Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO) on Wednesday missed quarterly profit estimates after facing higher expenses and setting aside more rainy-day funds. Both banks missed their quarterly profit estimates on Wednesday, with the price of their stocks hitting a low.
Investors’ confidence is shaken due to the relentless rate-hike cycle combined with the banking crises in the US that began in March after the collapse of Silicon Valley Bank.
After hitting a more than two-year low of C$112.4, shares of BMO fell roughly 4.3% in Toronto on Wednesday. While other significant bank equities and the country’s main stock index also suffered as Scotiabank dropped as high as 2.5%.
Previously, the share prices of BMO and Scotiabank were 3.5% and 1.22% down, respectively.
Both banks reported reduced earnings at home, which make up around 40% to 50% of their income.
Canaccord Genuity analyst Scott Chan stated: “In Canada, mortgages are a big portion of the book, and housing has slowed immensely, and that’s impacting the overall growth of the Canadian banks.”
A larger provision for credit losses caused a 10% decline in adjusted income from Canadian banking at Scotiabank and an 8% decline at BMO.
As per Scotiabank, these provisions increased from C$219 million to C$709 million as a result of economic unpredictability and difficult market circumstances in Chile and Colombia.
Scotiabank’s chief risk officer, Philip Thomas, conveyed to analysts that, considering the current economic outlook, anti-capital provisions for credit losses “to remain elevated for the remainder of the year.” In certain significant Latin American markets, the bank detects inflationary pressures.
BMO said its modified provision for credit losses at the end of the second quarter was C$318 million, compared with C$50 million a year earlier. BMO concluded its $16.3 billion acquisition of Bank of the West in February.
The bank stated that with the Bank of the West portfolio, it anticipates impairment loss rates to tend around low- to mid-20 basis points.
Although BMO informed investors it was confident the Bank of the West purchase would boost profitability in the coming years, executives for both banks warned they were anxious due to broader macroeconomic concerns.
“I’m more confident today (in the deal) despite the environment,” CEO Darryl White conveyed.
BMO’s net income for the three months ended April 30 was C$2.93 per share, excluding one-time items. Refinitiv data shows that analysts were anticipating a share price of C$3.19.
Compared to the forecast of C$1.78 per share, Scotiabank’s modified earnings per share came in at C$1.7.
Both banks declared split increases and stated that the main drivers of rising costs were new investments and expenditures on people.
In Canada, the Bank of Canada stated that it was more concerned than it was the previous year about the ability of households to pay down their debts and that some home buyers were displaying symptoms of financial stress.
When compared to February 2022, right before borrowing costs began to climb, around a third of mortgage holders witnessed a surge in payments. Nearly all mortgage holders will see higher payments by the end of 2026, according to the central bank.
Barclays analyst John Aiken stated: “Headline misses from BMO and Scotia… suggest the challenging operating environment may have begun.”
Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), and CIBC (CM.TO) are lined up to announce results on Thursday.
