Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank in Toronto’s financial district in 2024.Fred Lum/The Globe and Mail
Three chief executives of Canada’s biggest banks are cautioning that businesses and consumers need greater certainty on trade negotiations and major project investments as Ottawa seeks to bolster the economy amid geopolitical tensions.
Bank of Nova Scotia BNS-T, Bank of Montreal BMO-T and National Bank of Canada NA-T posted higher second-quarter profits on Wednesday that beat analysts’ expectations, bucking concerns over trade and economic uncertainty.
Scotiabank chief executive officer Scott Thomson said he has observed a “significant change in tone” from international investors, who are becoming more interested in opportunities in the Canadian market.
“I’ve lived this, you’ve seen a lot of foreign money leave Canada, and now you have a lot of foreign money looking at Canada for foreign direct investment,” Mr. Thomson said during a conference call with analysts.
He said Canada’s pension funds – which have typically focused on global investments – are considering investing in projects within the country. The Maple 8 pension funds have faced criticism for neglecting domestic opportunities.
Mr. Thomson referred to a “grand bargain” in Western Canada as part of Prime Minister Mark Carney’s efforts to attract capital. Earlier this month, Alberta and Ottawa struck a deal on carbon pricing and emissions reductions, a key step in advancing a plan for a new oil pipeline.
The Scotiabank CEO pointed to Ottawa’s plans to potentially privatize airports. Institutional investors, including pension funds, would be the most likely buyers.
Trade uncertainty over looming negotiations on the United States-Mexico-Canada Agreement has weighed on businesses, prompting them to pause their growth plans.
Mr. Thomson said business leaders across North America are increasingly aware that the three markets depend on each other.
“CUSMA is not something that’s going to be ripped up,” he said, using the Canadian acronym for the trade agreement.
“It may continue to evolve, and there may be tariffs on specific sectors, and there may be some industries that are impacted, but ultimately it’s very clear that this regional trading bloc is increasingly important to the U.S., as opposed to unimportant.”
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BMO CEO Darryl White said the Canadian economy must contend with modest GDP growth, persistent inflation and unemployment. Clarity on USMCA negotiations and infrastructure investments would boost growth in both Canada and the U.S., he said.
Business clients have been advocating for greater regulatory competitiveness in Canada, Mr. White said. And recent measures by the federal government, including speeding up project reviews and improving trade relationships, are a “good start.”
“Businesses operate across multiple jurisdictions, and meaningful growth will depend on a co-ordinated approach and alignment across governments to drive a more competitive environment for business investments in Canada,” Mr. White said during a conference call.
National Bank CEO Laurent Ferreira said the war in Iran will continue to disrupt supply chains, driving inflation and higher rates. He also said continuing trade issues and unemployment are causing “commercial tensions” in Canada.
“It feels like we are in a bit of a lull in our country, in terms of business investment,” Mr. Ferreira said. “We are definitely encouraged by the shift in our government towards a focus on the economy, so that bodes really well going forward.”
On Thursday, Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T will round out earnings results for the country’s largest lenders.
The three banks that reported Wednesday all beat analysts’ expectations.
Scotiabank’s profit in the second quarter climbed 30 per cent to $2.6-billion, or $2.00 a share, in the three months that ended April 30. Adjusted to exclude certain items, the bank said it earned $2.02 a share, beating the $1.93 a share analysts expected, according to data from Bloomberg.
BMO earned $3.53 a share, or $2.6-billion, up 34 per cent from the same quarter last year. Adjusted to exclude certain items, the bank said it earned $3.67 a share, topping the $3.41 a share analysts anticipated.
National Bank’s profit jumped 38 per cent to $1.23-billion, or $3.06 a share. On an adjusted basis, National Bank said it earned $3.23 a share, edging out analysts’ estimates of $3.14 a share.
Scotiabank’s turnaround strategy leans on growing its Canadian banking business. The unit is key to its plan to boost its profitability. Mr. Thomson has said he expects double-digit earnings-per-share growth in its domestic banking business this year.
Last quarter, Scotiabank said it expects to hit its target of 14-per-cent return on equity in 2027, a year earlier than previously projected. In the second quarter, Scotiabank posted an adjusted return on equity of 13.2 per cent.
Profit from Canadian banking was $935-million, up 53 per cent from a year earlier on higher revenues and lower provision for credit losses on performing loans. Loan balances rose slightly by 3 per cent year-over-year and mortgages grew 4 per cent as high interest rates and economic uncertainty weighed on demand for borrowing.
BMO’s growth plan, unveiled in March, hinges on reviving its U.S. business and boosting its return on equity – a closely watched measure of profitability. In 2024, BMO set a goal of improving its ROE to 15 per cent by the end of 2027.
The U.S. division – which makes up 40 per cent of BMO’s earnings – is the division weighing on the bank’s profitability. BMO set a target to improve the unit’s ROE to 12 per cent from 8 per cent by 2028.
In the second quarter, BMO’s ROE edged higher to 13 per cent, and to 8.6 per cent in its U.S. business.
Profit from the bank’s U.S. unit rose 32 per cent to $790-million, bolstered by higher revenue and lower provisions.
“The U.S. segment, which remains a focal point for investors, was a positive in the quarter with earnings ahead of our forecasts, largely due to lower expenses, and importantly, sequential growth in commercial loans,” Scotiabank analyst Mike Rizvanovic said in a note to clients.