Wed, April 24, 2024 at 9:35 AM EDT
Business
TD and CIBC cap three days of dismal forecasts of economic impact of COVID-19 – The Globe and Mail
Two more major Canadian banks have reported quarterly profits declined by more than half as they stocked up reserves to absorb anticipated loan losses, capping three days of dismal forecasts from bankers about the extent of the economic damage the novel coronavirus could do.
Toronto-Dominion Bank set aside more than $3.2-billion in provisions to cover losses on loans that could go sour, an eye-catching sum that eclipsed large spikes in provisions at each of the other Big Six banks. Canadian Imperial Bank of Commerce set aside more than $1.4-billion as a reserve against its own potential losses on Thursday.
The need to rapidly build bulwarks against future losses was the driving force behind the steep plunge in earnings across the sector in the fiscal second-quarter – profits declined 52 per cent at TD and 71 per cent at CIBC. But in the midst of a global pandemic that prompted a wide-ranging economic shutdown, all six of the country’s big banks remained profitable, with capital levels securely intact and their quarterly dividends unaltered.
“I think that’s one reason the banks’ [stocks] are rallying, even though the results themselves in absolute terms are not good,” said Meny Grauman, an analyst at Cormark Securities Inc. “There’s a big relief that there was no bomb so far in the results.”
The provisions that banks booked were largely based on complex forecasts of possible future losses, calculated using the best assumptions they can cobble together at this stage. They provide a yardstick by which to measure the potential scale of economic carnage from COVID-19, taking stock of debt held by consumers as well as businesses of all sizes in an array of industries. But the pace of recovery is uncertain, and senior bankers warned that a return to precrisis profitability won’t be quick.
“It may take to [2021], it may take to early [2022] before you see a robustness back in the banking sector again, assuming that the health care crisis is behind us,” Victor Dodig, CIBC’s chief executive officer, said on a conference call with analysts.
For the three months that ended April 30, TD reported profit of $1.52-billion, or 80 cents per share, compared with $3.17-billion, or $1.70, a year ago. Adjusted for certain items, TD said it earned 85 cents per share, on an adjusted basis, matching analysts’ consensus estimate, according to Refinitiv.
In the same period, CIBC earned $392-million, or 83 cents per share, compared with $1.35-billion, or $2.95 a share, last year. On an adjusted basis, CIBC said it earned $0.94 per share, far shy of the $1.65 in adjusted earnings per share analysts expected.
The resilience of banks’ capital levels was an important theme in the second quarter, and each large Canadian bank emerged with billions of dollars in excess capital over and above the minimum threshold set by regulators. Yet TD had a sharper decline than expected in its common equity Tier 1 (CET1) ratio – which measures a bank’s highest-quality capital relative to its assets, an important indication of a financial health – which fell to 11 per cent, from 11.7 per cent a year ago.
A range of factors contributed to the drop, including share buybacks before the crisis and changes in foreign exchange rates, but the bank also adjusted the levels of risk it assigns to various assets as customers drew heavily on credit lines when the shutdown began in mid-March. To be prudent, TD introduced a 2-per-cent discount on shares purchased through its dividend reinvestment plan (DRIP), which is a tool to raise capital, after BMO made the same move in April.
By contrast, the CET1 ratio at CIBC didn’t budge, remaining at 11.3 per cent, partly as result of a routine adjustment of the bank’s models. As some loans deteriorate because of economic losses owing to the economy shutting down, however, CIBC expects some pressure on the ratio is possible in the current quarter.
After two days of surging prices for bank stocks, shares in TD and CIBC both gave back some ground on Thursday, falling 3.8 per cent and 2 per cent, respectively, on the Toronto Stock Exchange.
Even as banks prepare for a surge in impaired loans, actual losses have been delayed in some cases by payment deferral programs the banks are offering and government relief measures. TD said it has deferred payments on $62-million in loans to consumers and businesses, a majority of which is made up of mortgages, while CIBC has granted payment deferrals on loans worth $51.6-billion to clients in Canada, the United States and the Caribbean.
As those programs expire, banks expect most customers to resume payments. “I view the deferral programs to be ultimately risk-reducing,” said Ajai Bambawale, TD’s chief risk officer, because they give customers breathing room to bounce back from a temporary loss of income.
But TD has built reserves to cover some losses on deferred loans, “because in our view it is a matter of time before some become delinquent, others may become impaired as well,” he said.
Driving up loan-loss provisions played a major part in sapping profits in the banks’ core retail divisions. Customers also spent less money on cards and used spare cash to pay down debt. And rapid cuts to interest rates by the Bank of Canada and the U.S. Federal Reserve squeezed profit margins on loans.
At TD, retail banking profit fell 37 per cent to $1.17-billion in Canada, and plunged by 90 per cent in its U.S. retail arm, to $102-million, excluding profit from the bank’s share of TD Ameritrade Holding Corp. And CIBC’s profit from Canadian personal and small business banking fell 64 per cent, to $203-million.
In banks’ capital markets divisions, robust levels of trading activity and record levels of debt underwriting were expected to help prop up banks’ profits. But in several cases, those benefits were eclipsed by rising provisions on corporate loans and losses on certain trading strategies in volatile equity markets.
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Business
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
Business
Tesla profits cut in half as demand falls
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Tesla profits slump by more than a half
Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
Musk’s salary
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
Business
Stock market today: Nasdaq futures pop, Tesla surges after earnings with more heavyweights on deck
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Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
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