The Canadian Investor - Mixed Signals from Canada’s Big Banks

Episode Date: June 5, 2025

In this episode, Simon and Dan dig into earnings of 4 of Canada’s largest banks. Despite some strong showings in some of the segments, banks are setting aside more for provisions for credit losses. Simon and Dan break down how tariffs, macro uncertainty, and shifting consumer dynamics are impacting each bank’s performance and outlook. Tickers of stocks discussed: TD.TO, BNS.TO, RY.TO, CM.TO  Get your TSX Meetup tickets here! Get your Calgary Meetup Tickets here! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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At the end of the day, you have to remember that it's a business. Just my reminder to people who own safety rules, don't be surprised when there's a cycle. If there is uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome back to the Canadian Investor Podcast.

I'm here with Dan Kent. We are back for a news and earnings episode. Lots to talk about like we referenced last week. We will be going over some of the Canadian banks, the big banks specifically, earnings seasons. It is coming to an end. We have a few other names hopefully we'll get to today, but if not, we'll just bring it to next week as things start to die down a little bit in between earnings season. Yeah, there's a bit of like outlier companies that typically report like outside of the earnings season. Canadian banks pretty much shut it down for the

quarter I guess I would say. There's actually some some very interesting quarters from the banks as well for sure. It should be a pretty good episode. Yeah and just before we get to that just a quick mention because of course we're having two events coming up. So for people who still haven't registered that are interested, there's the Toronto event happening on July 24th. There's limited tickets there. It's $40 per person. And then we also have the Calgary event coming up a bit sooner. Julyth already booked my flights and Airbnb so I'm good to go there pretty excited to be there for a few days during the stampede so it should be fun if you're interested by all means go and register

the registration links are in the show description and another quick mention we won't go into too much detail because we are recording this Wednesday morning and the Bank of Canada just made its interest rate announcement and they left, which was I think what the odds were saying. I think it was like a 75% chance around there of leaving the rates unchanged. So that's what they did. They left the overnight rate unchanged at 2.75%. Just a quick note, just because I haven't had the time

to listen to the whole press conference and the statement was really quick as we were starting to prepare. They said the uncertainty in terms of tariff is really what's putting a bit of a wrench here and they're just not sure what impact it will have on the Canadian economy, but also inflation. So clearly they're not sure in terms of what impact, negative impact it will have on the Canadian economy but also inflation. So clearly they're not sure in terms of what impact, negative impact, it will have on the

growth of the Canadian economy but it could also have an impact on inflation and of course they want to keep inflation in that target range. And last that we talked about CPI, that was one of the things is where the core CPI's was remaining pretty pretty high even though the headline CPI because of the consumer carbon tax was removed, but still the core metrics that they looked at was remaining pretty high. So they're definitely erring on the side of caution. Using a bit of a wait and see approach, that's the big lines that I got for the few minutes

of the opening statement of the press conference, but just wanted to make a quick note because of course it does impact a whole lot of people, especially for those who may have some variable debt, whether it's variable mortgage rates or other kinds of variable debt. Yeah, and I think they still expect a couple of cuts this year. I think there was like, I think the average consensus was like 40 more basis points of cuts. So like obviously some are saying one, some are saying two. And I think they had that strong GDP print, but that was also, I think it was a bunch of kind of push forward orders of tariffs. I think they were saying that was like people ordering stuff pre tariff that was kind of

causing a large increase there. So I think the Canadian economy is still struggling quite a bit. So I mean, most people are still predicting a couple cuts, but it's definitely wait and see here now, especially they spoke about, you know, they really want to see the demand for exports, you know, especially like because of the whole tariff situation and just how that resolves. So it's wasn't really all that surprising. They kind of kept it steady. Yeah, in terms of forecast, it's funny. I kind of forgot it was the meeting this morning, I'll be honest. And then one thing I noticed when I was doing the earnings, looking through the earnings for Scotiabank, which is the first name I'll talk about. So I'm going to

use that a little bit of a transition here. They actually have a policy rate change and outlook and I got that out from their statement or their earnings release and they have it pretty much unchanged until the end of the year. That's their forecast policy rate for the overnight rate for the Bank of Canada and then a 25 basis point cut in early 2026. So that's their actual predictions. I don't know, obviously it can vary depending if you looked at another bank, they'll probably have a different type of outlook.

But yeah, I suspect it's probably most market participants or economists are probably predicting between, you know, no cut, one cut or two cuts, like something, you know, something like that. So that's my perception from it. Yeah, it's pretty interesting. They don't predict any cuts in the US this year either, not until 2026.

So yeah. Yeah. That's what yeah, Scotiabank has as well. So while speaking of Scotiabank, like I just mentioned, the, they had not a great quarter. I was doing it and we're texting and I'm like, wow, Scotiabank, like I'm not done yet, but it just does not look great. And you're like, oh no, it's not good. It's not just you here.

They've really struggled. Yeah. So their adjusted net income was down 1.6% and adjusted just because sometimes if you don't adjust it's not comparing apples to apples just to make it as simple as possible of course. Always double check what the adjustments are whenever you look at earnings of a company because you know banks will do you know it'll be different adjustments depending on the bank and what they actually had to adjust for so just make sure you look at these adjustments and same would apply for any kind of for. So just make sure you look at these adjustments and same

would apply for any kind of other business using metrics. Make sure you understand what the adjustments are. Sometimes they make a whole lot of sense and sometimes they're not, I'm not going to accuse them of fudging the numbers, but they're trying to make the numbers look better than they are by removing items that are just part of the business. So just a quick note there. Yeah, the, I guess the one biggest thing would be acquisitions. Like you'll probably see a lot of adjusted numbers from somebody like national because of that Canadian Western acquisition

now that it's coming into results. So they kind of adjust those out because, I mean, if you just had surface value numbers, their earnings would look way higher. Provisions would look way higher because of that acquisition. So that's a- Same.

Same for Royal with the HSBC acquisition. Yeah. Adjusted earnings per share was down 3.8% year over year. Both metrics were even more down if you start comparing quarter over quarter. And that was, I didn't look at all the banks, but the ones I looked at, that was a kind of a constant, is that it looks pretty terrible quarter over quarter it looks

better year over year the good news is that international banking global wealth management and global banking were all up between 7% and 17% the problem is really with the Canadian banking segment which was definitely the biggest drag on profits adjusted earnings were down 31% year over year for Canadian banking. They attributed that to significantly higher provisions for credit losses, for performing loans. So provisions, PCLs, they're actually,

the banks will set money aside on what they, they're trying to forecast in a lot of cases what will happen. And it's a bit alarming for performing loans because these are loans that are doing well and the bank is essentially saying, they're like, you know what, with our forecast and they do provide the different macroeconomic scenarios

that they work off of. So usually they'll have several, they'll have a base case, but they'll also have, let's say a more positive one, an optimistic scenario and then they'll have some pessimistic and very pessimistic scenarios. So they have a base case scenario that they work off of, but they try to forecast that and put money aside for those bad loans where when you do see those on non performing loans, well, of course you're're gonna set money aside because there's a good chance that you won't be recouping, well you probably will not be recouping a big

chunk of those loans when they're non-performing. It doesn't mean that you won't recoup some of it, but the likelihood that you will is definitely lower than the performing loan. So it's always a bit worrying when you start to see the banks putting more and more money aside for performing loans because that's them saying that, look, we're a bit nervous with what we're seeing going forward. Yeah, that's pretty much it. The performing haven't had payment difficulty, but they expect they could have payment difficulty. And that was pretty much the case with all banks except for CIBC, which we'll talk about later. But a lot of them put aside, you know, impaired provisions kind of went down and a lot of them are performing based, which, you know, kind of gives an indication

on the bank's overall outlook moving forward, because that is obviously when you would put a large chunk of performing loans aside. Yeah, exactly. And what I'm showing here for joint TCI subscribers is that I'm showing the actual allowance for credit losses. So you achieve that number. It's pretty simple. So you look at what they actually have set aside on their balance sheet. So the PCL that we just talked about is the additional money they put aside during this quarter. But what they actually have on the balance sheet is the money that they've been, that's basically sitting there for these bad loans. And then you can really have an idea of what amount of money they're putting aside from that by just dividing it by the total amount of gross loans.

And then that gives you a ratio. I did it for all the banks. We'll show it for the banks that we're talking about today. But essentially for those listening, it was very high Around the pandemic for obvious reason then started going down significantly lower Especially when the government of canada started doing like bazooka stimulus There was a lot of loans that were a lot of people that were allowed to not pay Their loans for a period of time and so a lot of people that were allowed to not pay their loans for a period of time and so on. So you saw that percentage go go way down up to about 0.71% at the bottom in 2022

and then it's been increasing ever since and now this most recent quarter it's at 0.93%. So it's going higher. I honestly would not be surprised to see those percentages continue to go higher for pretty much all of the Canadian banks. I think it's hard to say whether they're a bit behind or not. But I think it's clear to one thing's clear is that they do realize there's a lot more uncertainty and that the Canadian economy the outlook, it'll probably be a bit more negative going forward, at least in the short to medium term. Yeah. And I think Scotia has outside of TD, I believe like the highest ACL ratio, but I mean, they've, they've also had a very rough go of it for, for quite a while now. And yeah, like we're getting back to, you know, 2021 levels when we were sitting in, you know, that was, that was still a relatively large period of economic uncertainty, especially when we're talking lockdowns, things like that. I mean, it's not as high as like peak kind of COVID uncertainty back in 2020, but it's definitely creeping up there.

And pretty much all of them are creeping up for sure, which I mean, makes sense. I mean, we have no idea what's going to happen. I mean, he did Trump just doubled tariffs, I believe, this morning on steel and aluminum. And yeah, it's it's a tricky environment. Like, it's going to be very hard for them to forecast. So they're probably being a bit more conservative here. Yeah, exactly. Like, it's very tricky. We just don't know what the U.S. will do.

Of course, they have their own set of issues there with tariffs. I think it's going into the courts and then I'm sure the Trump administration will find other ways to still impose them if they want to. Will they kind of soften on Canada down the line? That's not a zero possibility. I mean, there's so many potential scenarios. Maybe the impact on the Canadian economy ends up not being as badly Maybe it's more isolated in certain types of industries There's a whole lot of different things that could happen But one thing's clear pretty much all the banks are increasing the money that they have on the books for bad loans I think that's that's the main takeaway here They said that the reason they are increasing those performing loans takeaway here. They said that the reason they are increasing those performing loans provisions are because the continued uncertainty related to US tariffs and the impact of their Canadian banking

business, which has been the focus for Scotiabank because they had a big Latin America focus until what a couple years ago they started really shifting back to Canada, which may be good in the long term, but that strategy doesn't look great right now. And I mean, I can tell that they are just from a personal experience. When we bought our new house, we ended up going with Scotiab because they were definitely the most aggressive

in terms of the offering, in terms of being like actually a pretty good deal for us compared to what we could have elsewhere. So I'm not surprised to hear that. But then again, when you start focusing so much on the Canadian market and things start going a bit sideways for the economy, this is one of the risks that you're kind of facing. So it'll be interesting how it progresses. I mean, they're not alone.

All the big Canadian banks, I mean, most of their business is done in Canada. Yes, some have exposure elsewhere. TD has some exposure, obviously, to the US, although that's capped for now because of the anti-money laundering, the results of that from the regulators. The last thing that's been good here is net interest margins were up on a year over year and quarter over quarter basis. So that's always something you want to see. Net interest margins were up on a year over year and quarter over quarter basis. So that's always something you want to see. Net interest margins, pretty simple, is essentially the money you deposit to the bank, the interest that they pay you on versus the interest they get when they loan that money out to someone else. So it's just the spread in between.

And then you look at what the net interest margin is for across their loans. So that's essentially what you get from Royal Bank, sorry, from Scotiabank. Overall, I mean, obviously not a great quarter. We'll have to see how it progresses. But I don't own any of the big banks. I would definitely approach them with caution right now. Although let's be honest, if anything really bad would happen, the government would step in. So that's, I know I may sound a little bit jaded, but I think that's just a reality is they're

either globally important TD Royal Bank and or they're domestically important. So they would not be, they're too big to fail. That's just the reality. Yeah, they're too big to fail and I think a lot of people kind of use that as their main investment thesis. But that doesn't necessarily mean they'll still be a strong investment. Just because a business exists doesn't mean it's a strong investment. And we have this, I pulled this chart here because when I looked over Scotia, I kind of looked at their earnings and they've like, if you look, this is a 10 year chart of earnings per share and they're 10% lower than they were a decade ago. And for like, interestingly enough, the stock has gone up like 80 some percent over that 10 year period. Like it's underperformed

the TSX substantially, pretty much all the other banks as well. But I mean a 10%- Again, for- Go ahead. For context too, it's 10% decline when the worst of the big six aside from that is at a 70% increase. Yeah, exactly. So it's an 80% gap between the two. And I mean, if you, so the reason you'll see on this chart you'll notice TD just skyrockets That's because they sold off their Schwab shares So I mean TD's had a pretty rough go to but TD's go like you could tell it just started with the anti money laundering

Or else they'd be up there as well. But yeah, it's like there. There's just no way to sugarcoat it It's been the worst bank by by a wide margin over the last decade or so Yeah, exactly and the too big to fail as the argument, maybe just to close that before we move on to the next one is that you have to keep in mind, if they are bailed out, governments won't do that for free. They won't just bail it out and you're a shareholder and you own the same portion of the bank than you used to. Of course not. No one would like people would revolt if this would happen. So if there were to be a bailout, and we're not like saying it's gonna happen.

I don't think there will be, but it's- I don't think there will be, but I know some people get to that argument when earnings start not looking all that great for banks and they'll say, well, you know, the government wouldn't intervene. Well, if the government intervenes, there'd be a riot if they didn't get something in return.

So usually what they'll get in return is there's gonna be some potential share dilution. The government is gonna have a stake in it. Like shareholders will be impacted negatively. So I just wanted to mention that. Again, the Canadian banks, I think they're all quite solid, at least at this point in time. There is having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I

wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ Bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQ Bank's Noticed Savings Accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. As an investor, I'm always looking to reduce my fees, which is why I'm excited that Questrade now offers

zero dollar commissions on stocks and ETFs. But Questrade isn't just about commission free trading. You can also get USD accounts, so I avoid forced currency conversion fees when trading US stocks. Plus, get access to their advanced edge trading platform available on desktop, web, and mobile. I've been using Questrade for many years,

and so has Simon. And their platform makes trading seamless whether you're managing a long-term portfolio or making active trades. Don't miss out, start trading commission free stocks and ETFs today. Visit questrade.com to learn more. Between meetings in Toronto and conferences in Vancouver, I'm not home as much as I'd like. So I've been thinking while I'm off enjoying someone else's Airbnb, why have I not put my own place up on Airbnb to earn a little extra income and help me pay for the trip? With Airbnb's local co-host network, I can find someone to handle everything.

Bookings, guest support, even the cleaning. It's a simple way to make extra money while I'm traveling, without the hassle of hosting it all myself. If your place often sits empty while you travel, it might be time to let it work for you. Find a co-host at airbnb.ca forward slash host. We want to segue that into TD. Yeah, let's move on to TD. Yeah, because TD is, yeah, they're putting a lot of money aside.

The most ethical of all the big things. Yeah. So. Hey, I mean, when you get caught from anti-money laundering and to that extent, I mean, you got to be able to take the punches when you make some jokes on them. It's going to be some multi-year punches, I think, too. So revenue was up a bunch, but it was primarily due to the company selling their Schwab shares. So I think they completely sold out of that investment overall, which again is why when

I looked at that chart last time, you've seen their earnings kind of shoot up a bit when you adjust it out. They came in at a $1.97. That's actually lower year over year, but it's still, it was actually well ahead of expectations. So I think the company took a pretty big bump in terms of share price on these earnings. Revenue increased by 9% year over year. That's kind of adjusted out, but expenses increased by 12% and a lot of that had to do with currency fluctuations, you know, the anti-money laundering issues.

This is likely going to be a bit of a drag on earnings for a while. I think they have like a little chart in their kind of investor deck, and I believe it spans out to like 2028 before they think this is going to be completely resolved. The company expects around 500 million plus in spending on AML investments in 2025 and they do say it will persist in 2026. The Canadian end of the business continues to do quite well. Deposits up 5% loans up 4%. It's primarily from business loan growth though. The US side is a little slower. Overall loans are up 2%. I believe on the consumer end of things, I mean, things are slowing down quite a bit.

They did report record originations in auto finance. I mean, this is pretty interesting because we've witnessed, I think a lot of banks kind of bail out of auto financing. I think, yeah, I think BMO had stopped doing those. Yeah. BMO, they used to provide, you know, consumer financing through dealerships a few years back, but it kind of got out at as well It's also interesting because last week we spoke on Boyd group services and I had mentioned You know the price of used vehicles is likely going to be a tailwind for for auto loans

I mean used vehicles have gone up so much in price You know a lot of people just can't go and pay cash for an old used vehicle like they used to. Wealth management and insurance is doing quite well up 13 percent, 10 percent year over year. We've kind of seen this with all insurers. I mean, we've seen Berkshire do very well on the insurance side, like Intac Financial very well. On the provision side, we're looking at 1.34 billion, which is up 129 million quarter over quarter. And again, like much like Scotia, they just mentioned that the escalation is primarily due to overall trade uncertainty. And for a while now, we had mentioned before we seen impaired

loans driving most of the growth and provisions. This kind of has reversed. So impaired loan provisions actually declined by 270 million quarter over quarter. They came in at 946 million while performing loans increased by effectively 400 million over the same time period. So last quarter, the company actually reported a recovery of performing provisions. And I mean, now they're kind of flipping the script here,

kind of increasing them just because, you know, the overall situation. And the company did mention that the main driver for a reduction in the script here kind of increasing them just because you know the overall situation and the company did mention that the main driver for a reduction in impaired provisions was largely largely just due to lower impairments on personal loans auto credit cards residential mortgages so kind of maybe giving an indicator of an improving environment in Canada maybe because of that lower rate environment kind of providing some relief. And then just a final comment on tariffs. They mentioned that the industries that are most exposed to tariffs made up only around

9% of its total loans and of those loans only around 1% of them are highly exposed to changes in trade policy. So, you know, that would mean that 1% would mean if tariffs persist, there's a likelihood that credit quality would deteriorate there, but it's a pretty small portion of the loans. And overall, just pretty solid quarter from TD. The lower impaired provisions was certainly a surprise. It'll be interesting if they can keep this up. The one thing I do say is those cost expenses from the AML issues are definitely going to be a drag, but I would imagine the market is kind of figured out that's going to be happening.

So it's probably priced in at this point, I would say. Yeah. And TD amongst for the allowance for credit losses. Again, TD along with Scotiabank at the top there in the close to 1%. So 0.91. So not too far from Scotiabank. I'm a little bit surprised by the auto loans, I'll be honest and I feel like those are a bit riskier.

Oh they definitely are, yeah. Yeah, if you're doing used vehicles and yes, like prices go up but they're depreciating assets at some point, you know, the prices of used vehicles may be going up right now but if the trade uncertainty between Canada and the US and Mexico kind of resolved itself over the next year or two all the value for used vehicles could go way down and then If people stop paying on those loans if there's a decent amount of yeah Consumers that there are customers that stop paying those loans and then you have to repo these vehicles that have lost a tremendous amount of value.

I don't know. It's not necessarily that the line I'd get in. But at the same time, you talked about the US business going increasing 2%. I mean, they're capped there, right? So they can increase their assets, I think 400 billion, something like that was like 430 I believe but they they've gone through like a period of selling a bunch of US assets because I remember they capped them like right at what they were like they couldn't have grown at all So they've kind of sold off some stuff to kind of give flex a rejigging around Yeah, exactly so that they can still offer products But yeah that cap it's definitely gonna be a drag and who knows when that like I believe But yeah that cap it's definitely gonna be a drag and who knows when that like I believe Wells Fargo, that's that's still in place. I think I haven't checked but I believe it's still in place and it just to me It reeks a little bit of desperation

the auto loan things just because it feels like they're trying to find growth in the Canadian market because they can't really grow in the US that's just my I could be completely wrong, but it's just a bit weird that you see other big banks going out of the auto loan, and then all of a sudden they're coming in because I don't know, my perception is that, no, like, okay, we'll try to do as much as we can on the Canadian side. Yeah, and I mean, like auto loans are, yeah,

they would be a tricky business. I mean, they're depreciating assets. I mean, it's a payment that people are going to walk away from very quickly over other alternative payments, like, you know, say a mortgage or rent or something. So yeah, there's a reason a lot of banks have left that space, but they're doing quite well. No, it'll be, again, TD, it's not,

I don't know what the price has really done. Have you? It's done quite well over No it'll be and again TD it's not I don't know what the price is really done have you it's done quite well over the last while I mean it's still like it's it's really struggled over the last while because of those AML issues but it's um it's had quite a big run up it's gone from you know the low 70s in December up to 95 so yeah yeah. Wouldn't touch TD with a 10-foot pull because of what we've seen with uh with Wallace Fargo I really don't understand anyone that would In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting

up direct deposit for your payroll and depositing $2,000 or more per month into your EQBank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBank's Notas Savings Accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. As an investor, I'm always looking to reduce my fees, which is why I'm excited that Questrade now offers zero dollar commissions on stocks and ETFs. But Questrade isn't just about commission free trading. You can also get USD accounts, so I avoid forced currency conversion fees

when trading US stocks. Plus, get access to their advanced edge trading platform available on desktop, web, and mobile. I've been using Questrade for many years, and so has Simon. And their platform makes trading seamless, whether you're managing a long-term portfolio or making active trades Don't miss out start trading commission free stocks and ETFs today visit questrade.com

to learn more Between meetings in Toronto and conferences in Vancouver, I'm not home as much as I'd like So I've been thinking while I'm off enjoying someone else's Airbnb Why have I not put my own place up on Airbnb to earn a little extra income and help me pay for the trip? With Airbnb's local co-host network, I can find someone to handle everything. Bookings, guest support, even the cleaning It's a simple way to make extra money while I'm traveling, without the hassle of hosting it all myself. If your place often sits empty while you travel,

it might be time to let it work for you. Find a co-host at airbnb.ca forward slash host. Now the next one here, Royal Bank. So adjusted net income was up 8% and EPS was up 7% over a year. The addition of HSBC Canada, like we referenced earlier, helped boost earnings compared to last year by $258 million. Personal banking net income was up 14%. Commercial banking was up 3%. Wealth management up 11%, insurance up 11%, and capital markets net income was down 5%.

That's on a year-to-year basis, but it was definitely a different story, quarter over quarter. So the adjusted net income and NEPs were both down 14% on a quarter-to-quarter basis. So not great when you start looking quarter to over quarter They set aside an additional 1.4 billions for bad loans during the quarter That's 504 million more than last year and 374 million more than the previous quarter

So you can really see Royal Bank starting to ramp up The money they're setting aside for these bad loans. And you can see this again for our joint TCI subscribers here. So you can see that it's really ticking up, but Royal Bank is again, probably the lowest along with National Bank right now. Yeah, in terms of what they have. So they're around like just a tick above 0.7%. So it has increased because it was around 0.45

at the bottom in 2022. But I wouldn't be surprised if you start continuing, especially for RBC, because you have to wonder, right? Like when you see a discrepancy, you see RBC. And of course they have different loans composition than Scosha and TD would have but when there's such a big discrepancy like you're talking about like 20 plus basis points between the two Just makes you wonder that maybe they're They're a bit behind the ball. Maybe they're their loan portfolio is just that good

But with some of the stuff we're hearing in terms of the condo market in Toronto I'm not so sure that it's that good but that's just my two cents there. Well yeah that's the one thing about like the the provisions is the banks with the heaviest Canadian exposure are you know they have they have the lowest allowance ratios mostly out of all the big banks I mean CIBC Royal and National are the are the lowest of the three. Which is kind of weird. Well, and their Canadian areas have done so well. Like, that was another thing I was going to mention on Scotia. Like, I don't know how Scotia is struggling in the Canadian segment

so badly while, you know, National, Royal, CIBC, they're doing so well on the Canadian end of things Yeah, either Scotia is being overly cautious or they're being prudent and The other like I'm yeah, I'm not sure actually I was saying the same thing either. They're being overly cautious or you have a national bank and royal bank that are just playing catch-up and You have a national bank and Royal Bank that are just playing catch-up and will be adding more and more. Like it's hard to say like at the end of the day or maybe their underwriting is just that

much worse. I just I have a hard time believing that it's that much worse but I don't know. It's hard to figure out. You definitely like history would kind of show that you're definitely better over reporting rather than you know under reporting and kind of getting caught with your pants down over the last while because that's when you know when you start seeing that rapidly rising provisions you know or after a period of you know kind of conservative ones that's when the stock price will kind of kind of take a hit and I mean there none of the numbers are really

at an overly concerning standpoint, but I mean, we're still potentially relatively early in this. It just depends. Yeah, exactly. And they attributed that just like Scotiabank to higher uncertainty on the macroeconomic front compared to previous quarters and the potential trade disruptions because of tariffs. And of course, like now I'll play devil's advocate and say look the last time they reported like this trade uncertainty was just starting yeah right like I think they reported end of

February if I remember correctly around that point yeah I believe roughly Q1 so yes Trump had already made the threats and I think imposed some tariffs on Canada everything's kind of blurring a little bit at this point because there's Yes, Trump had already made the threats and I think imposed some tariffs on Canada. Everything's kind of blurring a little bit at this point because there's been so much back and forth. But I think we're seeing now more and more disruption. This of course is coming after Liberation Day, the flip-flopping on that as well. Some of the agreements are working on and then you still have like now the headline

saying that the US and China don't seem to that that trade deal doesn't seem to be going the talks don't seem to be going as as well as we thought just a few weeks ago so it's just it's just very hard to predict because whether yes it's US and China and there's still some more tariffs like steel and aluminum being imposed on on you know Canada and other countries, but there's just so much uncertainty and even if it's US and China making the headlines now, well, that will have some ripple effects on the global economy, just not on those two countries. And on the good news front, again, net interest margin was up both on a year-over-year basis

and if you compare it to the previous quarter, they also increased the dividend by 4%. So you have to say that they're they're probably relatively confident if they're doing that. So overall, not a bad quarter from Royal Bank considering everything. But again, same kind of theme as they're setting more money aside for bad loans. So it is something to just keep in mind here. Yeah, I think there was I believe National raised Royal raised and BMO raised but then Scotiabra raised. I can't remember. I think I missed that from school. Yeah, they were. I didn't they're currently paying out 87% of earnings to the dividend and they still

bumped it by 4%. So they stopped growing the dividend for a couple of years and they lost aristocrat status, but then they came through with a 4% jump on a kind of a poor quarter. So you never really want to see a bank paying out 87% earnings towards the dividend. Typically not a good sign, but they raised it. They bumped it by 4 cents. We'll see how that goes.

But yeah, I mean, I own Royal. I think they're like I did trim. I trim both national and Royal at the end of the year because they had quite a large run up. It's one of the most diverse banks, but it's also has just because of the sheer size of it, like the most exposure to the Canadian economy. And like you

said, that GTA housing market and you know, all those, the fiasco that's going on over there, it's going to be interesting to see what happens moving forward. Yeah. Yeah. Because at the end of the day, people might say, oh, it's just Toronto and just GTA. I mean, GTA is what like close to a quarter of the Canadian population like roughly if you include the whole area Like it's probably around 10 million something like that. So yeah, no, it's it's gonna be interesting I mean, I find it more fascinating than anything, but we'll finish here with CIBC The last one I don't know if we'll have time to go over the two companies We wanted to talk about so we can just maybe keep it to a bank focus.

And next week we'll have, for those that are interested, we're gonna go over Costco. Costco that just, you know, just keeps being awesome. And you know, it's Costco for Canadians. I think maybe just a quick note on that and just to give a quick preview. A lot of people may not know this, but Canada is this like by far the second biggest market

for Costco. Yeah. A lot of people don't know that, but it's by far and then you have Mexico as a distant third. Obviously the US is by far the first one, but then Canada is firmly in second place and just seeing the numbers, like it's not gonna be dethroned anytime soon.

No, I don't. Well, especially like with the pressure, cost of living pressure. I mean, it's just doing so well, especially in Canada. But yeah, CIBC. So back to CIBC. Yeah. So pretty good quarter from CIBC. I mean, they've had a lot of good quarters over the last few years. And in terms of like when we speak about provisions, you know, how banks are are like better off being kind of super conservative CIBC was definitely super conservative like a few years ago. And you know, as a result, they're not really, you know, they're probably seeing the lowest level of provisions in terms of increases and stuff on a, you know, year over year basis, quarter

over quarter relative to the other banks. So that's caused earnings, they've done quite well. They were up 17% year over year. Revenue was up 14%. A large chunk of the increase was from wealth management and commercial banking. So net income and revenue in that area both saw 13% jumps. On the personal and business side, things are looking like they're slowing down a bit. So revenue was up 8% but expenses rose 5%. Both loan and deposit growth were only

up around 2%. You know, I believe some banks like Royal and National were still reporting, you know, loans and deposits in the high single digits. So it's definitely slowing down in regards to at least it looks like it and the company's the US commercial banking segment This is a pretty small portion of the business, but it's it's faster growing They saw a double-digit growth in revenue and any any big surge in earnings primarily because of lower Provisions in that area the company's impaired loan PCL ratio in the US It actually declined from 78 basis points to 45 basis points. So overall deposits in the US are up 15% while loans are up 4%. So that's definitely a good sign. I believe it's

only like $600 million out of the total business. So it's relatively small, but still pretty notable. And in terms of provisions, which again is still the main focal point for many banks, they're doing pretty well. Overall provisions were up around 5.5% compared to last quarter. And that's quite a bit lower. Like I can, what did RBC report? They reported quite a big jump quarter over quarter basis. Like 5.5% is relatively healthy.

And on the Canadian banking side of things, provisions actually decreased by 9.1%. And, you know, one of the more interesting things about CIBC's PCLs is for most of the banks, we saw an increase in performing loans and a decline in impaired loans. CIBC is the opposite. Performing provisions have kind of remained relatively steady over the last few quarters while impaired loans have grown. You know, the one area that it did book a large increase in performing provisions was in that U.S. commercial banking segment. And the company mentions that the bump in provisions is again, it's the same as every other bank, unfavorable changes in the economic outlook. Because as you mentioned, this is like the first quarter where, you know, things have started to really escalate and become more clear.

And if we look to the ACL ratio, the allowance for credit losses, it's at 77 basis points. So again, this is kind of middle of the pack in terms of major banks, nothing really to be overly concerned with. However, on the flip side, we can see where things can easily get out of hand for banks with escalating provisions. CIBC has a ton of Canadian exposure and for the most part the difficulty in terms of provisions with some of these banks have been south of the border. Like a lot of the banks that are struggling in terms of provisions have been in that US end, the Canadian end has done quite well. So who's to say what happens you know on

the Canadian side moving forward. And a final note, the company's CEO, Victor Dodig, will retire at the end of the year, so he's been with the company for 11 years. He'll be replaced by the head of the company's capital markets, Harry Cullum. As I've mentioned before, this is not one I would own just due to that heavy Canadian real estate exposure. However, mortgage delinquencies, they're pretty stable over the last three quarters. And again, I kind of do have to hand it to them. They've done quite well.

I think it's been one of the best performers over the last couple of years out of Canadian banks. And yeah, just a solid couple of years for CIBC. Yeah, it'll be interesting. They're still pretty low, right, for their allowance for credit losses. So it'll be interesting. They're still pretty low, right, for their allowance for credit losses. So it'll be interesting whether they can speed up those allowances or not in the next few quarters. But yeah, overall, I mean, obviously the banks as general, they're just adding more money to that.

I know sometimes some people don't pay too much attention to the macroeconomic space and that's fine. You can do pretty well investing without paying too much attention. But for the banks, it does matter. Does matter quite a bit. There's a reason why they provide, like I meant, we talked about earlier with Scotiabank, they have their base case, a optimistic scenario, actually several of them, and then some pessimistic and some very pessimistic scenarios. So obviously, they're all, all the banks will be the same, they'll have kind of a base case

and then different types of scenarios. I mean, even when the government of Canada releases its budget, right, they'll do that on like kind of a base case, optimistic, pessimistic. But you just have to keep in mind that, you know, I think it's good for people to understand if they own these banks, it's just, okay, what is the base case? And what are the potential other scenarios? Because yes, they're working off of base case, but six months or a year down the line, that base case could become slightly more pessimistic or optimistic. So I think it's important to just keep an eye because if it does switch over to more

pessimistic then you'll see those provisions for credit losses increase because they will have to reflect that in their provisions. They'll have to. They won't have a choice because that will mean that some more loans will probably not get fully paid, will turn bad. So they'll have to put some more provisions there. Yeah. And I think it's even more amplified now because of the trade tensions. Like a pessimistic scenario could come true relatively quickly, you know, in this type

of environment. I mean, I feel bad for the people who work for the bank who have to forecast this because it's pretty much impossible. Like who? The risk management people, like we feel you. Yeah, definitely. Yeah, yeah, that's usually, so yeah, again, for, I know like we have different type of listeners so for those who are not as familiar with banks, so yes, the risk management people

will be the ones that will come up with these kind of scenarios and make sure that the bank is not taking too much risk. But yeah, it's a it's a lot of forecasting like you said, I wouldn't be surprised that you see much different things happening in the next quarter just because something that likely, you know the US Trump did the US administration and that's how much it can impact global trade But also the Canadian economy with certain policies that they put in place Yeah, I mean like on the flip side you never know if they get some, you know, resolutions,

this all goes away and the banks book, you know, two or three quarters of escalating provisions. I mean, they can definitely be recovered. We've seen that during, you know, the pandemic. I mean, like you had mentioned largely that was due to, you know, a lot of stimulus. But these are just predictions, the money they set aside, it's not set in stone. If they think the environment is gonna improve, they can recover those, they can, you know, they can kind of reduce them moving forward. It's hard enough to predict this type of stuff

in a normal environment. It's pretty much impossible to predict it now, so who knows? You can almost see it as their emergency fund. Yeah, exactly. Well, that's kind of what I, yeah, like the provisions are, you know, the money you put in the piggy bank and the piggy bank are the allowances.

I mean, they just gather over time. They're not, you know, it's not a guarantee that all of this money they put aside is gonna be lost money. The script can flip pretty quickly. Yeah, no, exactly. So I think this is a good point to wrap it up. Make sure you join us on the Monday episode. We have something I think it'll

be a pretty interesting. We'll be talking about the Questrade's new lending program. They're a show sponsor. I had a few people reach out asking us to do a little bit of a breakdown so we'll talk about that on Monday. You have a couple of interesting segments. Can you remind me what they are again? Just sell side, sell side targets. I mean, it'll be a good episode. You're going to want to have to listen, especially if you focus a little bit too much on them because it's a very interesting topic. Yeah. And then also do it'll probably take a decent chunk of the episode. So I used a

screener and found a company that I had never heard of on the Canadian market. I would say it's like a small cap earring on the side of a medium cap depending on what your definition is of that. Stay tuned because I mean you looked at it too and you were also surprised with how well it's done and also how well the business is doing not just like how well the stock is done but also how well the actual business doing, not just like how well the stock is done, but also how well the actual business is doing. The more I was digging into, the more I was impressed. So it's kind of a, not a deep dive,

but definitely a medium decent amount dive, just because if you do a deep dive, obviously it could almost take an entire episode to go real. Yeah, exactly. To go really deep. So make sure you tune in. I'll keep people hanging and not tell them the name so tune into the Monday episode if you want to find out I mean, they are very profitable. They

Generate a lot of cash. Will they pay a dividend and I'm sure some people will have heard of them But a lot of people will not will never have heard this company before so I'll leave it at that passive income Pass passive income exactly So yeah, thank you everyone for listening we appreciate all the the comments of feedback and the Good and bad that we get if there are certain things that you want us to more of just let us know You know We do appreciate the feedback if you haven't done so if you can give us a five-star review on the platforms that you're listening The Canadian Investor podcast should not be construed as investment or financial advice.

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