Briefing highlights
- What Fitch says about Canada’s banks
- Stocks perkier ahead of U.S. jobs report
- New York poised for higher open
- Canadian dollar above 80 cents
- What to expect in U.S. jobs report
- Round 2 of NAFTA talks on tap
- Lululemon shares on the rise
Fitch on the banks
The Fitch Ratings agency gives Canada's major banks high marks.
But there's something of a "but" there, as always related to inflated home prices and equally inflated household debt.
In its latest review this week, Fitch looked in depth at Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Desjardins Group, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank, finding them to have "sound fundamentals" but with challenges ahead.
"Fitch Ratings believes Canadian banks are at an inflection point regarding asset quality, but, barring a broad-based shock to employment or a rapid rise in interest rates, views the risks as manageable," the agency said.
"Fitch affirmed the ratings of [the seven institutions], reflecting their market positions and proven solid operating performances over multiple economic cycles and global shocks," it added.
"Our base case scenario incorporates modest GDP growth of 2 per cent for 2017, no meaningful rise in unemployment, and a soft landing for the housing sector. Recent government's actions to address housing should slow down the pace of home price appreciation."
Fitch rated the banks in several areas, including their operating environments, their corporate profiles, management and strategy, risk appetite, asset quality, profitability, capitalization and leverage, and funding and liquidity.
It based its findings on projected "modest" economic growth of 2 per cent, no big spike in unemployment, and a soft landing for the housing market.
"The ratings for the major Canadian banks are among the highest in Fitch's global bank universe," the agency said.
"In Fitch's view, the ratings reflect the sound fundamentals at these banks, as evidenced by consistent earnings performance through various credit cycles and generally stable financial profiles," it added.
"The big six Canadian banks and [Desjardins] operate in a highly concentrated banking system within a highly developed economy and supportive banking regulatory framework. Fitch also believes barriers to entry remain high, which benefit the banks' performance. Nonetheless, Fitch notes that the non-bank financial sector has been growing, particularly the unregulated segment."
Fitch gives all the institutions a "stable" outlook, but for RBC, whose outlook is "negative" because of potential "future earnings volatility" given its expanding capital markets operation.
Still, RBC's "national presence" and wide branch system support its "leading or near-leading positions in most of its business lines," Fitch said.
"Additionally, RY has grown its global presence through its capital markets segment, which has benefited from other institutions scaling back their respective capital markets activities," it added, referring to RBC by its stock symbol.
Here's where Fitch sees the Big Five: "RY and TD are considered to have the two leading domestic franchises supporting the higher notch for company profile. BMO, BNS and CIBC are considered to have solid franchises with unique differences supporting the company profile rating."
Fitch's big concerns relate to swollen household debt levels and high home prices, though governments have moved to tame the housing markets and much of the threat is "mitigated" by Canada Mortgage and Housing Corp.
In real terms, home prices are inflated to the tune of 20 per cent, Fitch said, a risk, though it doesn't expect a meltdown.
"One of the main rating sensitivities for the Canadian peer group is a prolonged and sharp economic downturn or a steep housing market correction, particularly when consumer indebtedness is at historically high levels," Fitch said.
"Canadian households are increasingly more vulnerable to an adverse shock, which could pressure Canadian banks' asset quality should borrowers' ability to service their debt burdens weaken," the agency added.
"However, without a broad-based shock to employment and/or a rapid rise in interest rates, Fitch views the risks as manageable."
Read more
- James Bradshaw: TD sails past expectations
- James Bradshaw: National Bank profit buoyed by strong Quebec economy
- James Bradshaw: Scotiabank, BMO boost profits on growth in Canadian banking
- James Bradshaw: CIBC sets sights on U.S. growth
- James Bradshaw: RBC profit buoys outlook for Canadian banks
- Moody’s cuts Canada’s banks
Stocks rise
Global markets are perkier this morning, with New York poised to open higher, and the Canadian dollar is above 80 cents (U.S.).
Tokyo's Nikkei and the Shanghai composite each gained 0.2 per cent, though Hong Kong's Hang Seng dipped about 0.1 per cent.
In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.3 and 1 per cent by about 8 a.m. ET.
New York futures were also up, and the Canadian dollar was still buoyed by Thursday's strong report on the country's economy.
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NAFTA 2.0: Round 2
NAFTA negotiators return to the table today, this time in Mexico City, no doubt with President Donald Trump's threats fresh in their minds.
Twice last week, Mr. Trump threatened to terminate the North American free-trade agreement, prompting Mexico to warn the U.S. to back off.
Keep an eye out for reports today from Globe and Mail Washington correspondent Adrian Morrow, who's in Mexico City for this, the second round of talks.
Read more
- Adrian Morrow: U.S., Canada aligned on NAFTA timeline, Trudeau says
- Adrian Morrow: Mexico warns Trump to back off of NAFTA withdrawal threat
- Adrian Morrow: Could Trump really pull the U.S. out of NAFTA?
- Play Canadian dollar against peso in NAFTA 2.0, CIBC suggests
- Snits happen: Best and worst NAFTA outcomes as talks set to resume
- Adrian Morrow: Trump renews threat to terminate NAFTA
- Adrian Morrow, Steven Chase: U.S. demands end to NAFTA trade-dispute panels
- Globe editorial: What Canada wants from NAFTA 2.0, and how to get it
- Tariffs, taxes, money (and morals): A guide to NAFTA 2.0
- David Parkinson: Is Chapter 19 worth fighting for in NAFTA negotiations?
Lululemon rises
Lululemon Athletica Inc. shares are shaping up nicely in premarket action, buoyed by its earnings report late Thursday.
Shares were up almost 6 per cent heading into the Nasdaq open.
The yoga retailer's quarterly results topped estimates as the company also raised its forecast for the year.
"While it's tough to find negatives in the quarter, with the stock trading at 13 times our [fiscal 2017 estimated] EBITDA, expectations are high, leaving little room for error," Citigroup analyst Paul Lejuez said as the bank raised its target price on the stock to $62 (U.S.) from $59.
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