China holds an unprecedented, massive videoconference on the economy
“The difficulties, in some areas and to a certain degree, are even greater than the severe shock of the pandemic in 2020,” Premier Li Keqiang said during a nationwide videoconference Wednesday, according to a CNBC translation of a Chinese-language state media report.
A state media news broadcast Wednesday showed large conference rooms of people from different provinces tuning into the meeting.
There hasn’t been such a meeting of this scale for years, and it’s unprecedented for one meeting to address so many levels of government at once, said Zong Liang, chief researcher at the Bank of China.
National Bank Of Canada Reports $932M Q1 Profit, Beats Expectations
National Bank of Canada beat expectations as it reported a first-quarter profit of $932 million compared with $761 million a year earlier.
The Montreal-based bank says the profit for the quarter ended Jan. 31 totalled $2.65 per diluted share, up from $2.15 per diluted share a year earlier.
Revenue totalled $2.47 billion, up from $2.22 billion.
The quarter included a $2-million reversal of its provisions for credit losses compared with the $81 million it set aside for bad loans in the same quarter last year.
On an adjusted basis, National Bank says it earned $2.65 per diluted share compared with an adjusted profit of $2.15 per diluted share a year earlier.
Analysts on average had expected an adjusted profit of $2.23 per share, according to financial markets data firm Refinitiv.
“The bank is entering fiscal 2022 on a positive note thanks to excellent performance by its business segments, strong regulatory capital, and adequate allowances for credit losses,” National Bank chief executive Laurent Ferreira said in statement.
TD Bank Group Reports $3.8B Q2 Profit, Up From $3.7B A Year Ago
TD Bank Group reported its second-quarter net income totalled $3.81 billion, up from $3.70 billion in the same quarter last year.
The bank says the profit for the quarter ended April 30 totalled $2.07 per diluted share, up from $1.99 per diluted share a year ago.
Revenue in the quarter totalled $11.26 billion, up from $10.23 billion in the same quarter last year.
The results came as TD reported a provision for credit losses of $27 million for the quarter compared with a $377-million recovery of credit losses a year ago.
On an adjusted basis, TD says it earned $2.02 per diluted share, down from an adjusted profit of $2.04 per diluted share in the same quarter last year.
Analysts on average had expected an adjusted profit of $1.93 per share, according to estimates compiled by financial markets data firm Refinitiv.
CIBC Reports Q2 Profit Down From Year Ago, Raises Quarterly Dividend
CIBC raised its quarterly dividend as it reported its second-quarter profit fell compared with a year ago.
The bank says it will now pay a quarterly dividend of 83 cents per share, up from 80.5 cents per share.
CIBC earned $1.52 billion or $1.62 per diluted share in net income for the quarter that ended April 30, down from $1.65 billion or $1.78 per diluted share in the same quarter a year earlier.
Revenue for the quarter totalled $5.38 billion, up from $4.93 billion a year ago, while the bank’s provision for credit losses amounted to $303 million, up from $32 million in the same quarter last year.
On an adjusted basis, CIBC says it earned $1.77 per diluted share in its latest quarter, down from an adjusted profit of $1.79 per diluted share a year earlier.
Analysts on average had expected an adjusted profit of $1.78 per diluted share for the bank’s second quarter, according financial markets data firm Refinitiv.
This report by The Canadian Press was first published May 26, 2022.
RBC hikes dividend, posts profit gain as COVID-19 risks recede
Royal Bank of Canada RY-T +0.15%increase reported higher second-quarter profit and raised its quarterly dividend as the bank sees risks related to the COVID-19 pandemic receding, which allowed it to claw back hundreds of millions of dollars in loan loss provisions.
RBC is the fourth major bank to report earnings for the fiscal second quarter, which ended April 30, joining Bank of Nova Scotia BNS-T +1.23%increase and Bank of Montreal BMO-T +1.93%increase in exceeding analysts’ profit expectations. Canadian Imperial Bank of Commerce CM-T -1.46%decreasefell shy of estimates on Thursday, in part because of costs incurred from an acquisition of a credit card portfolio.
In the quarter, RBC earned $4.25-billion, or $2.96 per share, compared with $4-billion, or $2.76 per share, in the same period last year.
On an adjusted basis, RBC said it earned $2.99 per share, far above the consensus estimate of $2.71, according to Refinitiv.
RBC raised its quarterly dividend by eight cents per share, or 7 per cent, to $1.28.
Provision for credit losses, which are the funds banks set aside to cover loans that could default, played a large role in RBC’s rising earnings. The bank had a net recovery of $342-million in provisions in the second quarter, whereas analysts had estimated it would add $223-million to reserves, according to Refinitiv.
RBC said that was “mainly driven by reduced uncertainty relating to the COVID-19 pandemic.” But it tempered its reserve releases because of what it called “increased downside risk, including rising inflation and interest rates.”
The bank’s revenue fell 3 per cent to $11.22-billion in the quarter, while expenses increased 1 per cent to $6.43-billion.
In RBC’s core personal and commercial banking division, profit of $2.24-billion was up 17 per cent, but driven mainly by lower loan loss provisions.
Wealth management profit rose 10 per cent, as the division increased sales and assets appreciated.
But capital markets profit fell 26 per cent year over year, as lower revenue from fixed income and equity trading was compounded by lower corporate and investment banking revenue and higher provisions for credit losses.
The bank maintained strong capital levels, with a common equity Tier 1 (CET1) ratio of 13.2 per cent – down from 13.5 in the previous quarter but still far above regulatory minimums.
Bankers buck gloomy trend by forecasting growth amid concerns about economic slowdown
Top executives at two major Canadian banks predict they can keep adding new loans and increasing profits in the coming quarters, offering an optimistic outlook for the financial sector that is at odds with economists’ increasingly gloomy forecasts of a downturn ahead.
Bank of Nova Scotia BNS-T and Bank of Montreal BMO-T both reported higher second-quarter profits on Wednesday, underpinned by robust demand for personal and commercial loans as well as lower loan loss reserves than analysts anticipated. Profits increased 12 per cent compared with those in the same quarter a year earlier at Scotiabank, and 4 per cent after adjustments at BMO, as rising interest rates helped increase margins on loans.
That marked a strong start to the major banks’ earnings season, but analysts cautioned those results, which cover the three months ended April 30, already look distant in the rear-view mirror. They pressed senior executives about how the banks are bracing for a deteriorating economic environment marked by war in Ukraine, high inflation, rapid central bank rate hikes and the increasing prospect of a recession that could curb customers’ appetite to borrow.
Bank chief executives and finance chiefs stressed they still expect economies to grow as COVID-19-related headwinds ease. They noted that most households are in good financial health, as many stashed away extra savings during the pandemic, while unemployment remains low in a tight labour market. Businesses are borrowing to bulk up inventories as demand for products outstrips supply, and some sectors, such as commodities, are booming.
“The macroeconomic backdrop for our key geographies remains positive,” said Scotiabank chief executive Brian Porter, on a conference call with analysts on Wednesday. “Despite the macroeconomic and geopolitical uncertainties in recent months, we are encouraged by the resilience of our businesses.”
The mood among economists is much more downbeat as the threat of a global recession mounts, even though few are predicting that is highly likely. The tone has also been sombre as business leaders and policy makers rub elbows at the World Economic Forum’s gathering in Davos. And the former governor of Canada’s central bank, Stephen Poloz, recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.
Yet increases in banks’ loan balances have been broad-based, and BMO chief financial officer Tayfun Tuzun said in an interview that he still expects “high-single-digit loan growth” year over year – the same guidance he gave three months ago.
“All in all our clients are telling us that they’re still interested in investing in their businesses,” said Mr. Tuzun. He added that there are “a lot of good indicators for what’s to come” for the bank.
A particular bright spot is commercial lending in Canada, where loan balances rose 13 per cent at BMO and 19 per cent at Scotiabank in the second quarter. Scotiabank’s chief financial officer, Raj Viswanthan, said corporate clients and consumers have “very strong” balance sheets at the moment, “so we see a lot of pent up demand.”
Mortgage balances rose 16 per cent year over year at Scotiabank, benefitting from the tail end of a red-hot streak for housing markets.CHRIS YOUNG/THE CANADIAN PRESS
The disruptions caused by COVID-19 and war in Ukraine have also increased demand in key areas, Mr. Viswanathan said. “It’s supply chain issues, it’s the rise of e-commerce, it’s the demand for food.”
Bankers aren’t blind to the gathering economic storm clouds. BMO chief risk officer Pat Cronin said his bank is giving greater weight to a hypothetical scenario that predicts the impact of a severe downturn, and has lowered expectations for parts of its forecast it considers the base case.
When U.S. banking giant JPMorgan Chase & Co. hosted an investor day this week, chief executive Jamie Dimon summed up the outlook as, “strong economy, big storm clouds,” saying those clouds “may dissipate. If it was a hurricane, I would tell you that.” But he acknowledged “they may not dissipate, so we’re not wishful thinkers.”
The Bank of Canada published a paper this month that suggests the country’s banks are strong enough and well capitalized to withstand even a severe, prolonged downturn in which unemployment peaks at 13.5 per cent and house prices fall 29 per cent.
Gabriel Dechaine, an analyst at National Bank Financial Inc., wrote to clients that, “in a normal environment, such optimism would be met with positive expectations for stock price appreciation,” but he remains “more cautious … as long as the disruptive forces of inflation that heighten recession expectations persist.”
In the fiscal second quarter, Scotiabank earned $2.75-billion, or $2.16 per share, compared with $2.46-billion, or $1.88 per share, in the same quarter last year. Adjusted to exclude certain items, Scotiabank said it earned $2.18 per share, well above the consensus estimate of $1.98 per share among analysts, according to Refinitiv.
In the same quarter, BMO earned $4.76-billion, or $7.13 per share, compared with $1.3-billion, or $1.91 per share, a year earlier. After adjusting to exclude one-time items that include a $2.6-billion gain on a financial instrument tied to BMO’s US$16.3-billion acquisition of California-based Bank of the West, profit was $2.187-billion, or $3.23 per share. On average, analysts expected $3.24 per share on an adjusted basis.
Former Bank of Canada governor Stephen Poloz recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.SEAN KILPATRICK/THE CANADIAN PRESS
Both banks raised their quarterly dividends, by 3 cents per share to $1.03 at Scotiabank, and by 6 cents per share to $1.39 at BMO.
Two key factors that have supported banks’ rising profits through much of the pandemic – rapidly rising mortgage balances and unusually low losses from defaulting loans – appear to have reached peaks, and are set to return to more normal levels.
Mortgage balances rose 16 per cent year over year at Scotiabank and 8 per cent at BMO, benefitting from the tail end of a red-hot streak for housing markets. But that yearly growth rate is “slowly slowing,” said Dan Rees, Scotiabank’s head of Canadian banking, and is likely to revert to a pace in the range of 6 to 9 per cent in the coming quarters even as some economists are predicting housing prices will fall.
Provisions for credit losses – the funds banks set aside to cover losses in case loans default – “reached the floor this quarter,” said Phil Thomas, Scotiabank’s chief risk officer. He and his BMO counterpart, Mr. Cronin, expect loan loss reserves will gradually drift higher. But with write-offs and delinquencies still very low, neither risk officer is predicting a spike in loan losses, even though it will rapidly get more expensive for consumers to service their debts.
Bank of Canada 50-basis-point June 1 hike a done deal, economists say
The Bank of Canada will hike its overnight rate by 50 basis points on June 1, according to all 30 economists polled by Reuters, who see interest rates at least a half-point higher by year-end than predicted just one month ago.
The BoC seems set to follow an aggressive path similar to that taken by the Federal Reserve to tame soaring inflation, which hit over a three-decade high of 6.8% in April and has now been above the central bank’s 1-3% range for more than a year.
After a 50 basis-point hike in April, its biggest single increase in 22 years, BoC Governor Tiff Macklem said interest rates may need to go above the neutral range – currently estimated to be between 2% and 3% – for a period of time to get inflation back to target.
The BoC was expected to lift its overnight rate by another half a percentage point at its June 1 meeting, taking its lending rate to 1.50%, according to all respondents in a May 20-25 poll. That was in line with money markets pricing.
Just a month back, economists forecasted a 25-basis-point hike in June.
“The BoC is laser-focused on taming inflation but once the overnight rate reaches a more neutral level, it will be more conscious of the potential trade-off between returning inflation expediently to target and prolonging the economic cycle,” said Josh Nye, senior economist at Royal Bank of Canada.
“We don’t expect the BoC will make monetary policy restrictive but if stubbornly high inflation forces it to do so that would amplify recession risk.”
A smaller sample of economists who answered an additional question were nearly split on whether the current tightening campaign would lead to a recession, with seven of 14 saying it would not and the remaining it would trigger one.
Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the pandemic to participate in a red-hot housing market.
Thirteen of 30 respondents in the poll forecasted rates to rise to 2.25% in the third quarter, 10 expected rates to be 2.00% and six expected 2.50%. Only one economist expected rates to be 1.75% by end-September.
After that, 25 of 30 respondents expected rates to rise to 2.50% or more in the fourth quarter, including six predicting them to reach 2.75% and another six expecting rates at 3.00% by end-2022. Only four expected rates to be 2.25% and one predicted rates to be 1.75%.
Poll medians showed rates at 2.25% next quarter and 2.50% in the fourth quarter. The BoC was expected to hike rates to 2.75% in the first quarter of 2023 and stay on the sidelines at least until the end of next year.
Inflation was expected to average 5.9% this quarter before easing to 5.0% and 4.4% in the next two quarters, according to a separate poll.
While inflation was expected to cool significantly next year it was still forecast to stay above the central bank’s target until at least 2024.
“Right now, the BoC’s attention remains firmly focused on inflation. Gov. Macklem hinted that market expectations of a 50-basis-point hike in June would likely be met as he promised to restore price stability ‘forcefully’ if needed,” noted Christian Lawrence, senior cross-asset strategist at Rabobank.
“That said, the dangers of hiking into a recession are not lost on the bank, but dampening demand is the only tool they have to try to slow inflation, and that spending needs to be moderated to try to reach an equilibrium. Rising inflation expectations are a core concern,” Lawrence said.
The U.S. economy contracted 1.5% on an annualized basis in the first quarter of 2022, according to revised data released by the Bureau of Labor Statistics on Thursday. Economists surveyed by Refinitiv were expecting a seasonally adjusted annual contraction of 1.3%.https://6ffcdf125ec74efcdac07f5dd6bd72de.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
The new downward revision for gross domestic product, the broadest measure of goods and services produced across the economy, comes after a previously reported 1.4% contraction. It was the first drop in GDP since the second quarter of 2020 – in the depths of the COVID-19 recession – and followed a robust 6.9% expansion in the final three months of 2021.
The contraction was partially attributed to the nation spending more on imports from other countries than it did on U.S. exports. The trade gap slashed first-quarter GDP by 3.2 percentage points. Also contributing to the weakness was a slower restocking of goods in stores and warehouses, which had built up their inventories in the previous quarter for the 2021 holiday shopping season, knocking nearly 1.1 percentage points off the January-March GDP.
The data comes as inflation continues to run near a 40-year high and weigh on growth, with consumer price index, a wide-ranging measure of goods and services, including food, autos, gasoline, health care and rent, rising 8.3% in April from a year ago. Prices jumped 0.3% in the one-month period from March. On a monthly basis, average hourly earnings dropped 0.1% in March, when accounting for the inflation spike. On an annual basis, real earnings dropped 2.6% in April.
Despite the slowing growth and record-high inflation, consumer spending grew 3.1% on an annual basis from January through March. Employers have also added more than 400,000 jobs for 12 straight months and the unemployment rate is near a half-century low.
The economy is widely believed to have resumed its growth in the current quarter. In a survey released this month, 34 economists told the Federal Reserve Bank of Philadelphia that they expect GDP to grow at a 2.3% annual pace from April through June and 2.5% for all of 2022. Still, their forecast marked a sharp drop from the 4.2% growth estimate for the current quarter in the Philadelphia Fed’s previous survey in February.
The nonpartisan Congressional Budget Office has projected that GDP will grow 3.1% in 2022, driven by strong consumer spending and demand for services. The budget office expects growth to slow slightly in coming years, forecasting a GDP of 2.2% in 2023 and 1.5% in 2024.
Meanwhile, the CBO expects inflation will remain elevated in the near-term, with the consumer price index expected to hit 4.7% for the entirety of 2022. While that is down slightly from the 6.7% recorded in 2021 – the highest level in four decades – it’s still significantly higher than the Federal Reserve wants. Inflation is not expected to fall to the Fed’s preferred level of 2% until 2024, according to the CBO.
Minutes from the U.S. central bank’s May 3-4 meeting released on Wednesday show that policymakers stressed the need to raise interest rates quickly in order to bring consumer prices closer to their 2% goal. Officials voted unanimously to raise the benchmark federal fund rate by 50 basis points earlier this month, and agreed that similarly sized hikes are on the table at upcoming meetings in June and July.
The Fed is banking on its ability to engineer a so-called soft landing: Raising borrowing rates enough to slow growth and cool inflation without causing a recession. Many economists, though, are skeptical that the central bank can pull it off. More than half the economists surveyed by the National Association for Business Economics foresee at least a 25% probability that the U.S. economy will sink into recession within a year.
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