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TD Bank, BMO in spotlight as Canada's big banks get set to report earnings
investors are wondering whether TD Bank can provide a clear future plan after getting fined about US$3.1 billion in October by U.S. authorities and being ordered to cap the expansion of its retail banking business there for failing to monitor money laundering activities (Credit: Spencer Colby)
From Toronto-Dominion Bank’s growth restrictions to Donald Trump’s election in the United States to the drastic reduction in immigration numbers in Canada, a lot has changed since the Big Six banks’ last quarterly earnings release in August.
How these issues may impact Canada’s banking sector and the economy overall is something investors are likely to focus on as the country’s top lenders get set to release results next week for the fourth quarter, which ended Oct. 31.
What’s next for TD?
After getting fined about US$3.1 billion in October by U.S. authorities and being ordered to cap the expansion of its retail banking business there for failing to monitor money laundering activities, investors are wondering whether TD can provide a clear future plan.
Following the charges, TD announced several steps to mitigate the impacts of the curbs, but described 2025 as a “transition” year. This essentially translates to “don’t expect any growth” for the year, according to National Bank of Canada analyst Gabriel Dechaine.
There’s also a lot of uncertainty regarding TD’s expected performance in 2026. Analysts expect the bank’s earnings per share to rise anywhere from four per cent to 14 per cent, which is a “wide range,” Dechaine said.
“There is some speculation that TD could provide 2026 guidance, which would be helpful for investors with a longer-term view to more reliably value the stock,” he said in a note on Nov. 19. “If TD delivers a message that it expects its ‘new normal’ earnings per share growth to be in the five per cent to six per cent range, we believe the market reaction would be positive.”
Any kind of “constructive forward guidance would be a big plus” for TD, Bank of Nova Scotia analyst Meny Grauman said in a note on Nov. 25, since the lender is heading into the quarter with “very low expectations,” which sets a low bar for a “better-than-expected” result.
Canaccord Genuity Corp. analyst Mathew Lee doesn’t expect TD to “drastically undergrow” its peers over the medium term.
“We note several levers that TD can pull to drive growth, including mortgage loan growth and U.S. wholesale,” he said in a note on Nov 19.
John Aiken, an analyst at Jefferies Inc., said there needs to be more clarity on the full impact of the sanctions in the U.S. on both TD’s financial statements and what it means for its business and consumer sentiment.
He said analysts and “those in the market” were aware of the charges against TD, but the average customer in the U.S. didn’t necessarily know what was happening behind the scenes and that could have some “serious negative repercussions” on the lender.
“It’s going to take a lot of work, a lot of effort, to rebuild the confidence that was lost in the marketplace,” he said. “That rebuilding really doesn’t even begin until we have the transition of the CEO (next year). I think it will be very difficult for them to generate something in the fourth quarter that is going to change the narrative.”
Will credit loss provisions continue to rise?
The amount of money the Big Six lenders keep aside for loans that might go bad, or the provision for credit losses (PCLs), has been on the rise this year as high interest rates pinched the finances of indebted consumers and businesses.
But four of the six lenders reported lower-than-expected PCLs in the previous quarter that ended on July 31. One exception was Bank of Montreal, which failed to meet analysts’ expectations after a jump in its PCL to $906 million from $492 million during the same period last year.
BMO seems to be in focus once again as analysts try to predict the lender’s credit performance during its most recent quarter.
Its PCLs will be “rough,” but nothing that will “break the thesis,” Lee said. He said the two industries — commercial real estate and transportation — that primarily contributed to the rise in PCLs for BMO have improved, which potentially paints a brighter picture for the bank.
But considering its poor performance in the previous quarters, BMO has the “most at stake” when it comes to credit performance in the upcoming quarter, Grauman said.
“Expectations are low for this bank heading into reporting, but we still see risk skewed to the downside for the time being,” he said.
It’s not just BMO, though. Analysts expect PCLs to rise overall this quarter and peak somewhere in the middle of next year.
Aiken doesn’t count out the possibility of another bank surprising analysts with a more-than-expected increase in PCLs, just like BMO did last quarter.
“From the outside, it’s difficult to see if anyone’s going to pop up and have some undue credit deterioration,” he said. “We’re banking on BMO being the only one to continue to have outsized PCLs, but you can never discount the fact that somebody else might have some difficulty in the quarter, and if and when that happens, that will be viewed negatively.”
The Trump card and immigration
There’s been a lot of talk about how Donald Trump’s second term could boost Canadian banks such as BMO and TD that rely heavily on their U.S. subsidiaries for profits due to the incoming president’s promise of corporate tax cuts and focus on reshoring.
At the same time, his pledge to impose a 25 per cent tariff could punish Canada’s economy. Investors will no doubt want to hear what Canada’s top banking executives expect from Trump’s second stint.
His election could also influence Canada as it tries to fulfil its commitments to the 2017 Basel III reforms, Grauman said in a note on Oct. 28.
These reforms were created by central banks and bank regulators after the great financial crisis. Published in 2010, they promised common standards for measuring, reporting and managing financial risks across 28 jurisdictions by imposing higher capital charges — the money a bank reserves to cover bad loans and losses.
Canada has been leading in terms of implementing the reforms, Grauman said, but others, including the U.S. and Europe, have questioned them and may look to implement a modified version, especially with Trump in the White House.
“There is a clear acknowledgement that Canadian capital rules cannot live in a vacuum and will need to be revisited if other key banking jurisdictions don’t institute similar rules,” he said.
It will also be interesting to see if any of the CEOs discuss the potential impact of Canada’s decision to drastically reduce its immigration numbers in the next three years, Grauman said.
As per its new plan, Canada expects its population to decrease in each of the next two years and hopes to witness a net reduction of one million students and temporary foreign workers.
Economists expect the cuts to impact consumer spending and slow the economic growth rate. At the same time, it could encourage businesses to invest more and boost Canada’s struggling productivity levels.
The reduction in immigration targets combined with all the recent incentives to construct purpose-built rentals, houses and condos could also make housing a bit more affordable.
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