BMO, Scotiabank see economic winds favouring U.S. amid speedier vaccine rollout

Canada’s recovery may lag its southern neighbour by up to six months

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Two of Canada’s biggest banks see a brightening economic picture in 2021, but expect the country’s recovery to lag that of the United States, where the rollout of COVID-19 vaccines has been more rapid.

The improving overall economic outlook helped both Bank of Montreal and Bank of Nova Scotia report better-than-expected earnings for their fiscal first quarters, which ended Jan. 31.

However, both banks — which on Tuesday became the first of Canada’s Big Six lenders to report their first-quarter financials — see the U.S. economy faring better overall this year, even though Canada did a better job of containing the virus.

“In Canada, there is a slower pace of vaccine rollout, as you know, but we are equally positive in time, we just think there’s a little bit of a lag, maybe it’s three months, maybe it’s six months, before you get the same level of economic backdrop that you have in the U.S.,” said Darryl White, BMO’s CEO, in response to an analyst’s question during a conference call.


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Canada’s big banks earn sizeable chunks of their profits in the U.S., giving them unique insight into relative economic conditions between the two countries and making their results something of a bellwether.

Scotiabank is projecting Canadian real gross domestic product shrank an estimated 5.4 per cent in 2020 compared to a year earlier, figures included in its first-quarter investor presentation show. For 2021 and 2022, the forecast calls for the economy to expand by 5.3 per cent and 4.3 per cent, respectively.

Meanwhile, Scotiabank estimates that U.S. real GDP contracted 3.5 per cent in 2020, but projects it to grow at 5.8 per cent in 2021 and 4.3 per cent in 2022.

Although the U.S. economic recovery may be helped by President Joe Biden’s stimulus plans, it will be affected as well by vaccination levels.

While both countries have secured access to significant amounts of vaccine, Scotiabank cited figures from University of Oxford-based Our World in Data indicating that Canada had administered only 3.72 doses per 100 people as of Feb. 19, whereas U.S. deployment as of Feb. 21 was 18.86 doses per 100 people. In Chile, where the bank also does business, it was 15.12.

BMO’s economic forecast called for Canada’s unemployment rate to fall from 9.4 per cent in January to seven per cent at the end of 2021, which is “still high historically,” it noted. In the U.S., the lender sees unemployment falling from 6.3 per cent in January to 4.7 per cent by year’s end.


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White said a consequence of Canada’s vaccine-related lag is that it will probably be longer, relative to the U.S., before the country’s unemployment rate gets back to pre-COVID-19 levels.

In 2022 … we’re pretty equally confident in both economies and very positive based on everything we can see

Darryl White, BMO’s CEO

“But in 2022 … we’re pretty equally confident in both economies and very positive based on everything we can see,” White added.

BMO said adjusted earnings per share for its fiscal first quarter clocked in at $3.06, up 27 per cent from the prior year. The consensus estimate of banking analysts had been for EPS of $2.15.

The bank’s results were boosted by a sharp drop in the amount of money it had to set aside for possible loan losses. In addition to its provisions for credit losses (PCLs), BMO also got a lift from its U.S. personal and commercial banking unit, which saw net income rocket up by 66 per cent from the prior year, to $582 million.

“We are clearly looking at a much lower full-year PCL figure than we’d previously anticipated,” National Bank Financial analyst Gabriel Dechaine wrote in a note to clients on BMO. “However, we could still be surprised to the upside if the pace of vaccinations accelerates.”

Scotiabank, meanwhile, said adjusted earnings per share was $1.88 for its first quarter, an increase of three per cent compared to the prior year. Analysts had been expecting adjusted EPS of $1.57.

Like BMO, Scotiabank saw credit costs decline in the face of a more favourable economic outlook, which influences how much lenders set aside for potential losses. The positively revised economic forecast also “bodes very well” for asset growth in Scotiabank’s key markets, CEO Brian Porter said, including in the U.S., the lender’s second-biggest in terms of earnings.

“Economic conditions continue to improve across our Americas footprint,” Porter said during his company’s conference call. “Forecasts for economic growth have been revised higher since Q4, as reflation takes hold.”

National Bank of Canada and Royal Bank of Canada are scheduled to report their first-quarter results on Wednesday, followed by Canadian Imperial Bank of Commerce and Toronto-Dominion Bank on Thursday.

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In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.


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