A Canadian Western Bank building in Toronto. The Edmonton-based bank reported lower than expected fourth-quarter profit on Wednesday, partly because CWB was forced to set aside $40-million in new provisions against potentially bad loans.Abhijit Alka Anil/The Globe and Mail
Ripple effects from the collapse of a major Canadian trucking conglomerate are leading Canadian Western Bank CWB-T to brace for more bad loans.
The Edmonton-based lender reported lower-than-expected fourth-quarter profit Wednesday, partly because it was forced to set aside $40-million in new provisions against loans that could default. That figure was nearly double what Bay Street analysts were expecting, and CWB said provisions are likely to remain elevated until after its sale to National Bank of Canada, which is expected to be completed early next year.
CWB was originally expected to release its quarterly results on Dec. 6 but abruptly delayed publication after discovering a legal claim against CWB Maxium Financial Ltd. (Maxium), a commercial financing subsidiary the bank acquired in 2016. CWB said Wednesday that an “in-depth investigation” has since determined “this matter has no impact on our financial statements.”
Collapsing valuations in the trucking industry, however, did affect CWB’s finances in its latest quarter, and the lender expects the fallout will persist well into 2025.
“We expect to see continued pressure in the first half of the year related to both impairments and provision levels,” chief risk officer Carolina Parra told analysts on a Wednesday morning conference call.
“That would translate into slightly higher losses as well when we look at the trend for the next year. Then we expect that to normalize – not normalize, but trend toward the end of 2025 to more normal levels in 2026.”
Trucking inventory has “flooded the market from large players that have disposed of their assets,” Ms. Parra said.
In March, Mississauga-based Pride Group Holdings Inc. filed for creditor protection with $1.6-billion in debt after defaulting on more than 40 loans. At the time, Pride had a fleet of approximately 20,000 trucks and tractor-trailers across Canada and the U.S.
Pride was given two months to find a way to restructure. Liquidation, the company argued in its request for creditor protection, would result in “thousands of trucks being sold on the market at once, which would decimate the value of trucks across the North American market.”
Restructuring efforts ultimately failed, and the sale of Pride’s remaining assets began in August.
Pride was not mentioned directly on the CWB conference call, but Canadian Imperial Bank of Commerce analyst Paul Holden did reference a “very publicly known trucking entity that has resulted in losses for other banks” in asking about the source of the bank’s higher-than-expected provisions for credit losses.
Ms. Parra replied that CWB does not have “any direct exposure” to that specific borrower. “However, the fact that such a large player has disposed of so many assets in the market has really driven down values, so indirectly it has really impacted all players, including ourselves.”
Shares of CWB rose slightly Wednesday, though the stock has not yet fully recovered from the 5.4-per-cent plunge it experienced on Dec. 6 as investors reacted to the surprise delay of the bank’s quarterly results.
Given CWB’s pending $5-billion sale to National Bank, NA-T Bank of Nova Scotia analyst Meny Grauman said in a Wednesday morning note to clients that “the glide path of this stock is not really going to be determined by the quarterly numbers.”
“More important is guidance that the bank’s combination with NA is on track, important words after the drama tied to the delay in reporting.”
National Bank chief executive officer Laurent Ferreira said during a Dec. 4 conference call that the deal is in the final stages. Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, is reviewing the proposal, and the acquisition is still on track to close in early 2025.
Federal Finance Minister Dominic LeBlanc – who just days ago replaced Chrystia Freeland in the role – will also have to sign off on the deal, though CWB CEO Chris Fowler said Wednesday that he still expects the deal to be completed on time.
“We remain focused on completing the final step in the regulatory approval process and are confident we can close the transaction within previously announced timelines,” he said.