Canada’s banks get boost from IFRS

The life insurance industry doesn’t like the new IFRS accounting rules one bit and has been lobbying hard for changes that might lessen impacts such as more volatile earnings and capital.

For their part the banks have been mostly content to accept the standard (though they did get some accommodations on residential mortgages). One reason they weren’t overly concerned is that under IFRS, their results look better.

Royal Bank of Canada Friday became the first big bank to report the full fiscal 2011 under new accounting rules with earnings coming in at $4.54 per share, up 2% compared with the previous standard known as Canadian Generally Accepted Accounting Principles (GAAP). Hardly world changing but it’s still a nice little lift.

“We do not believe that the new methodology will create much disruption in Royal’s (and by implication the other Canadian banks’) valuation,” said Barclays Capital analyst John Aiken.

According to Mr. Aiken, the transition will have “only a modest” impact on Royal’s bottom line, with the most significant effect being on book value per share, which is pushed down 5.5%.

Andre Hardy, an analyst at RBC Capital Markets, said in a Dec 13 note to clients that IFRS will likely boost 2012 results for all the banks by 1-2%.

More than 100 countries including most of Europe have moved to International Financial Reporting Standards with the United States being the most notable exception, though some observers predict it too will eventually take the plunge. Previously, each country had its own standard, making international comparisons difficult.

Canadian companies have an advantage over many of their rivals in Europe because Canadian GAAP has important similarities to IFRS, Mr. Aiken said.

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