Canadian bank stocks have been under considerable pressure since the WHO declared a coronavirus pandemic in March 2020. First quarter 2020 U.S. bank results indicated that there is a rocky road ahead for Canada’s banks. The third-largest lender Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) recently reported its fiscal second-quarter 2020 results.
Scotiabank’s second-quarter earnings plunged sharply. Net income of $1.3 billion was 41% lower than for the equivalent period in 2019. That can be blamed on the impact of the coronavirus pandemic on Scotiabank’s operations and its push to build a cash buffer in anticipation of a sharp uptick in impaired loans and credit losses.
Scotiabank set aside a whopping $1.8 billion in provisions for credit losses, which is a massive 111% year-over-year increase. That was despite credit quality improving during the quarter, as highlighted by the bank’s gross impaired loans ratio falling 10 basis points to 0.78%.
Scotiabank, like its U.S. peers, is preparing for a significant downturn in the credit cycle and consequently has taken the opportunity to build massive cash reserves to absorb credit losses.
Despite the sharp decline in the bank’s bottom line, Scotiabank stock soared 7% over the last week. This is because Scotiabank’s earnings of $1 per share beat the analyst consensus estimate of $0.91 per share.
International banking woes
The worst performing of Scotiabank’s operations was its international business, which had become an important growth driver. International banking net income plunged to $185 million, almost a quarter of the $701 million reported a year earlier. This was driven by a combination of weaker revenue with net interest income falling 9% and fee revenue plunging a whopping 20%.
Provisions for credit losses ballooned 62% year over year to just over $1 billion, having a marked impact on international banking’s profitability. Scotiabank, despite the division’s 0.28% year-over-year reduction in its gross impaired loans ratio to 2.29%, is anticipating a substantial decline in credit quality across its Latin American operations.
Another factor that impacted international banking’s performance was a weaker net interest margin. Governments across the region have been reducing official interest rates to stimulate economic growth.
Scotiabank reported a dismal return on equity of 3.5% for international banking, which was almost a quarter of what it had been a year earlier. This indicates that profitability has collapsed and could very well worsen because of the poor economic outlook for Latin America with Scotiabank a top-10 rated bank in Mexico, Colombia, Peru, and Chile.
The region has been hit hard by the coronavirus pandemic, and economies are expected to contract sharply over the coming year. That certainly doesn’t bode well for Scotiabank’s overall performance when Canada’s economic weakness is considered along with the risk of domestic housing crash.
Will the bank cut the dividend?
This raises the question as to whether Scotiabank’s dividend is safe. It, like its Big Five peers, has become an important source of income for many Canadians, particularly retirees.
Prior to the latest earnings, Scotiabank’s dividend of a very juicy 7% was sustainable with a conservative payout ratio of 52%. The ratio for the second quarter 2020 leapt to a worrying 90%. When it is considered that there is worse to come for Scotiabank, including a further decline in earnings, the ratio could easily exceed 100%.
Nonetheless, Scotiabank possesses the financial resources to sustain the dividend in such circumstances for a short period. That means a dividend cut at this time is not likely, although certainly don’t expect another dividend hike.
Scotiabank’s latest results were better than expected. Despite the sharp earnings decline, it was able to squirrel away a sizable cash buffer to absorb an anticipated surge in credit losses. While there is worse ahead for Scotiabank, it does appear attractively valued, trading at less than one times book value and nine times projected earnings. The very tasty 7% yield appears safe for the time being.
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Goldman Sachs moves to full ownership of China securities JV
Goldman Sachs said on Sunday it received approval from China’s securities regulator to take full control of its mainland securities business.
The U.S. bank said it would buy the remainder of Goldman Sachs Gao Hua Securities Company Ltd (GSGH), and rename it as Goldman Sachs (China) Securities Company Ltd.
The migration of its onshore business units to GSGH from Beijing Gao Hua Securities was underway, it added.
“This marks the start of a new chapter for our China business following a successful 17-year joint venture,” Goldman Sachs said in a statement.
It becomes the second Wall Street firm to be granted approval to shift to full ownership of its securities business after JPMorgan Chase & Co moved to 100% in August https://www.reuters.com/business/finance/jpmorgan-gets-beijings-approval-first-fully-foreign-owned-brokerage-2021-08-06.
Securities businesses in China typically house investment banking, research, equities and fixed income businesses.
Unlike most of the other China JVs, Goldman had day-to-day operational control of its business even with its minority ownership.
Lucrative underwriting fees on equity and bond transactions – especially initial public offerings (IPOs) – in China’s expanding capital markets has been the driving force for Western banks to increase stakes in their mainland business.
Full ownership could allow foreign banks to expand their operations in the multi-trillion-dollar Chinese financial sector, and better integrate them with their global businesses.
Morgan Stanley currently owns 90% of its securities joint venture with partner Shanghai Chinafortune Co Ltd after increasing its stake https://www.reuters.com/business/finance/morgan-stanley-nears-full-ownership-china-ventures-with-stake-buys-2021-05-28 in May.
China’s regulators had examined Goldman Sach’s application to move to full ownership https://www.reuters.com/business/finance/goldman-sachs-signs-pact-wholly-own-china-joint-venture-2020-12-11 since the bank flagged its intention to buy out its partner in December.
(Reporting by Scott Murdoch in Hong Kong and Nikhil Kurian Nainan in Bengaluru; editing by Uttaresh.V and Stephen Coates)
From Canada? Want to go to the U.S.A.? Better have the right vaccine – Boing Boing
The last couple of years have been hard on Canadian Snowbirds. Many of us, myself included, are used to heading south in the fall, to escape the icy bullshit of a Canadian winter. Unfortunately, thanks to COVID-19, a lot of us have been trapped, north of the wall, since March 2020.
I’ve been fine with this.
When the land border was closed down to everyone but essential travellers, my mindset was that if I was going to get sick, I’d just as soon do it in my own nation where healthcare is free (yeah, we pay our taxes, but still.) Then, last winter, the vaccines started to roll out. By early spring, both my wife and I had been injected with two doses of Pfizer’s version of the brew. We breathed a sigh of relief and began to hope that we might, one day soon, be able to start our travels again. I’m sure that lots of other folks did too. Unfortunately, depending on where in Canada they live, it wasn’t a sure bet that they’d wind up with two doses of the same vaccine. In the rush to get as many Canadians vaccinated against the plague as possible, many provinces started mixing and matching whichever vaccines that they had on hand.
So, you could wind up with Pfizer for your first jab and Moderna for your second. It’s cool, they told us. Mixing vaccines affords tons of protection, we were assured. Why, we’d all be able to get back to our lives in no time… provided said life doesn’t include travelling to one of many countries where vaccine mixing is considered to be a dangerous load of bullshit. You may have guessed by now, that America is one of those countries.
From The CBC:
…at the same time the U.S. reopens the land border, it will start requiring that foreign land and air travellers entering the country be fully vaccinated.
The U.S. Centers for Disease Control (CDC) currently doesn’t recognize mixed COVID-19 vaccines — such as one dose of AstraZeneca, and one dose of Pfizer or Moderna — and hasn’t yet said if travellers with two different doses will be blocked from entry when the vaccine requirement kicks in.
So that sucks.
According to the CBC, the Centers for Disease Control and Prevention might soon consider changing their stance on mixed vaccines. I’d like to think that a crap load of data on the effectiveness of mixed vaccine dosing will play into such a decision. No matter how badly folks might want to head south for the winter, Americans deserve to be as safe as they can be.
In the meantime, I suspect that, just like last fall, many snowbirds will wind up on Vancouver Island, where I hang my hat, these days. It’s warm enough here that living in an RV is both possible and comfortable.
But I’ll tell ya, it’s a far cry from kicking back in the trade winds on the cusp of Texas’ southern border.
Travel industry, health experts applaud U.S. decision to allow travellers with mixed doses – CTV News
The organization representing Canada’s tourism industry is applauding the U.S. government’s decision to allow Canadian travellers with mixed vaccine doses once the border opens in November.
On Friday, the U.S. Centers for Disease Control and Prevention confirmed that travellers with “any combination” of two doses of vaccines approved by the World Health Organization or the U.S. Food and Drug Administration “are considered fully vaccinated.”
Beth Potter, who is president and CEO of the Tourism Industry Association of Canada, says the announcement is “really good news.”
“What it does is it provides a little bit more clarity, and this is something that we’ve talked about a lot. We know now that if you’ve got that mixed dose, as of November you’re going to be able to enter into the United States,” she told CTV News Channel on Saturday.
Infectious disease expert Isaac Bogoch of the University Health Network in Toronto says allowing mixed dosed travellers is “a smart and data driven approach.”
“This will be a huge relief to many Canadians who did the right thing and got vaccinated and even took those mixed and matched vaccine approaches. It’s safe, it’s effective, and now there’s a recognition of this,” Bogoch said in an interview with CTV News Channel on Saturday.
“I’m really happy to hear this. It’s about time.”
This announcement came after the White House confirmed that the U.S. land borders with Canada and Mexico would be open to fully vaccinated tourists by Nov. 8.
On the American side, the U.S. Travel Association also applauded the Biden Administration’s plans to reopen the border.
“Reopening to international visitors will provide a jolt to the economy and accelerate the return of travel-related jobs that were lost due to travel restrictions,” said association president and CEO Roger Dow in a statement on Friday.
“We applaud the administration for recognizing the value of international travel to our economy and our country, and for working to safely reopen our borders and reconnect America to the world.”
But while the U.S. won’t require Canadians to show proof of vaccination to cross, returning to Canada requires a negative PCR test conducted at most 72 hours before crossing the border.
PCR tests can cost upwards of $200. The Canadian government does not accept rapid antigen tests, which can be had for only $40.
Brian Higgins, a New York congressman whose district includes the border cities of Buffalo and Niagara Falls, wants to see Canada drop the COVID-19 PCR test requirement.
“I think that the U.S. decision to allow Canadians coming into the United States without a test again underscores the potency of the vaccine,” Higgins told The Canadian Press on Friday. “I would like to see that reciprocated by our Canadian neighbours.”
However, Public Safety Minister Bill Blair said that Canada will continue to require PCR tests so long as the Public Health Agency of Canada advocates for it.
“We’ve seen throughout the pandemic that advice has evolved as new evidence and new data is available. We’ll continue to follow the advice in the Public Health Agency Canada,” he said in an interview with CTV’s Question Period on Sunday.
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