banks in Canada:

--Royal Bank of Canada (RBC, rated 'AA/F1+')
--Toronto-Dominion Bank (TD, rated 'AA-/F1+')
--Bank of Nova Scotia (BNS, rated 'AA-/F1+')
--Bank of Montreal (BMO, rated 'AA-/F1+')
--Canadian Imperial Bank of Commerce (CIBC, rated 'AA-/F1+')
--National Bank of Canada (NBC, rated 'A+/F1').

Although there are differences in the scope of their activities, they exhibit
relatively homogenous balance sheet and credit risk profiles.

Earnings Well Above Expectations

Reported earnings were up sequentially and year-over-year for all six banks.
Cumulative net income of the Big Six amounted to $8.2 billion in 3Q'12, a 43%
year-over-year jump. Likewise, year to date earnings amounted to $22.3 billion,
up almost 18% from the same period last year. RBC reported the strongest
year-over-year earnings growth at over 73%, reflecting in part some favorable
nonrecurring items. BNS recorded the second largest year-over-year increase in
earnings at over 57%, including a sizeable gain associated with the bank's sale
of Scotia Plaza in Toronto.

Volume Growth Offsets Margin Compression

Overall, domestic retail and commercial banking was once again the primary
driver of performance in 3Q'12 as volume growth in mortgage loans, consumer and
business lending, and higher banking fees helped combat ongoing narrowing
margins associated with domestic competition and the low interest rate
environment of the past several periods. However, spread compression is likely
to continue for an extended period of time as evidenced by the Central Bank's
decision on Sept. 5, 2012 to keep its key interest rate unchanged at 1%.
Managing lending spreads will remain a priority and a challenge for the Big Six
in future quarters.

International Contribution

Profitable international retail and commercial banking operations also benefited
the performance of BMO, BNS, CIBC and TD. However, international banking
generated a loss at RBC due to increased provisioning expenses in the Caribbean
region and a loss related to the acquisition of the remaining equity of RBC
Dexia.

Challenged Wealth Management and Improved Capital Markets Earnings from wealth
management activities remained constrained by low interest rates and weak
transaction volumes. Wealth management has been a targeted area of expansion for
the banks over the past several quarters. Recently completed acquisitions
contributed to the sound performance of the wealth management business lines.
Capital markets-related earnings improved sequentially and from a weak level in
3Q'11. Advances in trading revenues and corporate lending drove a rebound in
earnings from capital markets.

Dividend Increases

Capitalization remains sound, supported by solid internal capital generation
exhibited over the past several periods. Continued profitability has also helped
the Big Six prepare for higher capital requirements under Basel III. The banks
are expected to comply with Basel III capital ratios by 2013, well ahead of the
2019 implementation date. Five of the Big Six - RBC, TD, BNS, BMO and CIBC -
announced a dividend increase while reporting strong 3Q'12 results. For BMO,
this was the first dividend increase since the onset of the financial crisis.

Housing Market a Key Factor

Household indebtedness and the housing market continue to be the main downside
risks to the ratings of the Big Six. With interest rates likely on hold for
still some time, the near-term threat to the Canadian banks would likely be
related to a labor market shock that significantly reduces consumers' ability to
pay. Positively, the unemployment level has remained relatively stable thus far
and is expected to remain so in the near to intermediate term. Fitch continues
to closely monitor Canadian household indebtedness and the housing market.

Challenges and Opportunities

Fitch still expects earnings growth to moderate as mortgage expansion, which has
supported earnings of the Big Six over the past several periods, decelerates.
The strong earnings growth of this quarter is not likely to be replicated as
results benefited from mortgage growth associated with the seasonally strong
third-quarter which includes spring and summer months. Looking ahead, record
household debt levels and the implementation of rules intended to cool the
housing market are likely to constrain mortgage loan growth. Margin compression
and markets volatility are expected to continue to put pressure on earnings
growth.

In this context, the Big Six are all focused on managing costs. Positive
operating leverage has emerged as a key management target to support future
earnings trends. The Big Six are also looking at acquisitions as an additional
source of profitable growth, particularly outside of Canada. Asset disposals by
European banks may present opportunities for targeted and/or bolt-on
acquisitions for Canadian banks. Subsequent to quarter-end, CIBC announced two
small acquisitions in wealth management and wholesale banking. BNS also
announced an agreement to purchase ING Bank of Canada to expand its domestic
retail franchise.

(Caryn Trokie, New York Ratings Unit)