Canadian banks expected to build reserves to cushion tariff uncertainty

CANADA-BANKS/RESULTS (PREVIEW, PIX):PREVIEW-Canadian banks expected to build reserves to cushion tariff uncertainty

Reuters

Published24 Feb 2025, 04:32 PM IST

TORONTO, Feb 24 (Reuters) – Canada’s big six banks are expected to build more credit loss provisions as they brace for uncertainty surrounding the U.S. tariff threat, analysts said, potentially weighing on first quarter earnings and beyond.

The banks have already been putting aside more funds to cover any souring loans due to continued high Canadian unemployment, which has fuelled investor concerns despite some more robust economic data recently. Also called provisions for credit losses, a rise in those funds dents profits for the banks.

U.S. President Donald Trump’s threat to impose a 25% tariff on all non-energy Canadian imports starting in March means banks are likely to set aside yet more rainy day funds, even as they are expected to benefit from a boom in capital markets activity and strong wealth management earnings in the first quarter.

“(We) expect large banks to build larger performing provisions for credit losses than we previously believed… we also believe pessimistic scenario assumptions may become more pessimistic,” RBC Dominion Securities analyst Darko Mihelic said.

For the first quarter, loan loss provisions are expected to jump between 6.4% for Royal Bank of Canada to as much as 80% for Bank of Montreal. CIBC is expected to show a fall in provisions of 0.7%, according to LSEG data.

Net income forecasts for the six banks range from a 7.5% fall for BMO to 13.8% growth for RBC.

Mihelic forecasts provisions to increase about 70% to $5.6 billion in aggregate and expects core earnings to decrease about 10% year-over-year in the first quarter.

The banks report later this week starting with BMO and Bank of Nova Scotia, also known as Scotiabank, on Tuesday.

The uncertainty triggered by Trump’s tariff threats has weighed on bank stocks and the broader Toronto Stock Exchange, due to concerns about the duties triggering a recession.

“The potential impact of tariffs on all of these key earnings drivers is likely to dominate the earnings calls this quarter,” Scotiabank analyst Meny Grauman said, noting that one key area of interest will be how banks expect provisions to reflect tariff risks.

Four of the big six banks – RBC, Scotiabank, CIBC and National Bank – have lost between 2.3% and 6% so far this year, while the broader Toronto Stock Exchange has gained 3%. TD Bank and BMO have gained 12% and 2.5% respectively.

Scotiabank, which sold some of its South American assets recently, is the only bank that has focused largely outside of the U.S., betting on the $1.5 trillion North American trade corridor.

Analysts have noted Scotiabank could be more significantly impacted than peers in a tariff scenario, because their diversification strategy was based on growth in North American trade.

“We could return to a more positive call if Mexico and Canada are able to negotiate relatively harmless tariffs. Until that happens, we think it will be hard for (Scotiabank’s) stock to be a relative outperformer,” CIBC analyst Paul Holden said.

(Reporting by Nivedita Balu in Toronto; Editing by Nia Williams)

Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

Business NewsCompaniesCompany ResultsCanadian banks expected to build reserves to cushion tariff uncertainty

MoreLess

First Published:24 Feb 2025, 04:32 PM IST

Get Instant Loan up to ₹10 Lakh!

Enter Mobile Number

Employment Type

SalariedSelf-Employed Business

Apply Now

Most Active Stocks

Market Snapshot

• Top Gainers
• Top Losers
• 52 Week High

Trending In Market

• Vedanta share price
• Gold price
• Tata Technologies
• Waaree Energies share price
• BSE share price
• Quality Power IPO

Recommended For You

More Recommendations

Gold Prices

• 24K
• 22K

Fuel Price

• Petrol
• Diesel

Popular in Companies

Canadian banks expected to build reserves to cushion tariff uncertainty

CANADA-BANKS/RESULTS (PREVIEW, PIX):PREVIEW-Canadian banks expected to build reserves to cushion tariff uncertainty

Reuters

Published24 Feb 2025, 04:32 PM IST

TORONTO, Feb 24 (Reuters) – Canada’s big six banks are expected to build more credit loss provisions as they brace for uncertainty surrounding the U.S. tariff threat, analysts said, potentially weighing on first quarter earnings and beyond.

The banks have already been putting aside more funds to cover any souring loans due to continued high Canadian unemployment, which has fuelled investor concerns despite some more robust economic data recently. Also called provisions for credit losses, a rise in those funds dents profits for the banks.

U.S. President Donald Trump’s threat to impose a 25% tariff on all non-energy Canadian imports starting in March means banks are likely to set aside yet more rainy day funds, even as they are expected to benefit from a boom in capital markets activity and strong wealth management earnings in the first quarter.

“(We) expect large banks to build larger performing provisions for credit losses than we previously believed… we also believe pessimistic scenario assumptions may become more pessimistic,” RBC Dominion Securities analyst Darko Mihelic said.

For the first quarter, loan loss provisions are expected to jump between 6.4% for Royal Bank of Canada to as much as 80% for Bank of Montreal. CIBC is expected to show a fall in provisions of 0.7%, according to LSEG data.

Net income forecasts for the six banks range from a 7.5% fall for BMO to 13.8% growth for RBC.

Mihelic forecasts provisions to increase about 70% to $5.6 billion in aggregate and expects core earnings to decrease about 10% year-over-year in the first quarter.

The banks report later this week starting with BMO and Bank of Nova Scotia, also known as Scotiabank, on Tuesday.

The uncertainty triggered by Trump’s tariff threats has weighed on bank stocks and the broader Toronto Stock Exchange, due to concerns about the duties triggering a recession.

“The potential impact of tariffs on all of these key earnings drivers is likely to dominate the earnings calls this quarter,” Scotiabank analyst Meny Grauman said, noting that one key area of interest will be how banks expect provisions to reflect tariff risks.

Four of the big six banks – RBC, Scotiabank, CIBC and National Bank – have lost between 2.3% and 6% so far this year, while the broader Toronto Stock Exchange has gained 3%. TD Bank and BMO have gained 12% and 2.5% respectively.

Scotiabank, which sold some of its South American assets recently, is the only bank that has focused largely outside of the U.S., betting on the $1.5 trillion North American trade corridor.

Analysts have noted Scotiabank could be more significantly impacted than peers in a tariff scenario, because their diversification strategy was based on growth in North American trade.

“We could return to a more positive call if Mexico and Canada are able to negotiate relatively harmless tariffs. Until that happens, we think it will be hard for (Scotiabank’s) stock to be a relative outperformer,” CIBC analyst Paul Holden said.

(Reporting by Nivedita Balu in Toronto; Editing by Nia Williams)

Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

Business NewsCompaniesCompany ResultsCanadian banks expected to build reserves to cushion tariff uncertainty

MoreLess

First Published:24 Feb 2025, 04:32 PM IST

Get Instant Loan up to ₹10 Lakh!

Enter Mobile Number

Employment Type

SalariedSelf-Employed Business

Apply Now

Most Active Stocks

Market Snapshot

• Top Gainers
• Top Losers
• 52 Week High

Trending In Market

• Vedanta share price
• Gold price
• Tata Technologies
• Waaree Energies share price
• BSE share price
• Quality Power IPO

Recommended For You

More Recommendations

Gold Prices

• 24K
• 22K

Fuel Price

• Petrol
• Diesel

Popular in Companies

A new mine plan was recently released for Talon Metals’ proposed Tamarack nickel mine project in Aitkin County. The Dec. 27 News Tribune story, “

Proposed nickel mine near Tamarack alters design

,” reported again that Talon Metals agreed in 2022 to supply nickel to Tesla. Such claims can also be found in past press releases from the company and on the company’s website.

Talon Metals’ own investor documentation, however, says otherwise.

The company provides additional details on its so-called “Tesla supply agreement” in the document, “

MANAGEMENT’S DISCUSSION AND ANALYSIS

,” published Nov. 14. It is found at sedar.com, which stores financial documents required for stocks listed on the Toronto stock exchange. Talon’s registered office is in the British Virgin Islands while its financial statements are in Canadian dollars. The company, in essence, is Canadian.

Page 35 of the document details the “Conditions Relating to the Tesla Supply Agreement.” They include:

• Talon earning a 60% interest in the Tamarack North Project. It currently has a 51% interest and has provided no plan or schedule to meet this condition.
• Talon commencing commercial production at the Tamarack North Project this year. However, in its newly released mine plan (its updated

  EAW

  , or environmental assessment worksheet), the company sets a 2029 date as the earliest for nickel production. As such, it won’t meet this condition.

• The parties completing negotiations and executing detailed supply terms and conditions for a supply agreement. That is to say, an actual supply agreement must still be negotiated. 

In essence, Talon, in this management and analysis filing, says there is no supply agreement, simply an agreement to attempt to negotiate a supply agreement if it can produce nickel before the end of 2025. And we know from the newly updated Talon EAW that the company doesn’t expect to have nickel production until at least 2029.

Yet the press continues to report, with Talon Metals apparently choosing not to correct it, that the company has an agreement with Tesla to supply nickel. And Talon continues to include this on its website. Talon apparently doesn’t point the press to its investor documents that suggest otherwise.

This seems to me an intent to deceive. How can we then trust anything Talon says?

Talon makes all kinds of claims about how safe and environmentally responsible it is, but with no evidence. Talon seems to be all talk.

Minnesota should better vet foreign mining companies prior to mineral-lease and permitting requests to provide some confidence that the company is not just a marketing effort intent on deceiving our citizens.

Tom W. Anderson of Tamarack, Minnesota, is a principle technologist for the Alliance for Telecommunications Industry Solutions, or ATIS (

atis.org

), a Washington, D.C., nonprofit that assists businesses with information and communications technology. His views expressed here are his own, written exclusively for publication in the News Tribune.

“We increased this liability based on our expectation that more customers will redeem more of their … points going forward,” said chief financial officer Richard Durfresne on a conference call discussing the results.

“What it reflects is that more and more consumers are liking PC Optimum, are using it, and so from our perspective … we’re more than happy to do it because it reflects what’s happening in our stores.”

The parent company of Loblaws and Shoppers Drug Mart says its net earnings available to common shareholders amounted to $462 million or $1.52 per diluted share for the quarter ended Dec. 28.

The result was down from a profit of $541 million or $1.72 per diluted share in the fourth quarter of 2023.

Amid a looming trade war with the U.S. that could see import tariffs on both sides of the border, Loblaw has been highlighting domestic products in its stores as shoppers look to buy Canadian. It also added a “swap and shop” feature to its loyalty app to help shoppers find Canadian products more easily.

The efforts appear to be paying off.

“As we continue to expand this feature, we are already seeing a significant uplift in sales (of) products identified as prepared in Canada,” said CEO Per Bank.

Loblaw is also monitoring how tariffs could affect prices on its U.S. products. If Trump brings in tariffs and Canada retaliates, it may have to pay more for items it brings in from south of the border, which would also put upward pressure on retail prices.

Less than 10% of the company’s supply comes from the U.S., said Bank, with most of it being produce. Canada is particularly reliant on produce imports in the winter.

“If tariffs are applied on produce, there’s where we will be mostly impacted,” said Bank.

The company has some plans to mitigate the effects of tariffs, but produce is the hardest thing to replace, said Bank, estimating Loblaw could mitigate the impact on about half of the U.S. produce the company buys.

“We are seeing these tariffs as a kind of tax on products that will hurt consumers on both sides,” he said.

But in other areas, the company is better positioned to offer consumers an alternative, Bank said. For example, Loblaw carriers household and cleaning products from more than 30 U.S. vendors but also has a strong array of products in that category among its private-label brands No Name and President’s Choice, he said.

“If the tariffs will be applied on household and cleaning, then of course, those products will not be competitive anymore, and all the sales will go to our control brands, and they’re all produced in Canada,” he said.

“So that’s good for Canada, it’s good for customers, and it’s good for us.”

The weakness of the Canadian dollar is adding further inflationary pressure at a time when Canada relies on the U.S. for fresh produce, added Dufresne.

“That is inflationary, and we’ve been starting to feel it quite seriously over the last few weeks.”

The loonie’s decline is also compounding the fact that Loblaw continues to see higher-than-normal price increase requests from large global suppliers, he said.

On Wednesday Loblaw announced it plans to spend $2.2 billion in 2025, opening 80 new grocery and pharmacy stores with about 50 of them being discount grocers. Bank says many will be smaller-format stores, building the company’s network of those types of grocers after launching small-format No Frills stores for the first time last May.

The investment, which is part of about $10 billion over five years, will also add 100 pharmacy care clinics to the company’s network.

The company is also planning to open the first phase of its new automated distribution centre in East Gwillimbury, Ont. The ramp-up starts with frozen products, said Bank.

Loblaw opened 52 new stores in 2024 as well as 78 new clinics.

On an adjusted basis, Loblaw says it earned $2.20 per diluted share in its latest quarter, up from an adjusted profit of $2 per diluted share a year earlier.

Revenue for the quarter totalled $14.9 billion, up from $14.5 billion, as food retail same-stores sales rose by 2.5%. Excluding the favourable impact of the timing of Thanksgiving, Loblaw says food retail same-store sales were up about 1.5%.

Consumers continue to favour discount stores over conventional stores, though the gap is stabilizing, said Dufresne.

Drug retail same-store sales rose 1.3%, with pharmacy and health care services same-store sales up 6.3%, offset in part by a 3.1% drop in front store same-store sales.

Loblaw shares fell 2.6% to $174.75 Thursday on the Toronto Stock Exchange.