Further to my comment yesterday on Friday’s market results…
Given its strong earnings report and outlook on Friday morning, It was disappointing to see Canadian Western Bank down 1.6% to $36.60. But strong results were expected and the stock is already up 28% this year.
One bit of negative news is that they now expect their application to the regulator to move to a more advantageous system of risk management is delayed yet again apparently now beyond the second half of 2022! Meanwhile they are using the tool of the new system in their business but must maintain higher equity capital (for the same risks) than the larger banks which leads to a lower ROE. This move to the more sophisticated risk management standard has been in the works for I believe about six years now and the delays start to strain credibility.
They plan to issue some shares under a new “At the Market” share sale program in Q3. This is the opposite of a share buy back program. In some ways it is positive as it reflects growth. But it also could suggest that they don’t see the shares as over-priced. They would not likely need to do this if the more advanced system of risk management were in place.
Another negative is that they project a higher provision for credit losses in the next two quarters. I find that odd, since if they already know about those upcoming losses why don’t they have to provision now? Presumably, it is simply how the rules work. It’s not surprising that there will be some loan losses as some businesses go under.
But most aspects of CWB’s business, and particularly its growth, appear to be doing very well and I expect the share price to continue to do well.