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Canadian banks set for 1st-qtr profit growth, but costs, margins could deal blow

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3 years ago

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Canadian banks are set to report higher first-quarter earnings from a year ago, thanks to low provisions for credit losses and improving loan demand, but rising costs are a focus area for investors.

Analysts expect Canada’s Big Six banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada – to post an average 6% increase in adjusted earnings per share in the three months through January.

However, excluding the impact of provisions and taxes, earnings could be lower than a year earlier, with expense growth outpacing revenue expansion, and lower contribution from capital markets units following last year’s strength, CIBC Capital Markets analysts wrote in a recent note.

Royal Bank kicks off results reporting on Thursday.

Canadian banks have reported record profits throughout the pandemic, as strong mortgage lending, trading and deals activity helped offset an evaporation in demand for other kinds of credit. Now, with restrictions and accommodative government and central bank policies coming to an end, the drivers of earnings are also starting to shift.

“Mortgage growth will continue to be strong, no surprise there,” said Rob Colangelo, vice president and senior credit officer at Moody’s Investors Service. “But other kinds of lending, credit card, auto lending, there’s some return to growth there.”

Credit-loss provisions are also likely to keep trending lower, with the banks continuing to release capital they had set aside in anticipation of impaired loans that have not materialized, Colangelo said.

But expenses are among the biggest uncertainties for the quarter, particularly related to compensation, driven by a tight labour market.

“There’s a lot of movement, especially in the financial services sector, and a lot of it is driven by wages,” Philip Petursson, chief investment strategist at IG Wealth Management. “I’m curious as to how much of an impact this is having on the banks.”

The phenomenon is a global one, with major Wall Street banks raising pay and bonuses to attract and retain talent, particularly in investment banking units.

Surging inflation and planned business investments could also exacerbate cost pressures, even as revenues remain challenged during the quarter.

CIBC analysts predicted year-on-year revenue growth of just 1% in the first quarter, noting central bank interest rate hikes that could help have not happened yet.

“The natural offset to inflation is higher interest rates,” they wrote in a note. “Inflationary impacts are happening now and rate benefits are in the future.” The Bank of Canada is widely seen raising rates at its March 2 meeting.

A much-awaited improvement in net interest margins may also not have materialized during the quarter. Although fixed rates on mortgages have risen, they have done so at a slower pace than short-term rates, which determine banks’ borrowing costs and have risen in anticipation of central bank rate hikes.

With the Canadian banks index up 115% since its March 2020 trough, compared with an 89% gain in the Toronto stock benchmark, bank shares have more downside risks, Petursson said.

“If banks surprise to upside, I’m not as convinced we will see a significant jump up in stock performance,” he said. But if the earnings disappoint, “you could see a sharper hit to the downside.”

 

(Reporting By Nichola Saminather; Editing by Andrea Ricci)

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Carry On Canadian Business. Carry On!

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20 hours ago

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October 22, 2024

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business to start in Canada

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

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

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23 hours ago

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October 22, 2024

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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.

The Canadian Press. All rights reserved.

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

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23 hours ago

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October 22, 2024

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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.

The Canadian Press. All rights reserved.

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