Canada’s largest bank RBC warns of softer economy, plans job cuts - Al Jazeera English | Canada News Media
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Canada’s largest bank RBC warns of softer economy, plans job cuts – Al Jazeera English

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Royal Bank of Canada (RBC) warned of a softer economy ahead and plans to cut about 1,800 jobs after Canada’s largest bank beat analysts’ estimates for the third quarter on Thursday, helped by cost-cutting measures.

Chief Executive Officer Dave McKay forecast slowing growth and lower inflation due to the lagging impact of monetary policy, combined with a slowdown in China and elevated climate and geopolitical risks.

“We are seeing evidence of slowing labour markets as evidenced by slowing wage growth, lower job postings and an increase in Canadian unemployment. Consequently, our base case forecasts a softer economic outlook,” he told analysts.

“The operating environment is changing at a faster pace than we’ve seen for over a decade.”

McKay in May said the lender would slow down hiring after it overshot by thousands of people. The bank said the number of full-time employees was down 1 percent from the prior quarter, and it expects to further reduce headcount by about 1 to 2 percent. The bank had 93,753 full-time employees as of July 31.

“The bank did a commendable job in managing expenses, with an improvement in its overall efficiency ratio,” Barclays analyst John Aiken said, noting the lender’s earnings beat.

The country’s second-largest bank, Toronto-Dominion Bank (TD), however, missed analysts’ estimates for quarterly profit, which was hurt by higher expenses, rainy day funds to cover unpaid loans and weakness in its US business.

TD set aside 766 million Canadian dollars ($565m), a jump from 351 million Canadian dollars ($274m) a year ago, while RBC set aside 616 million Canadian dollars ($455m) for credit losses, up from 340 million Canadian dollars ($266m), as consumers struggle to make payments amid high costs of living.

The Bank of Canada has raised interest rates 10 times since March of last year to tackle sticky inflation, boosting profitability for banks’ consumer businesses as they benefit from higher earnings from loans.

That helped boost earnings at RBC’s retail business by 5 percent. At TD, however, income from its Canadian personal and commercial banking segment fell 1 percent and fell 9 percent at its US retail unit.

“The higher interest rate would put pressure on the consumer. But we’re seeing so far they continue to be resilient … but we’re continuously monitoring very closely,” TD’s Chief Financial Officer Kelvin Tran said in an interview.

Underperforming stocks

TD also plans to repurchase 90 million shares, after it launched a share buyback programme for 30 million shares in May, shortly after terminating its $13.4bn acquisition of a First Horizon deal giving the bank a capital boost.

Net interest income – the difference between what banks make on loans and pay out on deposits – rose 6.7 percent to 6.29 billion Canadian dollars ($4.6bn) at RBC and 3.5 percent to 7.29 billion Canadian dollars ($5.4bn) at TD.

RBC reported adjusted earnings of 2.84 Canadian dollars ($2.09) per share, beating analysts’ estimates of 2.71 Canadian dollars ($2) per share, according to Refinitiv data.

The results also benefitted from a low tax rate due to the Canada Recovery Dividend implemented in the 2023 budget.

TD’s adjusted earnings of 1.99 Canadian dollars ($1.46) per share fell below the estimate of 2.04 Canadian dollars ($1.5).

The bank’s earnings were also impacted by a 306 million Canadian dollars ($225m) payment related to the termination of its First Horizon acquisition.

RBC and TD together account for half of the market share among the big six Canadian banks with a market capitalisation of 168 billion Canadian dollars ($124bn) and 151 billion Canadian dollars ($111bn) respectively.

Their stocks have nevertheless underperformed, falling about 5 percent and 6 percent so far this year, compared with the broader index’s 2.55 percent gain.

RBC’s shares were up 1.6 percent while those of TD were down over 2 percent.

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Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

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Yuri Kageyama is on X:

The Canadian Press. All rights reserved.

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Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

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Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

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RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

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TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.

The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.

The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.

RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.

The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.

RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:REI.UN)

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