Digital cash may seem inevitable, but the Bank of Canada isn't quite ready to concede
The agreed subject for an interview last February with Timothy Lane, the Bank of Canada deputy governor charged with keeping an eye on financial technology, was digital cash. But I begged his indulgence on another matter, as it seemed appropriate to talk for at least a few minutes about COVID-19, which appeared to be on the verge of overrunning Europe after ravaging much of Asia.
I assumed I would write a hot take on what one of the Bank of Canada’s leaders had to say about the coronavirus, which I did , and then take a couple of days to pull something together on the potential for a Canadian central bank digital currency (CBDC).
Never happened. Before the week was out, Jerome Powell, chair of the U.S. Federal Reserve, signalled a return to the barricades with a surprise Friday afternoon statement that said the Fed would “use our tools and act as appropriate to support the economy.” On March 3, he launched the first of many volleys. For their part, Lane and his colleagues at the Bank of Canada decided to slash the benchmark interest rate a day later, kicking off the most aggressive period of monetary stimulus in Canadian history.
A column on the future of payments quickly dropped to the bottom of my to-do list. But maybe it shouldn’t have. One of the unexpected consequences of the crisis is that it has probably made the introduction of a digital dollar inevitable, rather than simply an intriguing possibility, which is all you could have said about the idea in February.
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The COVID-19 lockdowns have sped up our embrace of a digital economy by years. Chuck Magro, chief executive of Nutrien Ltd., the world’s biggest seller of fertilizer, talked this spring about how farmers had finally started using the company’s e-commerce applications in significant numbers.
Online sales by brick-and-mortar retailers were 74 per cent higher in September than a year earlier, according to Statistics Canada . The shares of Ottawa-based Shopify Inc., which helps smaller companies build e-commerce websites, and Montreal-based Lightspeed POS Inc., which enables digital payments, have surged this year, as both companies represent bets on the future.
Surely, then, it’s only a matter of time before the public demands a unit of exchange that facilitates virtual business as seamlessly and as cheaply as cash does in the physical world. The Central Bank of the Bahamas last month issued a digital currency called the “sand dollar.” More significant is what’s going on in China, where the central bank has been running pilot projects on a digital version of the yuan.
If the world’s second-largest economy adopts a state-backed electronic coin, then it will be difficult for the rest of the world to argue that it can’t — or shouldn’t — be done.
“Online shopping has got a really big boost from this whole period,” Lane said on Nov. 24, when we met via videoconference for a second conversation about CBDCs. “We’ve also seen more automation — at least, incentives to automate some processes and so on. That may also move us closer to a time when we may need to consider having a digital version of cash.”
In February, the Bank of Canada concluded after a long research period that a digital form of official money was unnecessary. It did, however, set out the conditions that would cause it to change its mind: competition from a popular digital currency backed by a company or another government, or a dramatic shift in consumer behaviour.
Back then, the former seemed like the bigger threat, since Facebook Inc. had been pushing hard to get regulatory clearance for Libra, a “stable coin” that would facilitate transactions across its vast social network. Facebook has since scaled back its ambitions in the face of significant political headwinds, but, as it did so, the COVID-19 lockdowns pushed commerce online in a way that no one saw coming.
“You’ve got private companies that are obviously going to be looking for opportunities to take advantage of the changes in consumer behaviour,” Lane said. “If the public actually has a desire to use something that has the attributes of cash, but that can be used electronically, then that could also be a case that would lead us to consider this much more seriously.”
Hard currency isn’t about to disappear. The Bank of Canada and six other major central banks last month pledged they would continue to supply cash “as long as there is public demand.” Data show there still is lots of cash out there, but it’s not moving through the economy with its usual pace: in other words, we’re hoarding coins and paper, and buying stuff online.
The Canadian Association of Secured Transportation thinks retailers might be part of the problem. Steven Meitin, the group’s president, said his members report fewer total ATM transactions, but that withdrawals are larger. A “sizable” number of stores are refusing to accept cash even though authorities have concluded there is little chance the coronavirus spreads by handling bills and coins.
The association has recently started pushing for federal legislation that would force retailers to accept cash. “We’re fine with having choices,” Meitin said. “The problem is that the choice is being made by businesses that refuse cash.”
Lane was clear that he wasn’t quite ready to conclude that such pandemic-led behaviour will last. The Bank of Canada appears to want us to make the choice on digital money, not the other way around. “Changes in household behaviour are obviously going to be drivers of these decisions,” he said.
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Canada’s biggest banks are starting to swell with high-quality capital, but the economic uncertainty caused by the coronavirus pandemic and regulatory restrictions imposed on them as a result mean some of their preferred ways of spreading that money around are off the table.
Royal Bank of Canada reported on Wednesday that its Common Equity Tier 1 ratio, a measure of its capital strength, climbed to a record 12.5 per cent in its fourth quarter, which ended Oct. 31.
Unsurprisingly, the Toronto-based bank’s executives were asked during their quarterly conference call about what they could do with its capital. RBC president and CEO Dave McKay suggested that, regulator permitting, a pre-pandemic-like CET1 ratio of around 10.75 per cent to 11 per cent would be more preferable for the lender.
“And therefore, the capital that’s surplus to that, in a more normalized world, we’d like to create shareholder value with,” McKay said.
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RBC’s CET1 ratio rose because of a few factors, such as the profits it generated and customers paying down their debts. However, a federal regulator, the Office of the Superintendent of Financial Institutions, expects banks to refrain from boosting their dividends or buying back stock right now because of the pandemic. OSFI also requires that the Big Six have a CET1 ratio of at least nine per cent, which for RBC means it has approximately $19 billion of surplus, high-quality capital, such as common shares and retained earnings.
OSFI has not announced an exact date for when it will roll back its restrictions on dividend increases or share buybacks, only that it will do so when the economic forecast is sunny enough to allow for it. In the meantime, banks will have to find other outlets for excess capital, such as expanding existing businesses or buying new ones.
When asked by an analyst if there is a case to be made for buybacks being allowed, McKay responded that “caution still should rule the day” when it comes to capital.
“I wouldn’t push the regulator right now,” McKay added. “But as things progress, as we start to see more stability and clarity in a normalized world, then it would be appropriate.”
Questions about what the banks will do with capital are coming as now four of Canada’s Big Six lenders have beaten analyst expectations with their fourth-quarter earnings, setting the stage for a potentially more profitable 2021. Canadian Imperial Bank of Commerce and Toronto-Dominion Bank report fourth-quarter results on Thursday.
RBC announced net income of approximately $3.25 billion for its fourth quarter, an increase of one per cent over the same three-month period of 2019. The bank’s earnings per share were $2.23, and when adjusted for certain items, they were $2.27, up two per cent from a year earlier and above the $2.05 consensus estimate among banking analysts.
A strong showing from its capital markets division, as well as a drop in loan-loss provisions, helped drive the earnings beat. With the help of COVID-19-related government support programs and loan-payment deferrals, RBC actually set aside less money for bad loans in the fourth quarter of 2020 than it did during the pre-pandemic fourth quarter of 2019 (in which it also bought back $474 million of its own shares and had a CET1 ratio of 12.1 per cent). Provisions for credit losses came in at $427 million, down from $499 million a year earlier.
Montreal-based National Bank of Canada also announced Wednesday that fourth-quarter profit fell year-over-year, sliding to $492 million from $604 million a year earlier. Even so, its adjusted earnings per share were $1.69, the same as the fourth quarter of 2019 and better than the $1.52 expected by analysts.
Provisions for credit losses for the bank’s fourth quarter were $110 million, an increase of 24 per cent from a year earlier. However, National’s results were helped by a boost from its U.S. specialty finance and international division, the profit from which was up 36 per cent from a year earlier, to $106 million.
The CET1 ratio for National rose to 11.8 per cent to end its fiscal 2020, up from 11.4 in the prior quarter and 11.7 per cent a year earlier. CET1 increases were also reported by Bank of Nova Scotia and Bank of Montreal on Tuesday.
National, though, is already putting some capital to use, announcing Wednesday that it is boosting its stake in Atlanta, Ga.-based Credigy Ltd. to 100 per cent, buying the remaining 20 per cent of the firm it didn’t already own for approximately US$235 million.
Credigy, which buys consumer debt from lenders, is part of National’s U.S. specialty finance and international arm. Louis Vachon, president and CEO of National, said the purchase of the remaining 20 per cent was being funded with cash on hand, and not by issuing shares.
“We continue to see attractive growth potential in the future,” Vachon said during a conference call on Wednesday.
Although RBC sees internal growth opportunities, acquisitions remain a possibility as well, particularly in the U.S.
“If there’s an opportunity that presents itself, that checks the boxes, we will absolutely use that surplus capital to execute a growth trajectory,” McKay said on Wednesday.
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Canadian consumers are likely to end up forking out more for U.S. streaming services such as Netflix and short-term rentals on Airbnb once a new federal regime forcing tech platforms to charge sales tax comes into effect, but it isn’t clear that the new taxes will have a significant impact on consumption patterns, industry watchers say.
Ottawa’s fall economic statement Monday proposed the new “fair taxation” of cross-border digital products and services regime, which is to come into force on in July 2021. The government said the current tax regime, under which these players don’t collect and remit the goods and services tax (GST) or harmonize sales tax (HST), has given “foreign-based digital corporations an unfair advantage, and undercuts the competitiveness of Canadian companies.”
Some, like the hotel industry, say the government’s proposed tax changes will level the playing field.
“This is about fairness,” said Alana Baker, spokesperson for the Canadian Hotel Association.
“Canadian hotel operators pay corporate income tax and must charge and remit HST at the point of sale, but digital players today get a tax holiday,” Baker said.
Still, industry watchers don’t expect much to change in the way of consumer behavior, particularly when it comes to streaming services.
Kaan Yigit, president of Solutions Research Group, said he doesn’t think sales tax on Netflix will send any customers running to domestic video streaming services like Bell Media’s Crave, which already charges GST.
“Netflix has a well-defined value proposition, a very extensive and growing library, and is extremely well regarded by Canadian subscribers, with a very high 88 per cent ‘likely to recommend’ score,” he said. “Tax on it will not result in subscriber losses or churn.”
Netflix already collects and remits sales tax in two Canadian provinces, Quebec and Saskatchewan, and a spokesperson said the streaming service “will work collaboratively with the federal government on this issue, as (the company has done) previously in Quebec and Saskatchewan.”
She declined to comment on whether the amount of the tax top-up, if imposed in other provinces as expected, would be borne by consumers or whether the cost of the service would drop to accommodate it.
A spokesperson for the Canadian Association of Broadcasters declined to comment on the planned tax changes and how they are expected to affect the competitive landscape with foreign players such as Netflix and Spotify. However, he said the real win for traditional broadcasters in the government’s economic roadmap came in the form of a licensing fee waiver that is expected to provide “up to $50 million in relief” to help them stay afloat and continue providing broadcast services across the country.
“Given the profound structural challenges faced by the sector, and the economic impact of COVID-19 on their businesses, this waiver will allow many private broadcasters to persevere through the tough year ahead,” said Kevin Desjardin, president of the CAB.
The fall economic statement also set a timeline for another less-defined tax that is to apply to foreign-owned digital platforms beginning in 2022.
Michael Geist, a law professor at the University of Ottawa, suggested that if that takes the form of a government tax on revenue it is likely to be far more controversial than the GST or harmonized sales tax, which would simply be collected from Canadian consumers and remitted to the Canadian government.
He said Canada appears to be moving “in the same direction” as countries such as France, which faced retaliatory tariffs from the U.S. after attempting to extract tax from the tech giants.
“Those taxes will have an impact on U.S. tax revenues, so we can expect a response,” said Geist, who is also the Canada Research Chair in internet and e-commerce law.
Charlie Urbancic, a spokesperson from Airbnb Inc., said the company is reviewing Ottawa’s planned tax regime changes and looks forward to “engaging in consultation on that matter.” He declined to comment further on how the new taxes would affect the online marketplace for short-term accommodations in Canada.
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The text message sounded innocuous, and certainly not like the watershed it heralded. “Can you call me on Saturday morning?” Citigroup Inc. chief executive Mike Corbat wrote to Jane Fraser, his number two, on a Friday evening in early September.
Fraser, a 53-year-old Scot who had been named the bank’s president a year earlier, had just driven five hours from her house in Wyoming to Montana for a weekend of fly fishing with her husband, Bert. Bert was “all excited” about it, she protested, when Corbat asked her to return to Wyoming for dinner with him and his wife.
But what Corbat then said to her — “You need to come back because I’ve decided that now is the right time to actually retire . . . and I’m going to need to talk to you about that” — would prove revolutionary and ultimately elevate Fraser’s position as his successor from theoretical to imminent.
In February 2021, she will become the first female chief executive of a major Wall Street bank, overseeing a behemoth with more than 200,000 employees spread across almost 100 countries and a market value in excess of US$110 billion.
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On that weekend, Citi’s chairman, John Dugan, joined them in Wyoming and voiced his support for the handover. Fraser, a Cambridge and Harvard graduate, says she did not count her chickens until a vote of the board the following Wednesday.
“I did call them up after the board meeting and say, ‘So…’” she laughs on a Zoom interview from Citi’s open-plan headquarters in downtown Manhattan, where views of the Freedom Tower, Statue of Liberty and Ellis Island are ample compensation for not having an actual office.
Fraser laughs and jokes a surprising amount for someone who will soon have the pressure of running one of America’s biggest banks, along with the extra load of being a flag-bearer for female advancement through Wall Street’s highest ranks. Her dry, self-deprecating humour has been a foundational part of a 30-plus-year career in which she chose standing out even as many women struggled to fit in.
“I think being a woman has been helpful,” she says about her leadership style. “You are a bit different from (other) leaders, immediately you look different. I’ve always enjoyed the fact that you can therefore play the game differently, you’ve almost got licence to have more degrees of freedom, and that’s been fun.”
Playing the game differently meant leaning into her love of office pranks. It also meant working part-time when she was a partner at management consultancy McKinsey with two young sons while her husband Bert Piedra, former head of global banking at Dresdner Kleinwort, was in a “much more senior role”, and speaking publicly about feeling “exhausted” and “guilty” from her efforts to manage both a career and a family.
And, thanks to a revelatory stint working in Spain as a junior banker for Goldman Sachs, it meant casting off black suits and “drab grey coats” for something closer to the “dramatic and colourful clothes” local women wore. “They were themselves . . . and they were powerful and they were feminine,” says Fraser, who today is wearing a bright red dress, though it is mostly hidden on Zoom.
She was taken aback by how much attention there was when her promotion was unveiled, triggering a flurry of publicity about the shattering of Wall Street’s ultimate glass ceiling. “I hadn’t been thinking of it in those terms,” she says, though she reconciled herself to the spotlight when she realized it could inspire others.
She had some help from corporate America’s sisterhood in the form of Mary Barra, chief executive of General Motors, who told Fraser that she should “embrace” the focus on her gender because it aided progress, and then spend the rest of her time focused on her job. “Because at the end of the day,” Fraser says, “the most important thing is, can I do a good job in the day job?”
The day job officially begins when Corbat, who crosses the background of our Zoom call several times, ends his eight-year run as Citi’s chief executive. His departure will leave Fraser running one of America’s biggest banks just as lenders begin their reckoning with the billions of dollars of defaults that the stop-start recessions triggered by the coronavirus pandemic have probably caused.
She will also have major structural work to do. Citi was fined US$400 million by U.S. regulators for failing to correct “longstanding deficiencies” in systems that were meant to prevent embarrassing and costly mistakes such as accidentally transferring US$900 million of its money to a client’s creditors, as Citi did in August.
Fraser has spent the best part of the past decade cultivating the skills and relationships to prepare her for the challenges of being chief executive, a path she started on after Citi’s then boss Vikram Pandit asked her what her career plan was. “I quickly put one together and put it in front of him, and he just shook his head and said, ‘You’re thinking about this all wrong,’” she says.
Pandit gave her what she describes as “one of those game-changer pieces of advice”: “Stop thinking about what are the roles that will get you to a more senior position and start thinking what are the roles that will give you the experiences so that you will be successful in that senior position.”
Her progress was quick, moving from heading Citi’s private bank to leading its mortgage business through the subprime crisis to running Latin America, one of Citi’s most important markets. She has certainly noticed a difference between corporate cultures in the U.S. and U.K. “The external network of senior women that I’ve been able to develop since being in the US has been a big point of distinction,” she says. “They’ve provided me with sage guidance and sometimes the tough advice that helps one up one’s game, while at the same time providing strong support and encouraging me on.”
Now the moment is here, she is resolutely upbeat about what she must do, even when it comes to the “consent order” slapped on Citi by its top regulators in the U.S. This, along with the US$400 million fine, was one of the toughest penalties ever handed down in such a situation and requires a costly and far-reaching overhaul of the bank’s sprawling risk and operations systems. “Never miss the opportunities afforded by consent orders to really galvanize an organization,” Fraser says, describing how much of what was ordered will “accelerate” things that Citi already had planned.
It won’t be Fraser’s first rehabilitation job — she set Citi’s Mexican subsidiary Banamex right after a controls failure that triggered US$100 million in fines — but the stakes are much higher this time. The crisis strikes at the heart of systems that run all through the bank, and the regulators cracking the whip are the ones who issue Citi’s main licences.
“Some of the elements are obviously around core safety and soundness. I don’t want to minimize them in any way,” she says, displaying the deference that U.S. regulators like to hear from the companies they oversee.
Getting a firm handle on the problems with risk will play well with Citi’s investors, but Fraser knows their demands go deeper. They want a stronger sense of how the diverse businesses in Citi’s portfolio — including a global investment bank, a retail banking network in the U.S. and its sizeable operations in Latin America — hang together as a single strategy that will make them money.
There is also, of course, the pandemic and its fallout among the millions of individuals and companies that Citi counts as its customers. Fraser worries about a “K-shaped recovery” — economist-speak for a rebound among some industries and individuals while others languish.
True to form, she finds an upside in 2020’s mass working-from-home experiment. Logging on from her houses in New York and Wyoming, she appreciates the “authenticity” of Zoom — with dogs barking or children entering the shot — and its power to dispel the myth that anyone, including her, is living “these perfect lives (as shown) on Instagram . . . because that sure as heck isn’t reality”, she says. Like many others, she is concerned that the pandemic could set women back, especially those who have to stay at home with children who cannot attend school or day care.
Her crowded in-tray means she will have less time to spend on gender diversity, at least “to start off with”, though she will continue to be an advocate. “I won’t do it for Pollyanna-ish reasons,” she says. “I will use my seat as a woman to push it forward because I think it’s good for business . . . It makes for a healthier culture.”
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The chief executives of the Bank of Nova Scotia and Bank of Montreal began another earnings season for Canada’s Big Six lenders on Tuesday in an upbeat fashion, voicing confidence in a COVID-19 vaccine and the economic recovery that it could aid.
“While the path of the pandemic and the economic recovery remains uncertain, we now know that vaccines will be available relatively soon, and there’s good reason to be optimistic about the associated economic recovery accelerating as 2021 progresses,” said Darryl White, BMO’s CEO, during a conference call for analysts and investors on Tuesday.
Scotiabank CEO Brian Porter sounded a similar note, saying that precise forecasting is proving difficult, but that there are several factors that make them “cautiously optimistic for the year ahead,” such as the economic stimulus being supplied by governments and central banks.
“There is ample and growing evidence the economic recovery in our core markets is well underway,” Porter said during his bank’s conference call. “While our current outlook does not rely on an effective vaccine being introduced, any progress towards this goal will certainly improve our outlook,” he added later.
The optimism from the heads of two of the country’s biggest banks came as Statistics Canada revealed that the Canadian economy grew by nearly nine per cent in the third quarter, after shrinking by 11.3 per cent in the second. Both banks announced quarterly earnings that were better than analysts had expected, albeit still weighed down by the effects of the pandemic.
Toronto-based Scotiabank reported a profit of nearly $1.9 billion for its fiscal fourth quarter, a decrease of 18 per cent from the same quarter a year earlier. When adjusted for acquisition and divestiture-related costs, Scotiabank’s net income for the three-month period ended Oct. 31 was about $1.94 billion and its earnings per share were $1.45, down from $1.82 a year ago.
BMO, meanwhile, reported net income of approximately $1.58 billion for its fourth quarter, up 33 per cent from a year ago. When adjusted for certain costs, the bank’s net income was $1.6 billion and its earnings per share were $2.41, down two cents from the previous year’s quarter.
Although they were lower than 2019, the banks’ adjusted earnings per share for the fourth quarter beat analysts’ expectations. The consensus estimate for Scotiabank had been $1.22 in adjusted EPS, while BMO’s was $1.91.
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Credit costs eased for both banks when compared to the third quarter, aided by a better economic outlook. The change helped boost earnings on a quarter-over-quarter basis, with Scotiabank’s fourth-quarter profit rising 46 per cent and BMO’s up 28 per cent relative to the third quarter.
Scotiabank’s provisions for credit losses were $1.13 billion for the fourth quarter, compared to $2.18 billion in the third quarter and $753 million a year ago. Total provisions for credit losses at BMO were $432 million in the fourth quarter, up from $253 million a year earlier, but down from $1.05 billion it set aside in the third quarter.
Both banks also saw decreases in the amount of debt on which customers are deferring payments, which shot up in the early days of the pandemic.
BMO chief risk officer Patrick Cronin said approximately 88 per cent of payment deferrals to Canadian consumers and 80 per cent to U.S. consumers have expired, with just over two per cent of those now in default or delinquent on their payments.
“We’ve been pleased with our overall risk performance given the acute stress and uncertainty caused by the pandemic, and expect credit losses through fiscal 2021 to remain manageable,” Cronin said.
Yet even with a better-then-expected end to their year, the lenders reported that profits for their fiscal 2020, which ended Oct. 31, were down from those of pre-pandemic 2019. Scotiabank’s 2020 net income was approximately $6.85 billion, down from nearly $8.8 billion for the previous fiscal year. BMO said its full-year profit dipped to just shy of $5.1 billion, compared to about $5.76 billion for 2019.
There is also some concern for the staying power of the economic recovery, given a resurgence in COVID-19 cases in Canada and decisions by governments to reimpose restrictions on people and businesses. StatsCan noted that third-quarter real gross domestic product was still down 5.3 per cent compared to the end of 2019.
“We expect 2021 will be a transition year towards a return to the full earnings power of the bank, supported by a return to normal (provision for credit loss) levels consistent with an economic recovery,” Scotiabank’s Porter predicted.
The fourth-quarter results from BMO and Scotiabank are the first to be reported by Canada’s Big Six banks this week, and will be followed by Royal Bank of Canada and National Bank of Canada on Wednesday.
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The Bank of Nova Scotia and Bank of Montreal ended their 2020 fiscal years on a relative high note, as both lenders reported on Tuesday fourth-quarter earnings that were better than expected, albeit still buffeted by the coronavirus pandemic.
Toronto-based Scotiabank reported a profit of nearly $1.9 billion for the three-month period ended Oct. 31, a decrease of 18 per cent for the same quarter a year earlier. When adjusted for acquisition and divestiture-related costs, Scotiabank’s net income of the fourth quarter was about $1.94 billion and its earnings per share were $1.45, down from $1.82 a year ago.
BMO reported net income of approximately $1.58 billion for its fourth quarter, up 33 per cent from a year ago. When adjusted for certain costs, the bank’s net income was $1.6 billion and its earnings per share were $2.41, down two cents from the previous year’s quarter.
Although a decline from their 2019 fourth quarters, the banks’ adjusted earnings per share beat analysts’ expectations. The consensus estimate for Scotiabank had been $1.22 in adjusted EPS, while BMO’s was $1.91.
Moreover, credit costs eased for both BMO and Scotiabank in the fourth quarter when compared to the third, helping to improve earnings on a quarter-over-quarter basis. Scotiabank’s fourth-quarter profit was up 46 per cent from the third quarter, and BMO’s was up 28 per cent.
“The bank delivered improved earnings in the fourth quarter with strong operating results to end a year marked by high loan loss provisions driven by the global pandemic,” said Brian Porter, president and CEO of Scotiabank, in a press release. “We are encouraged by progress towards a vaccine and we remain cautiously optimistic about the year ahead.”
Tuesday’s results begin another earnings season for Canada’s six largest banks. And as has been the case since the pandemic hit, the driving force behind the financial results at Scotiabank and BMO — the country’s third and fourth-biggest banks, respectively — was COVID-19.
For instance, both lenders reported that full-year profits were down from 2019. Scotiabank’s 2020 net income was approximately $6.85 billion, down from nearly $8.8 billion for the previous fiscal year. BMO said its full-year profit dipped to just shy of $5.1 billion, compared to about $5.76 billion for 2019.
Those lower profits are due in large part to the banks having to increase their loan-loss reserves in the face of the pandemic and its related economic effects, both of which have weighed on borrowers. They have also weighed on lenders, which use economic forecasts in determining how much money to set aside for possible loan losses.
Scotiabank’s provisions for credit losses were $1.13 billion for the fourth quarter, compared to $2.18 billion in the third quarter and $753 million a year ago. The bank said that the sequential improvement was driven by lower provisions on performing loans, or those still being paid back, because of an improving macroeconomic forecast and credit quality.
Total provisions for credit losses at BMO were $432 million in the fourth quarter, up from $253 million a year earlier, but down from $1.05 billion it set aside in the third quarter.
“The prior quarter provision for credit losses was largely due to the impact of the extraordinary and highly uncertain environment on credit conditions, the economy and scenario weights, while the current quarter provision for credit losses was primarily due to a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances,” BMO said in its fourth-quarter report.
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Despite the global pandemic bearing down on businesses around the world, Vancouver-based private equity firm CAI Capital Partners exceeded a $100-million target for its latest fund by more than 25 per cent.
More than 80 returning investors, and some new ones, pumped $125 million — the hard cap — into CAI’s Fund VI.
The investment firm, which targets the “lower middle” segment of the market, has continued to invest throughout the economic turmoil caused by government-mandated efforts to try to slow the spread of COVID-19.
For example, in August, CAI invested in RebalanceMD Canada, a Victoria, B.C.-based operator of medical clinics that provide musculoskeletal care including a full range of orthopaedic surgical and non-surgical services. And on Sept. 30, the fund announced an investment in CMT Engineering Laboratories, a Utah-based civil and geotechnical engineering services provider.
“The pandemic certainly made raising the fund more complicated,” said Curtis Johansson, a partner at the firm. “But it doesn’t negate the underlying premise upon which CAI is built: the lower middle-market is a compelling place to invest.”
Investors in CAI’s latest fund include financial institutions, family offices, institutional investors, funds of funds and individuals.
Over the past three decades CAI, which was originally based in New York, has invested more than $1.5 billion of equity capital in companies across North America. One of its funds, launched in 2008, topped a list of more than 100 global buyout funds of that vintage based on the return on each dollar invested, or net multiple, according to Preqin, a London-based data firm that tracks private capital and the hedge fund industry.
CAI primarily focuses on investing in founder-owned companies, often in sectors that serve industries where services are required by regulation or government.
“As we always have, we are targeting businesses that demonstrate a track-record of cash-flow generation and unrealized growth opportunities,” said Johansson. “In particular, we think there are currently compelling opportunities to partner with companies that provide services to industrial, utility and government clients.”
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TORONTO — Bank of Nova Scotia beat analysts’ estimates for fourth-quarter profit on Tuesday, helped by income growth in its capital markets business, even as loan loss provisions rose and earnings in its international division slumped 61 per cent.
While earnings at Canada’s third-biggest bank improved from the previous quarter, when it was hit by the impact of the coronavirus pandemic in some of its Latin American markets, it remained below the levels seen a year earlier.
Loan loss provisions jumped 50 per cent to $1.13 billion, driven by increases in its international and Canadian banking divisions.
· Bank of Montreal profit jumps 33%
Scotiabank said adjusted net income attributable to shareholders fell to $1.8 billion, or $1.45 a share, in the three months through Oct. 31, compared with analysts’ expectations of $1.22 a share.
While earnings recovered 34 per cent from the prior quarter, they fell from $1.82 a share a year earlier.
Its international business profit tumbled to $283 million from $725 million a year ago.
© Thomson Reuters 2020
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Bank of Montreal reported a 33 per cent rise in quarterly profit on Tuesday, as strength in its wealth management and capital markets businesses helped offset higher loan-loss provisions due to the COVID-19 pandemic.
Net income attributable to equity holders of the bank rose to $1.58 billion, or $2.37 per share, in the fourth quarter, from $1.19 billion, or $1.78 per share, a year earlier.
More to come …
© Thomson Reuters 2020