Signs of economic slowdown are growing, and Canadian banks could add more evidence this upcoming week.
The Big Six banks are set to report fourth quarter results that analysts expect to show lower earnings, more money set aside to cover bad loans, and hints of rising mortgage strain.
The results come as economic growth has rolled to a near standstill over the last several months, the engine stalled after the Bank of Canada raised its key interest rate to five per cent.
Higher borrowing costs and more cautious banks mean that lending growth has slowed notably.
“The key trend in the banking industry right now is really the decrease in lending across the Canadian market,” said Shilpa Mishra, managing director in BDO’s capital advisory services.
The pace of lending growth in the third quarter was about half what it was a year ago, while it was down slightly from the previous quarter, she noted.
Not only are banks slowing the pace of new lending, but they’re setting aside more money for loans that could go or are already going bad as higher interest rates add strain to borrowers. That will be a big influence on earnings.
“We anticipate mixed results from the Canadian banks amid an increasingly uncertain environment,” said Mishra, “This is going to be primarily due to the provision for credit losses.”
RBC Capital Markets analysts are predicting total provisions for credit losses in the sector to increase 13 per cent from the previous quarter to $3.3 billion because the macroeconomic environment has worsened.
The money they’re setting aside is a big part of the reason Scotiabank analyst Meny Grauman expects earnings per share to be down three per cent from the previous quarter, and seven per cent from last year.
“Over the past quarter, we have witnessed a clear deterioration in a host of Canadian macro(economic) indicators, including GDP and employment,” Grauman said in a report.
Unemployment ticked up 0.2 percentage points to 5.7 per cent in October for the fourth monthly increase, while August GDP growth was essentially flat and the flash estimate for September was also unchanged, according to Statistics Canada.
Indications of slowing can be seen in other key areas like real estate, where October home sales were down 5.6 per cent from September sales, which were down 1.9 per cent from August, according to the Canadian Real Estate Association.
“The economy is slowing now, with growth in gross domestic product near zero over the past several months,” Bank of Canada governor Tiff Macklem said last week.
He also noted the inflation rate has fallen from 8.1 per cent in June 2022 to 3.1 per cent last month.
“This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability.”
Grauman said the bond market is pricing in a cut from the Bank of Canada by the second quarter of next year, and the U.S. Fed a quarter earlier, but he thinks that’s optimistic.
“We remain skeptical that central banks will be in a position to ease in late 2024, let alone early in the year, and continue to view the risk of higher-for-longer rates as the key macro issue facing Canadian bank stocks.”
He expects consumer finances to be increasingly strained in the higher-for-longer scenario, and will be listening for hints from bank executives of how much strain they expect from borrowers.
Waves of mortgage renewals are coming in the next few years that will push monthly payments higher, and are expected to keep pressure on borrowing.
Banks have been readying for the slowdown by cutting back on expenses, including on staff. Scotiabank said in October it was cutting about 2,700 staff, while RBC announced last quarter it had cut around 900 jobs and planned to cut upwards of 1,900 more. Other banks have also taken some charges related to staffing cuts.
Fourth quarter results could reveal further trimming, but Mishra said she expects much of those job-cutting efforts to be done.
“I don’t think there’s going to be more of that,” said Mishra. “But we’re definitely going to see more restructuring in the lending and capital market businesses and focus on profitable and higher-margin businesses.”
Overall, the shifts in the quarter will show banks preparing for rockier times, but not likely dramatic swings, she said.
“There isn’t that tsunami of distress that we were expecting, there is more focus on cash flow, liquidity management, balance sheet management.”
Scotiabank kicks off earnings on Nov. 28, CIBC, TD Bank and RBC report on Nov. 30, and BMO and National Bank report on Dec. 1.
TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
