The Canadian Press

Most of Canada’s biggest banks either met or beat consensus expectations in fourth-quarter earnings reported this week but uncertainty about what’s to come next year has some analysts less than optimistic, especially after Royal Bank’s (TSX:RY) results.

On Friday morning, Royal reported a $1.2-billion profit, up from $1.1 billion a year earlier, meeting analyst expectations of $1.06 per share according to Thomson Reuters. But by the afternoon, its shares had dropped 2.6%, or $1.48, to $56 on the Toronto Stock Exchange.

John Aiken, a banking analyst at Barclays Capital, gave a blunt explanation in a note to clients: “Just surpassing consensus (is) not good enough for the market.”

“While Royal Bank did exceed consensus expectations, it was far from the degree that some of its peers had done in the quarter. We believe that Royal’s results were solid, but less impressive than most of its peers.”

Scotiabank (TSX:BNS), the only major domestic bank left to report its fourth quarter earnings, is scheduled to post results on Tuesday.

Canada’s banks are considered among the most solid in the world, and overall they performed relatively well during the quarter, but with year-end results come full-year outlooks for 2010 and that’s where doubts start to emerge.

Much of that is due to the state of the economy, which is backing off its recessionary levels at a sluggish pace, while slack jobs numbers have left some bank executives boosting their provisions for credit losses even as they cling to cautious optimism for next year.

“Bad loans are still coming onto the books at fairly high volumes, but it looks like the banks are fairly optimistic, or believe that ultimate losses are not going to be as high as have been provided for in the past,” Aiken said in an interview.

“It looks like management is getting a little bit more comfortable that we may have seen the bottom for credit. Our stance is that it still may be a bit too early for investors to take the same tack.”

On Thursday, Toronto-Dominion bank said its profits were little changed at $1.01 billion or $1.12 per share, while CIBC, which reported on the same day, said its net income went up 48% to $644 million or $1.56 per share.

Montreal-based National Bank reported net income of $241 million or $1.39 per share for the quarter ended Oct. 31, up from a year-ago profit of $70 million or 37 cents per share, which was driven down by $158 million in one-time charges.

Bank of Montreal, which kicked off the fourth-quarter earnings season for Canada’s big banks, had net income $647 million or $1.11 for the quarter ended Oct. 31. That was up from $560 million or $1.06 a year ago.

While no bank observers are declaring the final period of the year a blowout, Caldwell Securities portfolio manager John Kinsey said that, being focused on the bottom line, he classifies it as a good quarter overall.

“On balance I think the Canadian banks did very well,” he said.

“They all have substantial excess Tier 1 capital… It gives them a lot of flexibility and when things return to more normal in the economic sphere of things they can make acquisitions, transfer some of it back to earnings (or) increase their dividend.”