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Canadian banks to get millions in funds to administer government COVID-19 loan program for small businesses

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OTTAWA — Canada’s banks are likely to get tens of millions of dollars for managing the government’s loan program designed to get money in the hands of small businesses.

The government launched the Canada Emergency Business Account (CEBA) program on April 9, allowing businesses to apply for up to $40,000 in interest-free, government backed loans through their banks. If businesses manage to pay 75 per cent of the loan back by Dec. 31, 2022, the remaining 25 per cent of the loan will be forgiven.

Businesses also had to have a payroll of between $20,000 and $1.5 million to qualify for the program.

All of Canada’s major banks have programs up and running to help customers apply for the program and to date $15.3 billion has been extended to businesses across the country.

Under the previously undisclosed terms of the arrangement with banks, the financial institutions will get 0.4 per cent of any outstanding balances in the program per year. If for example, the $15.3 billion that has been paid was still outstanding at the end of the first year, banks would receive just over $60 million.

The program was part of a host of support efforts for small businesses, which has also included the wage subsidy program and an initiative for rent relief that was announced last week.

Anna Arneson, a spokesperson for the ministry of finance, said the fee is intended to cover the banks’ cost administering the program including keeping clients updated on their balances.

They are not going to pay it early because they are going into a slow economy and they’re going to need that cash flow

“The fee is intended to reflect the cost of service of the financial institutions providing the loan, for the duration of the loan’s lifetime, in a manner similar to how a financial institution would treat loans that it underwrote,” she said in an email. “It is not intended to include a profit margin for the financial institutions.”

She said the government is also doing an independent review of the program and if the costs to the bank are lower than initially estimated their fee can be reduced.

NDP MP Gord Johns said Canada’s banks could have taken on this program without charging the government, recognizing that it would help many of their customers to get money in their pockets.

“It would have been a generous offer if they said we are going to administer it, this is something we can do,” he said. “The big banks haven’t come to the table and they need to.”

Johns said most businesses will need the cash over the next few years and won’t rush to repay the loan allowing banks to gather these fees for several years.

“They are not going to pay it early because they are going into a slow economy and they’re going to need that cash flow.”

He said he has been disappointed banks have only made small reductions to interest rates and he has heard from many constituents who feel the banks could be doing a lot more to help.

“I am getting calls from small businesses that aren’t able to defer mortgages for more than a month, that aren’t able to access lines of credit.”

He said the government should have taken a tougher stance with banks to get more support to individual Canadians.

“The government had to have a more difficult and harder conversation with the big banks.”

The Conservatives have also criticized the program for excluding family-run businesses by requiring that people applying have a payroll, noting many family-run businesses pay family members with dividends.

Mathieu Labrèche, a spokesperson for the Canadian Bankers Association, said the government worked with banks to ensure the money could get out the door to businesses quickly. He said banks have worked very quickly and are only covering their costs with the program.

“Canada’s financial institutions will continue to support the program on a cost recovery basis throughout,” he said.

Labrèche said the government has asked for the banks’ help with a number of programs, including the wage subsidy and they have done so eagerly.

“Having banks deliver these programs costs far less and is more efficient than having the government do so on its own,” he said.

Labrèche also pointed to similar programs in the United States that are costing a lot more. The American Small Business Administration is backing larger loans to businesses there, but banks in the U.S. are receiving larger fees.

For loans of less than $350,000 U.S. banks can charge a fee of five per cent on the loan, that percentage does decline when the loans become larger, but even with loans of more than $2 million banks charge a one per cent fee.

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Source:- National Post

Edited by Megan Johnson

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At the open: S&P 500 breaches 3000 mark for first time since early March – The Globe and Mail

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U.S. stocks surged at the open and S&P 500 breached a major technical barrier on Tuesday as business restarts and optimism about a potential coronavirus vaccine helped investors overlook Sino-U.S. tensions.

The S&P 500 rose 2.2% to 3,020 points at the open, rising above 3,000, a key psychological level for the first time since March 5.

The Dow Jones Industrial Average rose 316.68 points, or 1.29%, at the open to 24,781.84. The Nasdaq Composite gained 176.63 points, or 1.89%, to 9,501.21 at the opening bell.

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The TSX, which rallied on Monday when U.S. markets were closed, was up 0.67% in early trading.

Also see: Market movers: Stocks seeing action on Tuesday – and why

Reuters

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Scotiabank profit plunges 40% as bad loans more than double amid COVID-19 – CBC.ca

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Scotiabank posted a profit Tuesday morning of $1.32 billion in the three months up to the end of April, a fall of more than 40 per cent from last year’s level as the bank set aside twice as much money for bad loans.

The bank’s provisions for credit losses totalled nearly $1.85 billion for the quarter. That’s up 111 per cent from the $873 million worth of bad loans the bank revealed in the same three months last year, well before the COVID-19 pandemic crushed the economy.

Higher loan loss provisions don’t necessarily mean that all of those loans will end up defaulting. Rather, it just means that they aren’t being actively being paid back as planned.

The bank revealed on Tuesday that 300,000 of its Canadian customers have applied for some sort of financial relief on the $60 billion they collectively owe to the bank. That would include mortgagees who asked for interest rate deferrals.

Scotiabank has a huge presence in Latin America, and the bank says it has processed two million applications for loan relief from its international customers.

Economic bellwether

Not all of those loans will necessarily end up defaulting, but some may. So the uptick in loan loss provisions is troubling.

Scotia is the first of Canada’s big banks to reveal its financial performance through the current pandemic, numbers which will be closely scrutinized as they are considered to be a bellwether for the broader economy. That’s because pain at other businesses tends to show up on the books of the banks that lend to them.

Canada’s other big banks — Royal, Toronto-Dominion, Canadian Imperial Bank of Commerce and Bank of Montreal — will report earnings in the next few days.

On an adjusted basis, Scotiabank’s profit for the quarter came in at $1.04 per diluted share. That’s well down from $1.70 per diluted share a year ago, but ahead of the 98 cents that analysts who cover the bank were expecting.

Not all bad news

But not all parts of the bank’s business saw tough times. Indeed, some did even better than usual.

Scotia’s global wealth management business posted a profit of $314 million, an increase of four per cent over last year’s level. That uptick came about with investors around the world becoming much more active than usual as global stock markets plummeted.

“This quarter saw record results for both new client account openings and trading volumes in Scotia iTRADE,” the bank said.

Similarly, the global banking and markets business posted a profit of $523 million, up 25 per cent from a year earlier.

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Scotiabank's loan-loss provisions double on coronavirus risks – The Globe and Mail

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A Bank of Nova Scotia building stands in Toronto on Aug. 22, 2017.

Nathan Denette/The Canadian Press

Bank of Nova Scotia on Tuesday reported quarterly profit that beat analysts’ estimates due to a strong performance in the capital markets business, but the bank’s loan loss provisions jumped two-fold.

Provisions for loan losses at Scotia more than doubled to $1.85 billion from a year earlier as it set aside more money to meet future losses.

Canadian banks are expected to face loan defaults as the coronavirus pandemic drives the world into a recession, leaving small and medium-sized businesses scrambling to meet their debt payments.

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The bank said commercial and corporate performing loan provisions increased by $275 million, hurt by the poor macroeconomic outlook and a plunge in oil prices that impacted the energy sector globally.

Adjusted net income at its global wealth management segment rose 3 per cent to $314 million, while profit at the global banking and markets business jumped 25 per cent to $523 million.

Canada’s third-biggest lender said net income fell to $1.24 billion, or $1 per share, in the quarter ended April 30, from $2.13 billion, or $1.73 per share, a year earlier.

On an adjusted basis, the lender earned $1.04 per share, compared with analysts’ estimate for profit of $0.98 per share, according to IBES data from Refinitiv.

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