A Bank of Montreal branch is shown in Toronto, on Aug. 14. The bank’s expenses surged 46 per cent to $5.64-billion from the same quarter in 2022, offsetting a 39 per cent boost in revenue.Spencer Colby/The Canadian Press
Two of Canada’s largest banks – Bank of Montreal BMO-T and Bank of Nova Scotia BNS-T – saw their profits stunted in the fiscal third quarter by mounting costs and climbing reserves for loans that could go bad.
Those higher costs and larger-than-anticipated provisions for potentially sour loans are dragging on earnings across the sector as customers reel under the pressure of higher interest rates and inflation.
Bank of Montreal expenses surged 46 per cent to $5.64-billion from the same quarter a year prior, offsetting a 39 per cent boost in revenue as the bank integrates its takeover of California-based Bank of the West, which it expects to complete by early September.
The lender also booked $162-million in severance costs as it shed 2.5 per cent of its work force. The costs related to the staff cuts stretched across the bank, but largely stemmed from the bank’s Canadian personal and commercial banking unit, its corporate division and its capital markets business.
The reduction could save the bank about $200-million in expenses in 2024, BMO’s chief financial officer, Tayfun Tuzun, said during a conference call with analysts. The move is part of a broader effort to rein in spending, including reducing the bank’s real estate footprint and finding ways to cut costs as it weaves Bank of the West’s operations into its own.
“As the revenue trends this year have continued to weaken based on the macroeconomic conditions and market conditions, we have signalled that we are paying very close attention to our expense base,” Mr. Tuzun said in an interview. “And that attention is very broad-based. It’s not only about headcount.”
In recent weeks, analysts cut their estimates for the banks’ third quarter results amid concerns that growing economic unease and rising interest rates would bolster risk in lending portfolios and weigh on demand for borrowing. Both BMO and Scotiabank ramped up provisions for credit losses – the funds that lenders set aside to cover loans that may default – more than analysts expected as banks rebuild their reserves from their lows in 2021 during the pandemic.
Defaults have remained low and provisions in previous quarters were driven by loans that were performing, or still being repaid. This quarter, the majority of the reserves that the banks set aside were earmarked for loans that are impaired – at greater risk of not being paid on time.
BMO set aside $492-million in provisions, higher than analysts anticipated. The bank included $333-million against loans that are impaired – a 37 per cent jump from the previous quarter – based on models that use economic forecasting to predict future losses. In the same quarter last year, BMO had set aside $136-million in provisions.
BMO made $203-million of those provisions in its U.S. personal and commercial businesses, up from $69-million in the second quarter.
“We’re proactively addressing the period of volatility that we’re in to deliver consistent and sustained performance,” BMO chief executive officer Darryl White said during a conference call with analysts.
Analysts pressed BMO on the conference call for an updated outlook on the financial benefits that it expects from Bank of the West takeover, but executives said that would appear in next quarter’s results.
During the interview with The Globe, Mr. Tuzun cited increasing activity from Bank of the West customers even before BMO has fully integrated its newest business.
“What usually happens right before conversion is that clients become more hesitant to engage with the bank,” said Mr. Tuzun said. “But the Bank of the West branches have seen a pretty decent uplift in metrics, like the sales performance.”
Scotiabank shed 475 jobs in its Canadian banking unit as expenses increased 9 per cent to $4.56-billion year-over-year. That overshadowed a slimmer 4 per cent hike in revenue driven by narrowing net interest margins – the difference between the amount that banks charge on loans and pay on deposits – as high interest rates cool demand for loans.
Under the tenure of new CEO Scott Thomson, Scotiabank has focused on increasing its weakened deposit base – a valuable source of funding for lenders. The bank’s deposits climbed 9 per cent compared with the same quarter last year, primarily in longer-term savings products that cost more for banks to service.
Rising costs are hitting Scotia’s rivals across the sector as growth in expenses consistently outpaces increases in revenue. Last week, RBC reported that its number of full-time employees fell 1 per cent from last quarter, as workers left the bank. It said it expects to further decrease its work force by 1 per cent to 2 per cent next quarter.
Scotiabank set aside $819-million in provisions, surpassing analysts’ expectations, and included $738-million against loans that are at risk of not being repaid – a 19 per cent increase from the previous quarter. Scotiabank set aside $412-million in provisions in the same quarter last year.
A large portion of Scotiabank’s provisions build came from its international unit, in which loan losses have been higher as many of its markets struggle with heated interest rates and, in some cases, recessions.
Mr. Thomson said during a conference call with analysts the bank has seen recessions in international markets, where interest rates have risen more quickly than in Canada. He said the bank’s “investment-grade bias” and “conservative underwriting standards” in commercial lending has it “very well positioned to manage through this phase of the rate cycle.”
BMO posted a rise in profit that fell below analyst expectations, while Scotiabank narrowly met estimates but booked a drop in net income.
BMO earned $1.45-billion, up 7 per cent from the same quarter a year prior, or $1.97 per share. Adjusted to exclude certain items, including acquisition-related costs, the bank said it earned $2.78 per share. That fell below the $3.09 per share analysts expected, according to Refinitiv.
Scotiabank’s profit fell 15 per cent to $2.21-billion, or $1.72 per share. Adjusted to exclude certain items, including additional income taxes, the bank said it earned $1.73 per share. That matched the $1.73 per share analysts estimated, according to Refinitiv.
BMO and Scotiabank are the third and fourth major banks to report earnings for the three months that ended on July 31. Royal Bank of Canada released results last Thursday, posting a year-over-year increase in profit that beat analyst expectations. Toronto-Dominion Bank also unveiled earnings last week, booking profit that was lower year-over-year and missed analyst estimates.
National Bank of Canada is set to report on Wednesday, and Canadian Imperial Bank of Commerce will do so on Thursday.
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.
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.
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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