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Banks top profit estimates as lower provisions outweigh FX hit

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Three of Canada‘s top lenders reported better-than-expected quarterly profits on Thursday, as signs of an economic recovery helped them reverse bad debt provisions and their capital markets and wealth management units boomed.

Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CIBC) have largely avoided major increases in loan impairments and expectations for strong economic growth look likely to keep a lid on them.

But their results masked some challenges, including flat net interest margins, little to no commercial loan growth and the impact of a strong Canadian dollar.

Particularly at TD, earnings excluding the impact of provisions and taxes fell 16.8%, compared with increases of 14% and 11% at CIBC and RBC respectively.

The impact of the strong Canadian dollar and higher payments to retail partners in its U.S. credit card business weighed on earnings, TD Chief Financial Officer Riaz Ahmed said in an interview.

TD shares fell 0.7% from Wednesday’s record close to C$88.19 in morning trading in Toronto. Royal Bank shares rose 1.05% to C$125.70, and CIBC gained 2.7% to C$140.83, both all-time highs. The Toronto stock benchmark added 0.3%.

“At first look we see TD’s Q2 EPS beat as lower quality relative to the bank’s peers,” Credit Suisse analyst Mike Rizvanovic wrote in a note.

In contrast, RBC had a “solid quarter overall” and CIBC had “strength across each operating segment” although the latter’s margin compression in domestic lending was a modest concern, he said.

While RBC, Canada‘s biggest bank, also felt some currency hit in translating earnings from its U.S. City National business, it was offset to some degree by the impact on expenses, executives said on an analyst call.

RBC released C$260 million ($216 million) from its loan-loss reserves in the second quarter, compared with provisions of C$2.1 billion a year earlier. CIBC reported an almost 98% fall in provisions, while TD recovered C$373 million of funds set aside to cover bad loans.

Analysts had expected average core earnings per share for Canada‘s top six lenders to more than double in the three months through April from a year earlier when they set aside nearly C$11 billion to cover potential bad loans.

CIBC and RBC also benefited from a surge in deal-making and trading activity that boosted their capital markets businesses, with the latter reporting record revenue in investment banking.

TD’s wholesale banking revenue fell 8% from a year earlier on lower trading revenues, although non-interest income was boosted 6% by wealth and banking fees.

RBC posted adjusted earnings per share of C$2.79, compared with a Refinitiv IBES estimate of C$2.48 a share. CIBC’s net income excluding one-off items was C$3.59, beating estimates of $3.01 a share. TD, Canada‘s second-largest lender, posted adjusted net earnings of C$2.04, exceeding estimates of C$1.76 per share.

($1 = 1.2094 Canadian dollars)

 

(Reporting by Noor Zainab Hussain and Niket Nishant in Bengaluru and Nichola Saminather in Toronto. Editing by Aditya Soni and Mark Potter)

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Minimum wage to hire higher-paid temporary foreign workers set to increase

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OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

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

— With files from Nojoud Al Mallees

The Canadian Press. All rights reserved.

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

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OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

The Canadian Press. All rights reserved.

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