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COVID-19 has Canada’s banks worried about sickly loans

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If Canada’s big banks are the canary in the coal mine for the economy as a whole, then there was some good news this week, and some less good news.

While the COVID-19 pandemic wreaked havoc on Canadian society, Canada’s five biggest lenders — Royal Bank, Bank of Montreal, Scotiabank, CIBC and TD — remained profitable even as they set aside billions of dollars to offset possible losses from loans that might go bad in the coming months.

It was expected that measures to contain the pandemic, such as school and business closures, border shutdowns and travel restrictions, would grind economic activity to a halt, but the banks’ quarterly financial results for the three-month period up to April 30 were hotly anticipated because they are a deep dive into just how bad the economy was really doing.

If businesses like manufacturers, oil and gas companies, retailers and tech startups are having trouble paying their bills, that tends to show up at the big banks, which lend them money.

Analysts say one of the best ways of gauging how companies are doing is by paying attention to a banking metric known as loan loss provisions. That’s a complicated-sounding term for a fundamentally simple concept: how much banks set aside to pay for loans on their books they think might not get paid back.

Not all those loans will turn into losses. But paying attention to how much the banks are setting aside just in case is an excellent proxy for how worried they are.

Combined, Canada’s big five lenders set aside almost $11 billion last quarter to cover loans that aren’t currently being paid off as planned. That’s almost five times as much as they had set aside for bad loans in the same three-month period last year.

That’s the bad news. The good news? “They were bad, but not as bad as feared,” said Jim Shanahan, an analyst with investment firm Edward Jones who covers Canada’s big banks.

Considering the massive number of layoffs, business closures and the glacial pace of trade flows across the Canada-U.S. border due to COVID-19, there were fears that loan losses could have been “at levels that we would never have contemplated,” Shanahan said.

But that didn’t happen.

It’s equally important to note that even in all this, the banks are still making money. Collectively, the banks raked in nearly $5 billion in profits over the three months. That’s well below their usual pace, but Shanahan said there was “almost a collective sigh of relief” that the banks were still profitable.

Art Johnson, the founder of Calgary-based SmartBe Wealth, is one of the few money managers in Canada who doesn’t think shares in Canadian bank stocks are always worth buying, but even he admits their week went a lot better than it could have gone.

 

Canada’s big banks are proxies for the economy: when the people and businesses they lend to have financial problems, that tends to show up on the banks’ books. (David Donnelly/CBC)

 

“When I look at the numbers, they’re bad,” he said in an interview. “There’s no two ways around it, these numbers are bad, [but] markets don’t look at bad or good, they look at better or worse.”

That explains what the banks’ stock prices did this week. Typically lower profits would have sent bank shares tumbling, but shares in all five were sharply up as investors breathed that sigh of relief that Shanahan was talking about.

“People were expecting a lot worse, and they were better than worse in all facets,” Johnson said.

Not out of the woods yet

While he understands why the bank stocks rallied with relief, Johnson thinks that exhale may be premature as the real pain in the economy may not show up on the banks’ books for another few months, once mortgage payment deferrals run out, and massive government progams supplementing income to laid-off workers expire.

“We’ll start to see the real impact of this three [or] four months down the road, and that’ll be where … it’ll be interesting for markets,” he said.

One of the best ways of gauging how optimistic the banks are about their future is to look at their dividend payments.

Canada’s big banks are known as reliable dividend-paying machines, slowly and methodically nudging up their payments to shareholders every few quarters for more than a century. Those big bank dividends are so rock-solid that TD and Scotiabank somehow managed to hike theirs even in the middle of the financial crisis in 2009.

The banks love to hike their dividends because investors love that extra income. But banks won’t do it unless they are confident they’ll be able to sustain the higher level in perpetuity  — a harsh lesson that Quebec-focused bank Laurentian learned this week when it cut its payout, the first dividend slash by a Canadian lender that big in almost 30 years.

If dividend payouts are the best barometer of the financial health of Canada’s big banks — and, by extension, the economy — then the fact that none of them saw the need to cut this time around is an encouraging sign.

Those quarterly payouts look as rock-solid as ever, but even the banks admit the future still looks uncertain.

The CEO of National Bank, a distant sixth in the five-horse race atop Canadian banking, phrased it in a, well, enterprising fashion.

“This is Star Trek finance,” Louis Vachon said on a conference call with analysts to discuss the bank’s quarter, in which it booked one-third less profit and set aside five times more money for bad loans.

“We would describe the current environment as going where no one has gone before.”

Canada’s economy has managed to live long and prosper for decades on the backs of its biggest lenders, but Vachon makes it clear that those same banks are still keeping their shields up for now.

“We’re still watching for the Klingons [because] we’re not out of this crisis yet.”

Source: CBC.ca

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Edited BY Harry Miller

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Suspicious deaths of two N.S. men were the result of homicide, suicide: RCMP

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Nova Scotia RCMP say their investigation into two suspicious deaths earlier this month has concluded that one man died by homicide and the other by suicide.

The bodies of two men, aged 40 and 73, were found in a home in Windsor, N.S., on Sept. 3.

Police say the province’s medical examiner determined the 40-year-old man was killed and the 73-year-old man killed himself.

They say the two men were members of the same family.

No arrests or charges are anticipated, and the names of the deceased will not be released.

RCMP say they will not be releasing any further details out of respect for the family.

This report by The Canadian Press was first published Sept. 16, 2024.

The Canadian Press. All rights reserved.



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Turning the tide: Quebec premier visits Cree Nation displaced by hydro project in 70s

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For the first time in their history, members of the Cree community of Nemaska received a visit from a sitting Quebec premier on Sunday and were able to share first-hand the story of how they were displaced by a hydroelectric project in the 1970s.

François Legault was greeted in Nemaska by men and women who arrived by canoe to re-enact the founding of their new village in the Eeyou Istchee James Bay region, in northern Quebec, 47 years ago. The community was forced in the early 1970s to move from its original location because members were told it would be flooded as part of the Nottaway-Broadback-Rupert hydro project.

The reservoir was ultimately constructed elsewhere, but by then the members of the village had already left for other places, abandoning their homes and many of their belongings in the process.

George Wapachee, co-author of the book “Going Home,” said community members were “relocated for nothing.”

“We didn’t know what the rights were, or who to turn to,” he said in an interview. “That turned us into refugees and we were forced to abandon the life we knew.”

Nemaska’s story illustrates the challenges Legault’s government faces as it looks to build new dams to meet the province’s power needs, which are anticipated to double by 2050. Legault has promised that any new projects will be developed in partnership with Indigenous people and have “social acceptability,” but experts say that’s easier said than done.

François Bouffard, an associate professor of electrical engineering at McGill University, said the earlier era of hydro projects were developed without any consideration for the Indigenous inhabitants living nearby.

“We live in a much different world now,” he said. “Any kind of hydro development, no matter where in Quebec, will require true consent and partnership from Indigenous communities.” Those groups likely want to be treated as stakeholders, he added.

Securing wider social acceptability for projects that significantly change the landscape — as hydro dams often do — is also “a big ask,” he said. The government, Bouchard added, will likely focus on boosting capacity in its existing dams, or building installations that run off river flow and don’t require flooding large swaths of land to create reservoirs.

Louis Beaumier, executive director of the Trottier Energy Institute at Polytechnique Montreal, said Legault’s visit to Nemaska represents a desire for reconciliation with Indigenous people who were traumatized by the way earlier projects were carried about.

Any new projects will need the consent of local First Nations, Beaumier said, adding that its easier to get their blessing for wind power projects compared to dams, because they’re less destructive to the environment and easier around which to structure a partnership agreement.

Beaumier added that he believes it will be nearly impossible to get the public — Indigenous or not — to agree to “the destruction of a river” for a new dam, noting that in recent decades people have come to recognize rivers as the “unique, irreplaceable riches” that they are.

Legault’s visit to northern Quebec came on Sept. 15, when the community gathers every year to remember the founding of the “New Nemaska,” on the shores of Lake Champion in the heart of the boreal forest, some 1,500 kilometres from Montreal. Nemaska Chief Clarence Jolly said the community invited Legault to a traditional feast on Sunday, and planned to present him with Wapachee’s book and tell him their stories.

The book, published in 2022 along with Susan Marshall, is filled with stories of Nemaska community members. Leaving behind sewing machines and hunting dogs, they were initially sent to two different villages, Wapachee said.

In their new homes, several of them were forced to live in “deplorable conditions,” and some were physically and verbally abused, he said. The new village of Nemaska was only built a few years later, in 1977.

“At this time, families were losing their children to prison-schools,” he said, in reference to the residential school system. “Imagine the burden of losing your community as well.”

Thomas Jolly, a former chief, said he was 15 years old when he was forced to leave his village with all his belongings in a single bag.

Meeting Legault was important “because have to recognize what happened and we have to talk about the repercussions that the relocation had on people,” he said, adding that those effects are still felt today.

Earlier Sunday, Legault was in the Cree community of Eastmain, where he participated in the official renaming of a hydro complex in honour of former premier Bernard Landry. At the event, Legault said he would follow the example of his late predecessor, who oversaw the signing of the historic “Paix des Braves” agreement between the Quebec government and the Cree in 2002.

He said there is “significant potential” in Eeyou Istchee James Bay, both in increasing the capacity of its large dams and in developing wind power projects.

“Obviously, we will do that with the Cree,” he said.

This report by The Canadian Press was first published Sept. 16, 2024.



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Quebec premier visits Cree community displaced by hydro project in 1970s

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NEMASKA – For the first time in their history, members of the Cree community of Nemaska received a visit from a sitting Quebec premier on Sunday and were able to share first-hand the story of how they were displaced by a hydroelectric project in the 1970s.

François Legault was greeted in Nemaska by men and women who arrived by canoe to re-enact the founding of their new village in the Eeyou Istchee James Bay region, in northern Quebec, 47 years ago. The community was forced in the early 1970s to move from their original location because they were told it would be flooded as part of the Nottaway-Broadback-Rupert hydro project.

The reservoir was ultimately constructed elsewhere, but by then the members of the village had already left for other places, abandoning their homes and many of their belongings in the process.

George Wapachee, co-author of the book “Going Home,” said community members were “relocated for nothing.”

“We didn’t know what the rights were, or who to turn to,” he said in an interview. “That turned us into refugees and we were forced to abandon the life we knew.”

The book, published in 2022 by Wapachee and Susan Marshall, is filled with stories of Cree community members. Leaving behind sewing machines and hunting dogs, they were initially sent to two different villages, 100 and 300 kilometres away, Wapachee said.

In their new homes, several of them were forced to live in “deplorable conditions,” and some were physically and verbally abused, he said. The new village of Nemaska was only built a few years later, in 1977.

“At this time, families were losing their children to prison-schools,” he said, in reference to the residential school system. “Imagine the burden of losing your community as well.”

Legault’s visit came on Sept. 15, when the community gathers every year to remember the founding of the “New Nemaska,” on the shores of Lake Champion in the heart of the boreal forest, some 1,500 kilometres from Montreal. Nemaska Chief Clarence Jolly said the community invited Legault to a traditional feast on Sunday, and planned to present him with Wapachee’s book and tell him their stories.

Thomas Jolly, a former chief, said he was 15 years old when he was forced to leave his village with all his belongings in a single bag.

Meeting Legault was important “because have to recognize what happened and we have to talk about the repercussions that the relocation had on people,” he said, adding that those effects are still felt today.

Earlier Sunday, Legault had been in the Cree community of Eastmain, where he participated in the official renaming of a hydro dam in honour of former premier Bernard Landry.

This report by The Canadian Press was first published Sept. 16, 2024.

The Canadian Press. All rights reserved.



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