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

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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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gas prices reach new high | CTV News – CTV News Toronto

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Gas prices have reached yet another new record after rising six cents per litre overnight.

As of midnight the average price of a litre of fuel across the Greater Toronto Area is now 208.9 cents per litre, according to Canadians for Affordable Energy President Dan McTeague.

The latest jump means that gas prices have now risen 11 cents per litre since Friday, with no real relief in sight due to supply shortages brought about by Russia’s decision to invade Ukraine and the international sanctions that have been imposed a result.

“When you look at the fundamentals, supply and demand for diesel and for gasoline going into the summer driving season, not only is it low or critically low and that is one of the main reasons why prices are going up but the second factor is the Canadian dollar,” McTeague told CP24 last week. “It continues to show weakness despite the fact that in the old good old days when oil was $100 a barrel we would be on par with the U.S. dollar. The fact that we’re not is costing you 33 cents a litre.”

Gas prices have risen by about 60 per cent since last May, when drivers were paying around $1.30 per litre to fill up.

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Musk says Twitter legal team told him he violated an NDA – The Globe and Mail

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Tesla CEO Elon Musk arrives on the red carpet for the Axel Springer media award in Berlin on Dec. 1, 2020.Hannibal Hanschke/The Associated Press

Elon Musk on Saturday tweeted that Twitter Inc.’s legal team accused him of violating a non-disclosure agreement by revealing that the sample size for the social media platform’s checks on automated users was 100.

“Twitter legal just called to complain that I violated their NDA by revealing the bot check sample size is 100!” tweeted Mr. Musk, chief executive of electric car maker Tesla Inc.

Mr. Musk on Friday tweeted that his US$44-billion cash deal to take the company private was “temporarily on hold” while he awaited data on the proportion of its fake accounts.

He said his team would test “a random sample of 100 followers” on Twitter to identify the bots. His response to a question prompted Twitter’s accusation.

When a user asked Mr. Musk to “elaborate on process of filtering bot accounts,” he replied “I picked 100 as the sample size number, because that is what Twitter uses to calculate <5% fake/spam/duplicate.”

Mr. Musk tweeted during the early hours of Sunday that he is yet to see “any” analysis that shows that the social-media company has fake accounts less than 5 per cent.

He later said that, “There is some chance it might be over 90 per cent of daily active users.”

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As interest in electric vehicles soars, experts say they haven't quite hit the mainstream – CBC.ca

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When a friend told Seymore Applebaum about the efficiency of plug-in hybrid electric vehicles, he was intrigued.

Applebaum, who lives north of Toronto, was in the market for a new car. While safety features were top of mind, the high cost of gasoline couldn’t be ignored.

So in January, he traded in his sedan for a brand-new plug-in hybrid (PHEV), a vehicle that can run on both electricity and gasoline. Applebaum says he can travel almost 50 kilometres on battery power alone — more than enough to get around the city.

On a recent trip downtown, he recalled, “I drove about 45 kilometres … and the only thing I used was the electric motor and the electric battery that runs the car.”

“Normally, on a day like that, [it] would be comparable to $10, $15 of driving cost.”

Automotive industry analysts say rising gas prices have more consumers looking into electrified and electric vehicles (EVs). 

Gas prices have soared across the country in recent weeks. According to fuel price tracker GasBuddy, the national average price for regular gasoline was just below $1.98 per litre as of Sunday afternoon. (Kirk Fraser/CBC)

Prices at the pump have soared across Canada in recent weeks. Estimates suggest Vancouver could see the country’s highest prices this weekend, potentially hitting $2.34 per litre for regular fuel. According to fuel price tracker GasBuddy, the national average as of Sunday afternoon was just below $1.98 per litre.

“Canadians are motivated by high fuel prices, but they truly believe this is the new normal,” said Peter Hatges, national automotive sector leader for KPMG in Canada, pointing a recent survey by the consulting group. 

“When consumers believe it or perceive it to be true, they’re going to modify their behaviour around what kind of vehicles they buy.”

Kevin Roberts, director of industry insights and analytics for U.S.-based online vehicle marketplace CarGurus, told Cross Country Checkup he has seen a similar trend. 

“As gas prices went up, interest in electric vehicles went up almost in lockstep with just a couple of days delay for both new and used vehicles,” he said.

But even as interest in electrified cars spikes, experts say too few options — and too high prices — mean they haven’t quite hit the mainstream.

Where consumers in North America favour larger vehicles like SUVs and pickup trucks known for their utility, EVs tend to come in compact or sedan-style models. EV range — and the availability of chargers — are also considerations for many Canadians, said Hatges.

Availability of charging stations, and the range of EV models, are top of mind for Canadian drivers. (Doug Ives/The Canadian Press)

Ramp up production

Big investments into electrification by major automotive makers, however, are beginning to bear fruit. 

A greater variety of models and sizes are coming onto the market in the coming years, the analysts say. Battery life is improving too, with several models able to travel more than 400 kilometres on a charge, according to manufacturer estimates.

“It’s absolutely a tipping point,” said Hatges. “I think there’s a confluence of factors that are pointing toward an alternative to the internal combustion engine.”

The big test for consumers will be whether manufacturers can cut prices enough to get customers in the showroom — and EVs on the road — said Grieg Mordue, associate professor and ArcelorMittal chair in advanced manufacturing policy at McMaster University in Hamilton, Ont.

WATCH | Questions about EVs answered: 

Your questions about electric vehicles answered

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If you are thinking about getting off gas and buying an electric vehicle, or EV, you probably have a few questions. We went for a drive with an expert, and got some answers.

While a handful of models start below $50,000, many run far north of that figure with some selling for over $100,000.

The sweet spot for Canadian buyers? Between $35,000 and $45,000, says Mordue. Key to hitting that price point is mass production, he added. 

“We need production in North America of vehicles at that level, and we need high-volume vehicles — not little, niche vehicles where they sell 10,000 or 15,000 of them a year — because that’s a lot of the vehicles that we have now, Tesla notwithstanding,” Mordue told Checkup.

In April, GM announced a $2-billion investment, with support from the Ontario and federal governments, which will see electric vehicles rolling off assembly lines in Oshawa and Ingersoll, Ont., as early as this year.

Stellantis, which owns brands including Dodge and Jeep, is similarly investing billions into electrification at its Windsor and Brampton, Ont., plants.

Mordue cautions, however, that as plants begin producing electric models, it will take time for them to reach the existing output of gas-powered vehicles.

Seymore Applebaum says his recently purchased plug-in hybrid gives him the flexibility to take longer trips, but can run errands around the city without using any gasoline. (Ben Nelms/CBC)

Focus on fuel efficiency

While interest in EVs may be gearing up, Hatges predicts a shift for gas-powered vehicles too.

“I think you’ll see a strive to make cars lighter, more fuel efficient, even when it comes to electricity,” he said. “Heavy vehicles use more power to power themselves down the road, whether it’s electricity or fuel.”

And as long as gas prices stay high, the market could see a shift from SUVs and trucks — which consumers and manufacturers have favoured in recent years — to gas-sipping models.

“We have a fascination with pickup trucks and SUVs, North Americans do, and there’s a lot of them on the road now…. I don’t see that changing any time soon,” he said.

“But in the medium term or in the immediate term, will you see a shift or reconsideration of cars that are more fuel efficient? I think so. The price in the pump is very, very significant.”

Applebaum touted the flexibility of a plug-in hybrid, saying he doesn’t worry about range at all. And though his PHEV cost more than a comparable non-electrified model, trading in his previous vehicle combined with the fuel savings over three to four years made it affordable, he said.

With gas prices now higher than they were in January, “that’s even more true,” he told Checkup.

Now, he says friends are taking notice.

“They’re saying the next car they purchase will be an electric car.”


Written by Jason Vermes with files from Abby Plener.

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