Business

Analysts cautious on big bank earnings amid recessionary headwinds

Published

2 years ago

November 28, 2022

Analysts are erring on the side of caution in their earnings forecasts for the Big Six banks, as recession risks loom and a combination of factors are working against the country’s major lenders.

At least two analysts have revised their earnings expectations for the fourth quarter, pointing to volatile markets, the need to set more money aside for bad loans and and increasing funding costs among other headwinds.

Canadian Imperial Bank of Commerce analyst Paul Holden and his team slashed adjusted earnings estimates across the sector by about 1.5 per cent on average for the fourth quarter and by 1.6 per cent for full-year in 2023.

“The biggest drivers are lower capital markets revenue, less wealth management revenue and higher operating expenses,” Holden wrote in a Nov. 18 note, adding that the two dominant themes for the quarter would be net interest margin expansions and higher credit provisioning. “Overall, our adjusted (earnings per share) estimates imply earnings will be down two per cent (year-over-year) and (quarter-over-quarter) on average.”

Expanding net interest margins, or the spread a bank earns between interest income and interest expenses, has been a leading theme for the banks this year as the Bank of Canada engaged in an aggressive rate hiking cycle that brought the policy rate from near-zero to 3.75 per cent in October. The hikes created a trade-off in that while they dampened demand for loans, they also increased the amount of interest the banks can charge as they moved their prime rates up in tandem with each central bank hike.

CIBC analysts expect expanding net interest margins to remain as the banks’ primary drivers, benefitting Toronto-Dominion bank and the Royal Bank of Canada the most since they would have the best operating leverage.

Scott Chan, an analyst at Canaccord Genuity, and his also revised adjusted earning estimates down three per cent, pointing to growing macroeconomic concerns for dragging on bank stocks this year.

“With macro concerns continued at the forefront (e.g. inflation, housing, geopolitical, recession fears), the Big Six banks have modestly underperformed the TSX Composite since (the third quarter 2022) reporting season and (year-to-date),” Chan wrote in an Nov. 21 note.

Most of Canada’s biggest banks have seen their stock performance lag this year with shares of RBC slipping just over one per cent since the beginning of the year, the Bank of Montreal’s stock falling nearly six per cent, TD down over eight per cent, CIBC off 13 per cent, and the Bank of Nova Scotia tumbling the most at 21 per cent. Shares of National Bank managed to eke out a slight gain.

National Bank analyst Gabriel Dechaine said recession risks were keeping Canada’s bank stocks “in check,” and that the share prices currently indicate a 55 per cent probability of a recession.

Despite the headwinds, Dechaine took a more optimistic tone in his preview note, pointing primarily to margin expansion as an upside as the banks had a seven-basis point boost in their margins in the last quarter. Dechaine was also less deterred by provisions for loan losses.

“(Third quarter 2022) marked the first quarter of performing provision additions across the Big Six since (fourth quarter 2020),” Dechaine wrote in a Nov. 17 note to clients. “The shift resulted from banks taking a more cautious outlook for credit risk, given the higher probability of an upcoming recession. However, the performing (allowance for credit loss) ratio actually declined (quarter-over-quarter), as loan growth outpaced provision ‘build.’”

Dechaine also pointed to the Bank of Canada’s more dovish pivot and expectations that the current rate hiking cycle may be nearing its end as a positive sign for the banks as slowing mortgage demand risks could moderate.

The upcoming quarter will give investors a better look under the hood on how the banks are closing out 2022 and how well-positioned they are to withstand an economic downturn.

Scotiabank will kick off earnings week on the morning of Nov. 29.

• Email: shughes@postmedia.com | Twitter:

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Business

Carry On Canadian Business. Carry On!

Published

11 hours ago

October 22, 2024

Steven Kaszab

Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.

I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.

Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.

Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.

Steven Kaszab
Bradford, Ontario
skaszab@yahoo.ca

Business

Imperial to cut prices in NWT community after low river prevented resupply by barges

Published

15 hours ago

October 22, 2024

Anne Joseph

NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.

Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.

The air transportation increase, it further states, will be implemented over a longer period.

It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.

Gasoline and heating fuel prices approached $5 a litre at the start of this month.

Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.

“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.

The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.

“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.

Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.

Additionally, she said the government has donated $150,000 to the Norman Wells food bank.

In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.

It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.

This report by The Canadian Press was first published Oct. 21, 2024.

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Business

U.S. vote has Canadian business leaders worried about protectionist policies: KPMG

Published

15 hours ago

October 22, 2024

Anne Joseph

TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.

The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs

It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.

The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.

Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.

Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.

This report by The Canadian Press was first published Oct. 22, 2024.

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