Author: Consultant

Royal Bank of CanadaRY-T +3.01%increase reported higher second-quarter profit that beat analysts’ estimates on a boost from its capital markets business as the lender set aside lower-than-expected provisions for potentially sour loans.

RBC earned $4-billion, or $2.74 per share, in the three months that ended April 30. That compared with $3.68-billion, or $2.60 per share, in the same quarter last year.

Adjusted to exclude certain items, including transaction and integration costs from the HSBC Bank Canada acquisition, the bank said it earned $2.92 per share. That edged out the $2.75 per share analysts expected, according to S&P Capital IQ.

In March, RBC completed its $13.5-billion takeover of British HSBC Holdings PLC’s Canadian subsidiary. This is the first quarter where Canada’s largest lender is reporting earnings that include the contribution from HSBC, and the deal initially reduced the bank’s profit by $51-million as RBC absorbs its provisions for credit losses.

Canada largest lender has seen some slight attrition from HSBC customers since the deal was announced in late 2022, which RBC said was within its expectations. Loan balances were down 4 per cent to $3.5-billion since September 2022.

RBC said that it is on track to meet its target cost savings of $740-million by combining HSBC’s platforms and services with its own.

“This quarter marked a pivotal milestone in RBC’s long-term growth story as we completed our acquisition of HSBC Bank Canada, welcoming thousands of colleagues and clients from across the country,” RBC chief executive officer Dave McKay said in a statement. “This historic acquisition, along with our solid results driven by our strong balance sheet, expense control and volume growth across our premium franchises, shows that RBC has the right strategy in place to continue building the bank of the future and our position as a global competitor.”

The bank raised its quarterly dividend by 4 cents to $1.42 per share.

RBC is the final major Canadian bank to report earnings for the second quarter. Canadian Imperial Bank of Commerce also released earnings on Thursday. Bank of Montreal posted a profit that fell below analysts’ expectations. Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada posted second-quarter results that beat analysts’ estimates.

In the quarter, RBC set aside $920-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was slightly lower than analysts anticipated, and included $672-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, RBC had set aside $600-million in provisions.

Total revenue rose 14 per cent in the quarter to $14.15-billion. But expenses increased 12 per cent to $8.31-billion, which the bank said was driven by higher compensation costs and investments in its businesses.

Profit from personal and commercial banking was $2.05-billion, up 7 per cent from a year earlier, driven by higher net interest income, partially offset by an increase in provisions. Deposits grew 9 per cent and loan balances increased 6 per cent in the quarter.

The wealth management division generated $769-million in profit, up 7 per cent on higher fee-based client assets, which also drove higher variable compensation.

Profit from insurance was up 4 per cent at $177-million. And capital markets profit jumped 31 per cent to $1.26-billion, driven by higher revenue in corporate and investment banking on an increase in mergers and acquisitions and loan syndication activity, as well as equity and debt origination.

In March, RBC said that it terminated chief financial officer Nadine Ahn for violating its code of conduct with an undisclosed “close personal relationship” with a colleague, which resulted in preferential treatment. Senior vice president, finance and controller Katherine Gibson was tapped as interim CFO.

Canadian Imperial Bank of CommerceCM-T +3.28%increase reported second quarter earnings that beat analyst estimates, helping the lender build on the positive momentum it has established in recent months.

CIBC made $1.7-billion last quarter, or $1.79 per share, and earnings per share were up 2 per cent year-over-year. After adjusting for one-time items, the bank made $1.75 per share, beating analyst estimates of $1.65 per share.

Canadian banks have reported mixed results this quarter, with higher provisions for credit losses at some lenders concerning investors. Interest rates have remained higher for longer, making it more expensive for clients to borrow, which has pushing bankruptcies higher.

CIBC’s provisions for credit losses, however, dropped slightly quarter-over-over, particularly in Canadian personal and commercial banking, which is the lender’s largest division.

CIBC has also focused on expense control in recent quarters, and that continued. The bank reported operating leverage of 3 per cent in Canadian personal and commercial banking, meaning revenues in its largest unit are growing faster than expenses.

Canada Mortgage and Housing Corp. says the country’s total residential mortgage debt totalled $2.16-trillion as of February this year, up 3.4 per cent year-over-year and representing the slowest growth in 23 years.

The federal housing agency said in a new report that higher mortgage costs and uncertainty around the Bank of Canada lowering its key interest rate led to softer home sales and prices across many regions in the second half of 2023.

However, it said the slowdown in mortgage growth could be short-lived.

The agency expects the rate of growth for mortgage debt to increase amid forecasts of higher home sales and prices in the coming years.

It said an anticipated decline in mortgage rates, along with population growth and increases in real disposable incomes, will likely fuel the turnaround.

“In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern,” said CMHC deputy chief economist Tania Bourassa-Ochoa in a press release.

“As homeowners find it more difficult to manage their monthly budgets, policy-makers and the financial sector are on high alert when considering risks to the financial industry and the economy.”

The report also said borrowers are continuing to opt for shorter-term, fixed-rate mortgages over traditional five-year fixed terms as they remain uncertain of the short– and medium-term mortgage rate outlook.

That’s despite “noteworthy increases” in the discounts being offered by lenders on five-year, fixed-rate mortgages in the first two months of this year, which marked a reversal of the trend from the last half of 2023.

“Lenders are foreseeing potential rate cuts by the (Bank of Canada) occurring sooner than they anticipated last year and are seeking to lock in mortgages at relatively high rates,” the report said.

Terms ranging from three years to less than five years remained the most popular choice, representing nearly 40 per cent of all lending for newly extended mortgages in February, 2024. Variable-rate mortgages accounted for 15 per cent of all lending for newly extended mortgages.

The report showed the national mortgage delinquency rate hit 0.17 per cent in the fourth quarter of last year, still near historic lows, but trending up for the first time since the beginning of the pandemic.

It also highlighted the Big Six banks taking an increasing share of the market for extended mortgages.

In the fourth quarter of 2023, those banks’ share grew 11.8 percentage points from last year, driven by increases in refinances and renewals. Other chartered banks and credit unions recorded decreases of 6.9 and 3.1 percentage points, respectively.

Canadian stocks tumbled on Wednesday on concerns the Federal Reserve might keep interest rates higher for longer in the event of U.S. inflation readings coming in hotter than expected.

The Commerce Department is due to release its report on personal income and spending in the month of April, which includes readings on inflation said to be preferred by the Fed. The inflation data could have a significant impact on the outlook for interest rates ahead of the Fed’s next monetary policy meeting.

Selling was widespread on Bay Street, with financials, utilities, materials and energy sectors suffering sharp losses. Several shares from consumer discretionary, real estate, communications and industrials sectors also ended sharply lower.

The benchmark S&P/TSX Composite Index, which opened with a negative gap of nearly 100 points at 22,170.16 (it remained the day’s high), ended with a loss of 367.07 points or 1.65% at 21,897.98, a point off the day’s low.

Bank of Montreal (BMO.TO) tanked nearly 9% as the bank’s results fell short of expectations. The lender reported adjusted net income of C$2.03 billion or C$2.59 per share for the second-quarter, compared to prior year’s C$2.19 billion or C$2.89 per share.

National Bank of Canada (NA.TO) climbed more than 2.5%. The bank reported net income of C$906 million or C$2.54 per share for the second quarter, higher than C$832 million or C$2.34 per share in the same quarter a year ago, primarily helped by growth in revenue in all segments.

Nutrien (NTR.TO), Bombardier Inc (BBD.B.TO), Cargojet (CJT.TO), Fairfax Financial Holdings (FFH.TO), Canadian Natural Resources (CNQ.TO), CGI Inc (GIB.A.TO), Boyd Group Services (BYD.TO) and Stantec (STN.TO) lost 2 to 3.4%.

Royal Bank of Canada (RY.TO), Colliers International (CIGI.TO), goeasy (GSY.TO), Thomson Reuters (TRI.TO), WSP Global (WSP.TO) and Franco-Nevada Corporation (FNV.TO) were among the several other prominent losers.

Ag Growth International (AFN.TO) soared 11.1%. Softchoice Corporation (SFTC.TO) rallied 3.2%. Tecsys (TCS.TO), Kinaxis Inc (KXS.TO), Nuvei Corporation (NVEI.TO) and Cameco Corporation (CCO.TO) also posted strong gains.

BMO Financial Group raised its dividend as it reported a profit of $1.87 billion in its latest quarter, up from $1.03 billion a year earlier.

The bank says it will now pay a quarterly dividend of $1.55 per share, up four cents from $1.51 per share.

The increased payment to shareholders came as BMO says its profit amounted to $2.36 per diluted share for the quarter ended April 30, up from $1.26 per diluted share a year earlier.

Revenue totalled $7.97 billion, up from $7.79 billion in the same quarter last year, while BMO’s provision for credit losses for the quarter amounted to $705 million, down from $1.02 billion a year ago.

On an adjusted basis, BMO says it earned $2.59 per diluted share, down from an adjusted profit of $2.89 per diluted share in the same quarter last year.

Analysts on average had expected a profit of $2.77 per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published May 29, 2024.

National Bank of Canada reported a second-quarter profit of $906 million, up from $832 million a year earlier, and raised its dividend.

The Montreal-based bank says it will now pay a quarterly dividend of $1.10 per share, an increase of four cents.

The increased payment to shareholders came as National Bank says its profit amounted to $2.54 per diluted share for the quarter ended April 30, up from $2.34 per diluted share in the same quarter last year.

Revenue totalled $2.75 billion, up from $2.45 billion a year earlier, while the bank’s provision for credit losses amounted to $138 million, up from $85 million in the same quarter last year.

On an adjusted basis, National Bank says it earned $2.54 per diluted share, up from an adjusted profit of $2.34 per diluted share a year ago.

Analysts on average had expected a profit of $2.45 per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published May 29, 2024.

Bank of Nova ScotiaBNS-T -0.79%decrease reported second-quarter profit that beat analyst expectations but fell from the same period last year as the lender set aside more money for loans that could default, offsetting a boost from its capital markets and wealth divisions.

Scotiabank earned $2.09-billion, or $1.57 per share, in the three months that ended April 30. That compared with $2.15-billion, or $1.68 per share, in the same quarter last year.

Adjusted to exclude certain items, including income tax expenses from the Canada Recovery Dividend, Scotiabank earned $1.58 per share. That edged out the $1.55 per share analysts expected, according to S&P Capital IQ.

“The bank delivered solid results this quarter against a backdrop of ongoing macroeconomic uncertainty, reporting positive operating leverage driven by revenue growth and continued expense discipline. We are executing on our commitment to balanced growth as our deposit momentum continues, while maintaining strong capital and liquidity metrics,” Scotiabank chief executive officer Scott Thomson said in a statement. “I am proud to see Scotiabankers across our global footprint rallying behind our new strategy and coming together to drive our key strategic initiatives forward.”

In December, Scotiabank launched its new strategic plan aimed at growing its deposit base to reduce its funding costs and target businesses in North America, where it believes it can boost growth.

The bank kept its quarterly dividend unchanged at $1.06 per share.

Scotiabank is the second major Canadian bank to report earnings for the second quarter. Toronto-Dominion Bank posted second-quarter results Thursday that beat analysts’ estimates. Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada release earnings result later this week.

In the quarter, Scotiabank set aside $1.01-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That included $975-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, Scotiabank set aside $621-millions in provisions.

Total revenue rose 5 per cent in the quarter, to $8.35-billion on higher margins, wealth revenues, underwriting and advisory fees and banking fees. Expenses increased 3 per cent to $4.71-billion, which the bank said was driven higher technology and staffing costs.

Profit from Canadian banking was $1.01-billion, down 4 per cent from a year earlier as higher provision for credit losses and non-interest expenses offset higher revenues.

Profit from the bank’s international division was up 6 per cent at $671-million as higher net interest income and the positive impact of foreign currency exchange offset a climb in provision for credit losses, non-interest expenses, provision for income taxes and lower non-interest income.

The global wealth management division generated $380-million of profit, up 8 per cent on higher brokerage revenues in Canada and higher mutual fund fees in the international wealth segment, particularly in Mexico.

And capital markets profit rose 7 per cent to $428-million as higher non-interest income and lower provision for credit losses and provision for income taxes offset by higher expenses and lower net interest income.

The Canada Revenue Agency (CRA) will get expanded powers to force taxpayers to provide information under oath during an audit, a new legal weight experts say is overreaching and will add costs and stress to the review process.

In 2022, the CRA got the go-ahead to require taxpayers to meet with its auditors in person or by video conference to answer questions during the audit process. The proposed amendments to the Income Tax Act included in the latest federal budget go even further. Under the new measures, a requirement or notice sent or served on a taxpayer “may require that the person provide any answers to questions, information or documents sought by the Minister under those sections orally, under oath or affirmation, or by affidavit.” (Oaths and affirmations are vows to tell the truth; an affidavit is a sworn written statement).

Legal experts believe the change is extreme and say the Finance Department has provided little guidance on how the new rules will be applied and what penalties could be imposed. There are also worries the new powers could be used in a way disproportionate to the intended purpose, which could lead to unfair or unequal treatment of taxpayers.

“For Canadian taxpayers, the implications of this proposal are significant. The requirement to provide information under oath or affirmation adds a layer of legal gravity to the audit process, potentially increasing the consequences of providing false or incomplete information,” states a recent article from three lawyers at Davies Ward Phillips & Vineberg LLP, adding that “it is unclear why Finance proposed such expansive and draconian powers.”

The budget says amendments to the information-gathering provisions in the Income Tax Act, which also include steeper penalties for non-compliance, will “enhance the efficiency and effectiveness of tax audits” and speed up tax collection.

CRA auditors are ‘not judges’

Élisabeth Robichaud, a partner in the tax and tax disputes practices at Davies Ward Phillips & Vineberg LLP in Montreal, says forcing taxpayers to provide information under oath or affirmation, or by affidavit, is a major change that goes beyond the scope of CRA audits. She likens it to giving testimony in a courtroom.

“The risk of the interview turning into a cross-examination is a legitimate concern because an audit isn’t an investigation. The tax authorities aren’t there to put taxpayers into a corner,” she says. “An audit is supposed to be a collaborative process, and they’re there to make sure they obtain all of the correct and accurate information, not to trick taxpayers.”

Ms. Robichaud says the CRA appears to want to use interviews to assess a taxpayer’s credibility, which she argues isn’t its role.

“They’re not judges; their job is not to evaluate whether or not the taxpayer is a good witness when pressed to answer questions orally,” she says.

“We’re concerned that without clear guidelines, the interviews will be used as a tool to attack taxpayers and collect improper information … by bullying taxpayers into answering certain questions that they shouldn’t have to, or because they’re just nervous when meeting with tax officials,” Ms. Robichaud adds. “The proposed use of oaths now goes a step further in turning the administrative civil audit process into one that resembles an investigation or trial preparation.”

Michael Friedman, partner at McMillan LLP in Toronto, says the requirement to provide the CRA information under oath in an audit seems excessive and will force affected taxpayers to pay extra legal and accounting fees to have the proper paperwork drawn up.

“The vast majority of taxpayers want to answer questions, so it seems like an exceptional cost to deal with what may be a narrow problem,” he says. “It will be interesting to see how extensively the CRA uses the provision.”

Mr. Friedman says the changes could also have the opposite effect, creating more non-compliance, especially if taxpayers don’t have a legal or tax advisor to help them and choose to deal directly with the CRA.

“You could have taxpayers throwing up their hands and saying, ‘I don’t know what an affidavit is, so I’m just going to ignore it,’ which will make matters worse,” Mr. Friedman says.

Tougher penalties for non-compliance

The budget also includes new and steep penalties for taxpayers not complying with CRA audit requests.

One provision includes a new 10-per-cent penalty for taxpayers who have received a CRA compliance order if they owe more than $50,000 in a relevant tax year. The budget says the proposed penalty “would create an incentive for taxpayers to comply with the original request for information or assistance.”

The budget also includes a measure to enable the CRA to issue a new “notice of non-compliance” to taxpayers who haven’t responded to previous requests for information, including a $50 penalty for each day the notice of non-compliance is outstanding to a maximum of $25,000.

“The rules are exceptionally broadly crafted, without sufficient thought to their scope and how they may apply in unintended circumstances,” Mr. Friedman says.

The budget also proposes to “stop the clock” on the three-year reassessment period when a taxpayer seeks judicial review of any CRA requirement or notice related to an audit. The new rules suspend the running of the reassessment period until the judicial review of the information request or issuance of a notice of non-compliance is complete, which Mr. Friedman says can take years.

“It runs counter to and in the face of what a limitation period is intended to do, which is to give taxpayers comfort that tax years are eventually closed and also impose some burden on the government to act with reasonable diligence,” he says. “It’s not a tax-efficient change.”

How advisors can help clients prepare

Matthew Pollock, an associate lawyer at Rosen and Associates Tax Law in Toronto, says the CRA’s expanding powers will make it more important for advisors to ensure their clients’ tax information is detailed and up to date in case they’re audited.

“Lawyers and accountants will need to be even more meticulous with their clients,” he says.

If there’s an audit, advisors should also help taxpayers understand their rights, legal position and options, Mr. Pollock says, especially given the proposed new rules.

Advisors can also prepare clients for potential oral interviews by ensuring they know how to respond to the CRA’s inquiries accurately without providing unnecessary or irrelevant information.

“And if you don’t know the answer, just tell them you don’t know and will get back to them. You want to ensure the information is accurate,” Mr. Pollock says.

For more f

Oil prices rose by more than $1 per barrel in muted trade owing to public holidays in Britain and the United States after a downbeat week characterized by the outlook for U.S. interest rates in the face of sticky inflation.

The Brent crude July contract was up 99 cents at $83.11 a barrel by 12:10 p.m. ET (1610 GMT). The more active August contract rose $1.08 to $82.92.

U.S. West Texas Intermediate (WTI) crude futures were up $1.06 at $78.77.

Brent lost about 2% last week and WTI nearly 3% after Federal Reserve minutes showed some officials would be willing to raise interest rates further if it were deemed necessary to control stubbornly high inflation.

“Sentiment in the oil complex … has been skittish as investors are constantly recalibrating expectations for the Federal Reserve’s monetary policy trajectory,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Recent data emanating from Western economies has shifted rate cut expectations depending on geography.

On Monday, key European Central Bank (ECB) policy-makers said the bank has room to cut interest rates as inflation slows but must take its time in easing policy.

Figures for inflation in the euro zone are due on Friday and economists believe an expected tick up to 2.5% should not stop the ECB from easing policy next week.

The U.S. personal consumption expenditures index expected this week will be in the spotlight for further signals about interest rate policy. The index, due to be released on May 31, is viewed as the U.S. Federal Reserve’s preferred measure of inflation.

German inflation data on Wednesday and euro zone readings on Friday will also be watched for signs of a European rate cut that traders have pencilled in for next week.

Eyes will also be trained on the coming meeting of the OPEC+ group of oil producers comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia. The meeting is to take place online on June 2.

An extension to output cuts of 2.2 million barrels per day is the likely outcome, OPEC+ sources have said this month.

Goldman Sachs raised its global oil demand forecast for 2030 on Monday and expects consumption to peak by 2034 on a potential slowdown in electric vehicle adoption, keeping refineries running at higher-than-average rates till the end of this decade.