As Toronto-Dominion Bank leads off Canada’s Big Six third-quarter earnings period next week, analysts are largely predicting the lenders will report minor gains or pains – but little to suggest the banks’ budding turnaround might get knocked off course.
Today, we look at why brighter days might lie ahead – and why the spotlight will likely stay on TD long after it passes along the earnings mic.
Up top
Slow: National home sales declined in July as mortgages remained relatively expensive for prospective homebuyers, who did not rush to take advantage of the Bank of Canada’s recent interest rate cuts.
Steady: Ontario Municipal Employees Retirement System relied on steady returns from private assets, tailwinds from strong stock markets and a resilient U.S. dollar to earn a 4.4-per-cent return over a volatile first six months of the year.
Silent: Victoria Gold Corp. chief executive officer John McConnell says he regrets staying silent while the company was in crisis, and suspects June’s catastrophic cyanide spill at its Yukon mine was caused by an uncontrolled buildup of fluid.
In focus
Earnings: TD goes first
TD is facing multiple probes and the potential for restrictions on its U.S. growth plans.Sammy Kogan/The Globe and Mail
Banking on a bounce
Credit ratings agency Fitch is forecasting “moderate earnings” growth for Canada’s biggest banks over the next two years, building on the relatively optimistic outlook that emerged last quarter.
For Canada’s largest lenders, who are emerging from a prolonged period of volatility marked by high borrowing costs and slower economic growth, “moderate” might do just fine.
Now, after the Bank of Canada has made two consecutive cuts to its key lending rate – and signalled more could be on the way – deeper relief could be in store for borrowers with floating-rate debt, homeowners facing mortgage renewals, and anyone looking to finance a car. (Used-car prices, by the way, are coming down to Earth.)
Maria-Gabriella Khoury, a senior director at Fitch and co-author of the report, wrote in an e-mail that the levelling off of the Canadian economy “should be supportive of banks’ financial performance for the second half of 2024.”
And in a research note to clients on Thursday, National Bank of Canada analysts said they’re maintaining a positive sector stand even as it warned of soft earnings this month. “A sufficient level of rate cuts should allow Canadian banks to avoid a sharp uptick in loan losses, as we’ve seen in previous downturns,” they wrote.
Thursday: Toronto-Dominion Bank
- Analysts’ expectations: $2.06 a share (adjusted)
- Earnings Q3 2023: $1.95
The bank’s report isn’t likely to spend much time addressing the elephant in the Toronto-Dominion Centre’s boardroom: the investigations by United States regulators and law enforcement that tied Canada’s second-largest lender to a US$653-million money-laundering and drug-trafficking case.
That isn’t to say TD is trying to hide it. CEO Bharat Masrani has acknowledged the investigations, and has made high-profile hires in an effort to strengthen its anti-money-laundering system.
But looming large over its report on Thursday – and even over the possibility its penalties and fees could soar into the billions – is a much bigger concern to a company with ambitious plans to expand south of the border: U.S. regulators might not only fine the company, but restrict its ability to grow there.
Fitch recently lowered the bank’s risk-profile score, citing shortcomings related to findings in TD’s anti-money-laundering practices, “which will continue to garner significant regulatory, political and potentially legal attention in both Canada and the U.S. over the near term.”
- The World Wildlife Federation says the African savanna elephant can grow up to three metres high and weigh up to 6,000 kilograms.
Report roundup
Bank of Montreal (Aug. 27)
- Analysts’ expectations: $2.83 a share (adjusted)
- Earnings Q3 2023: $2.63
Bank of Nova Scotia (Aug. 27)
- Analysts’ expectations: $1.63 a share (adjusted)
- Earnings Q3 2023: $1.69
Royal Bank of Canada (Aug. 28)
- Analysts’ expectations: $2.93 a share (adjusted)
- Earnings Q3 2022: $2.79
National Bank of Canada (Aug. 28)
- Analysts’ expectations: $2.47 a share (adjusted)
- Earnings Q3 2022: $2.33
Canadian Imperial Bank of Commerce (Aug. 29)
- Analysts’ expectations: $1.73 a share (adjusted)
- Earnings Q3 2023: $1.47
Charted
Despite a sharp rise in interest rates, Canadians are overwhelmingly in good standing with their mortgage payments, Matt Lundy reports.
As of May, roughly 9,500 residential mortgages were in arrears, meaning payments were overdue by three or more months, according to figures published this month by the Canadian Bankers Association. That amounts to just 0.19 per cent of more than five million total mortgages. The delinquency rate has risen slightly from historics lows in 2022.
The outlook
On our radar and reading list
Today: Canada reports housing starts for July and manufacturing sales and new orders for June. The U.S. reports housing starts and building permits for July
Next week: With the Bank of Canada’s next interest rate announcement approaching, we’ll be parsing Statistics Canada’s consumer price index for July when it reports on Tuesday.
In the sky: Less than two years after it first hit the skies, Canada Jetlines Operations Ltd. has grounded its planes and ceased operations amid a cash crisis that caused it to become the third Canadian carrier in less than a year to stop flying.
Working from home: Incoming Starbucks CEO Brian Niccol could make well in excess of US$100-million in his first year with the company under an incentive-laden contract, and he will not be required to relocate from his home in California to Seattle, the home of the global coffee giant.
Morning markets
The global markets recovery continued as stocks headed for their best week since last November, after encouraging U.S. economic data soothed fears of an imminent recession. in a rapid shift from a rout last week that kept investors wary of a bumpy ride ahead. Wall Street and TSX futures were little changed.
Overseas, the pan-European STOXX 600 was up 0.29 per cent in morning trading. Britain’s FTSE 100 gave back 0.43 per cent, Germany’s DAX gained 0.63 per cent and France’s CAC 40 added 0.25 per cent.
In Asia, Japan’s Nikkei closed 3.64 per cent higher, notching its best week in more than four years, while Hong Kong’s Hang Seng rose 1.88 per cent.
The Canadian dollar traded at 72.81 U.S. cents.