Scotiabank, BMO upbeat about recovery prospects
Lenders `cautiously optimistic' for 2021 on back of progress with COVID vaccine
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 $1.58billionforitsfourthquarter,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.
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.