U.S. bank earnings suggest coronavirus-driven rough patch for earnings of Canadian lenders

Canada’s biggest banks are right in the thick of a tough quarter, judging by the rocky results their American cousins are posting this week.

“We expect to see similar outcomes in terms of credit performance, margin compression, trading revenue generation and loan growth” in Canada, Dechaine wrote in a report. “On the latter item, we are hearing of the same trend in Canada.” JPMorgan reported provisions for credit losses of almost US$8.3 billion for its first quarter, which included US$6.8 billion to further build up its reserves. For the same quarter of 2019, the bank’s credit costs had been about US$1.5 billion, with the additional money socked away this quarter reflecting “deterioration in the macro-economic environment as a result of the impact of COVID-19 and continued pressure on oil prices,” the lender said.

Exactly how much Canada’s banks will have to set aside could vary given the uncertainty about the duration of the pandemic and the recession. But credit provisions are “the biggest swing factor in bank earnings,” Aiken said, because they can be big and there is no offset for them. Items such as trading revenue do have offsets, though, such as bonuses paid to stock and bond traders.

Nevertheless, the expectation is that the large Canadian lenders will be able to weather the storm, even if their near-term profits take a hit. The Bank of Canada said in the monetary policy report it released on Wednesday that the stress-testing it does on the big lenders shows they are “well positioned” to ride out a sharp economic and financial downturn.

given who your managing editor once was, you should know better than to compare US banking to Cdn. It’s like apples and oranges, both grow on tress but. Besides bet you’re wrong. I’d put money on the write-down comment not happening to all Cdn Bks.

. You mean banks aren't recession proof after making their billions upon billions? 🤔 They've made enough money on us; time to reward their loyal customers and give us a break during hard times! .

Canadian banks aren't going to collapse and if they do we've got bigger problems, so you might as well take this opportunity to buy bank stocks. BMO has a great dividend yield at this price.

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