Analysts expect this week’s flood of bank earnings to mark a final quarter before lower borrowing rates bring more Canadians off the real estate sidelines, a wave of mortgages come up for renewal and consumers are spurred into spending. While profits have grown, so have the provisions that banks make for consumer debt they deem to be at risk. More on that tricky balance below, but first:
In the news
Health-insurance companies are reassessing the risks for their top executives after the killing of UnitedHealthcare chief executive officer Brian Thompson this week in Manhattan. Both UnitedHealth and rival CVS Health removed photos of their leadership teams from their websites after the shooting.
The federal government plans to spend $1-billion to build supercomputing infrastructure to power artificial-intelligence models, and another $1-billion to subsidize companies that want to build data centres and access resources for AI.
More than $1-billion was spent cleaning up orphan wells in Alberta, reducing the number of inactive wells in the province by about 5 per cent.
Happening today
- Statistics Canada releases the country’s unemployment rate for November – the final major report ahead of the Bank of Canada’s rate decision on Dec. 11.
- U.S. markets are fixed on our southern neighbour’s jobs report. Investors are betting the Federal Reserve will bring down its lending rate later this month, but stronger-than-expected numbers could see the Fed hit pause.
- Earnings include Canadian Western Bank and Laurentian Bank of Canada.
One day I'm going to do a slideshow of my favourite pictures of banks from below.The Canadian Press
In focus
Weekend takeaways: Pieces of the same puzzle
1. TD’s penalties are coming into view
We’ll start with Canada’s second-largest lender, which scrapped its mid-term outlook in its earnings report yesterday as it focuses on its anti-money-laundering failures. A guilty plea in October to conspiracy to commit money laundering came with a penalty north of US$3-billion, and a commitment to fix the bank’s widespread AML issues. As Jefferies analyst John Aiken said in a note to clients, TD is “throwing in the towel for 2025.”
- The process of appeasing U.S. banking regulators could take years, banking reporter Stefanie Marotta writes.
- The bank must revamp its risk and compliance team, overhaul its governance structure, update its policies and processes, and upgrade its technology platforms.
- Complicating matters, not everyone trusts the board of directors in place at TD to address those gaps. Last month, a shareholder advocacy group and a major U.S. private-equity fund said the AML failures were partially born of governance issues.
- They’re calling on the bank to reassess its board, which they say lacks financial crime and compliance expertise.
Marotta told me investors and analysts were hoping for more clarity on TD’s future growth prospects, but the bank said it will provide new targets in mid-2025. “TD is positioning incoming CEO Raymond Chun as the leader of its new strategy, and the bank is appealing for patience while it fixes its AML gaps and revamps its business,” she said. “For a more concrete outlook on the vision for the bank’s future, shareholders are going to have to wait until the new year.”
2. What we learned from what they earned
Canada’s biggest banks posted mixed fourth-quarter results after a long period of slow loan growth, but analysts are predicting brighter days in 2025.
While TD’s circumstances might be unique among the Big Six, the group’s earnings reflect a sizable segment of consumers who are still struggling with debt – many of whom are not able to pay it off. On Thursday, the Bank of Montreal missed expectations largely owing to provisions for credit losses that more than tripled over the same quarter last year.
📚 The Big Six’s provisions for credit loss – fourth quarter compared with same quarter last year:
- BMO: $1.52-billion (0.91 per cent of total loans), compared with $446-million
- Scotiabank: $1.03-billion (0.54 per cent of total loans), compared with $1.26-billion
- TD: $1.11-billion (0.4 per cent of total loans), compared with $878-million
- RBC: $840-million (0.35 per cent of total loans), compared with $720-million
- CIBC: $419-million (0.3 per cent of loans), compared with $541-million
- National Bank: $162-million (0.27 per cent of loans), compared with $115-million
The banks’ leaders and analysts say they expect falling interest rates to improve conditions for consumers over the next few quarters. But, as with most things tied to Canada’s current economic outlook, there is a significant but:
- The chief executive officers of RBC and National Bank warned that Ottawa’s tighter immigration policy and the threat of U.S. president-elect Donald Trump implementing punitive tariffs on Canadian imports could pose major risks to the economy.
3. The hits keep on coming
While the Bank of Canada’s recent spate of cuts to its benchmark lending rate might finally be wending their way to consumers, there are millions of Canadians struggling more than ever with unsecured debt such as credit cards and personal loans.
Especially in regions with high shelter costs such as B.C. and Ontario, an increasing number of middle-income earners are struggling under the weight of credit they maxed out to afford a high cost of living.
Those ballooning provisions, pieced together with recent bellwether reports, offer a snapshot of an economy struggling to find its footing:
- Statistics Canada reported this week that the country’s labour productivity and business investment fell for the third straight quarter.
- Last Friday, data showed economic growth in Canada slowed to a crawl in the same period.
- Analysts are predicting a key jobs report today to show unemployment continuing its slow but steady rise.
- Dear Statscan: I don’t mean to blame the messenger, but please send good news.
4. All things considered …
… it wouldn’t be shocking if BoC Governor Tiff Macklem makes an oversized cut of 50 basis points on Dec. 11, especially if today’s jobs report truly underwhelms.
5. Mark Bristow is unlikely going back to Mali
At least any time soon. The country’s military regime has issued an arrest warrant for the Barrick Gold Corp. chief executive. Bristow, born and raised in South Africa, is noted for being a hands-on leader – travelling across Africa (sometimes by motorcycle) to do business in person.
The ruling junta, which took power in a 2021 coup, has been strong-arming foreign mining companies for a bigger share of their revenues. It has been seeking US$417-million from Barrick, alleging the Toronto-based company failed to pay all its taxes – a charge the company rejects.
“The arrest warrant has really exposed the misleading spin that Barrick has applied to the Mali dispute over the past few months,” York, The Globe’s Africa correspondent, told me. “The classic example was this press release.
Barrick’s headline was that the company and Mali had reached an agreement, York said. “Well, there was no agreement, and, in the weeks since then, Mali has launched another wave of arrests of Barrick employees, and now it has issued two arrest warrants for Barrick and the local CEO.
York said this should be a cautionary tale for investors: “Be careful about reassuring statements from one side of a dispute. If you read past the headline in the Sept. 30 press release, you might get a niggling suspicion that there was no actual agreement, but many people were fooled by the headline, which gave the strong impression that the dispute was settled.”
Charted
Export Development Canada’s outsourcing to IT companies
Export Development Canada’s contracts with international consultancy Accenture Inc. are set to jump to more than $1-billion, according to newly obtained records, raising concerns about the size of the deals and the narrow focus on one provider in the wake of a critical report by the Auditor-General of Canada. Keep reading here.
The outlook
On our reading list
In Italy: The fate of Fiat’s Mirafiori plant is uncertain as the shift to electric vehicles struggles to gain steam.
On art: Do AI-generated images deserve copyright protection? A Canadian court challenge over a sunset photograph with added AI touches is putting that claim to the test.
In video: Bitcoin’s ascent is being fuelled by “this rejection of the established values,” one analyst says. “And not just the values of society, but really of the elites.”
Morning update
Global markets were mixed as investors awaited U.S. payrolls numbers that could affect expectations of a Federal Reserve interest-rate cut this month. Wall Street futures were little changed, while TSX futures pointed higher ahead of domestic employment data.
Overseas, the pan-European STOXX 600 was up 0.26 per cent in morning trading. Britain’s FTSE 100 slipped 0.13 per cent, Germany’s DAX gained 0.24 per cent and France’s CAC 40 rose 1.4 per cent.
In Asia, Japan’s Nikkei closed 0.77 per cent lower, while Hong Kong’s Hang Seng advanced 1.56 per cent.
The Canadian dollar traded at 71.18 U.S. cents.