Two of Canada’s greatest lenders revealed quarterly earnings on Wednesday that recommend a gloomier outlook for Canada’s economic system, with sharply decrease income and a big leap within the amount of cash they’re setting apart to cowl unhealthy loans.
Financial institution of Montreal and Scotiabank posted quarterly outcomes earlier than inventory markets opened on Wednesday, and whereas the precise numbers differed, they shared some worrisome themes.
Scotiabank mentioned it made a revenue of simply over $2.1 billion within the three months up till the top of April, a decline of 21 per cent from the $2.7 billion it earned the identical time final yr. On an adjusted foundation, the financial institution’s revenue got here in at $1.70 per share. That’s lower than the $2.16 from this time final yr and in addition lower than the $1.76 that analysts had been anticipating.
A part of the revenue drop got here as a result of the financial institution put aside much more cash to cowl probably unhealthy loans on its books. Referred to as “provisions for credit score losses,” the intently watched metric tracks the amount of cash that the financial institution units apart on its books to jot down off loans that it thinks would possibly go bitter.
The financial institution put aside $709 million through the quarter. In the identical interval a yr in the past, its provisions for credit score losses had been solely $219 million.
It was the same story on the Financial institution of Montreal, the place the financial institution put aside greater than $1 billion for unhealthy loans. That’s means up from the $50 million it recorded the identical time a yr in the past.
A giant a part of that improve in credit score loss provisions got here due to the mortgage ebook inherited from Financial institution of the West, an American financial institution that BMO bought final December and finalized in February. The acquisition was the most important one in BMO’s historical past, and whereas it might assist the financial institution broaden its presence in america over the long run, within the brief time period it got here with a minimum of $705 million price of loans that the financial institution is electing to maneuver into its provisions for credit score losses.
The will increase in non-performing loans “mirror unsure financial situations,” mentioned analyst Mario Mendonca, who covers each banks for TD.
BMO’s income took an enormous tumble to simply over $1 billion through the quarter, nicely down from $4.7 billion a yr in the past, largely as a consequence of prices related to the $16-billion acquisition talked about above. However even on an adjusted foundation, the financial institution’s revenue got here in at $2.2 billion, or $2.93 per share.
That’s down from $3.23 final yr and fewer than the $3.21 that analysts had been anticipating.
Shares in each lenders had been down in early buying and selling following the discharge of the numbers, however the information wasn’t all unhealthy for buyers. Each banks noticed match to extend their quarterly dividend to shareholders, an indication they’re assured of their outlook.
BMO upped its quarterly payout by 4 cents to $1.47 per share, whereas Scotia hiked by three cents to $1.06.