We have heard the market forecast from Ben Bernanke (who was nominated by President Obama to a second term as Chairman of the U.S. Federal Reserve). Bernancke's prediction is that the recession is over while the other sage of Wall Street, Nouriel Roubini, thinks we are headed for the double dipper recession model. One will be right and one will be wrong.
One indicator is to check out bank performance. Being in private equity, we hear which banks are lending on what terms to whom. Royal has been very smart to use this recession as a time to scoop up market share and get mediocre deals done. Customers remember that they were there in the tough times and are loyal back. TD was lending huge amounts to old, steady companies at great rates. National Bank takes on lots of deals that the others sniff at so we will see their performance over the next year or so. If there is a double dipper recession, that could be a problem for them
Here's more from ScotiaMcleod. Lynn Lewis sent me this by Gareth Watson, CFA
This morning as we heard from Royal Bank (RY), National Bank (NA) and TD Bank (TD). While I won't go into specifics for each bank, I will simply say that the earnings this morning were very good across the board. Royal in particular blew away the Street with strength in retail and wholesale. National Bank also exceeded expectations by having strong trading revenue again while TD Bank exceeded expectations by keeping credit in check. Coming into the quarter we knew that retail would be the wild card for the banks as wholesale strength was expected, and the results speak for themselves as retail operations have done well in a challenging operating environment (except for maybe CIBC). Capital levels are strong, if not too strong, and I hope this past quarter will finally put the dividend question to rest as earnings will support dividend payments going forward. Overall it should be a good day for the banks today and therefore possibly the TSX Index. However, I would caution that these banks have been running higher for a long time going into this quarter and that they were pricing in lofty expectations which have been met for the most part (except CIBC), so we don't think there's huge upside today as the market has probably already priced a lot of it in, but without a doubt the strength of the earnings this morning will give Royal, TD and National a good boost at the open.