Regulatory fines and credit loss provisions are key factors shaping banks' outlook
Canada’s banking giants are expected to deliver strong fourth-quarter earnings reports next week, but the spotlight will be on how Toronto-Dominion (TD) Bank and Bank of Montreal (BMO) navigate economic and regulatory headwinds.
Those factors will likely play into investor perceptions and market performance in the financial landscape, with TD Bank in the hotseat following investor scrutiny after a US$3.1 billion fine in October for anti-money laundering (AML) shortcomings.
Analyzing the bank's situation, Gabriel Dechaine from National Bank of Canada said, "There is some speculation that TD could provide 2026 guidance, which would be helpful for investors with a longer-term view to more reliably value the stock."
Bank of Nova Scotia’s Meny Grauman added that "constructive forward guidance would be a big plus for TD", given the current low market expectations.
Credit loss provisions form another key area of interest for the Big Six banks. The top financial institutions have been increasingly stashing funds to cover potential loan defaults as high interest rates continue their impact on consumer and business financial health.
Canaccord Genuity Corp.’s Mathew Lee mentioned that the credit loss provisions for BMO will be "rough, but nothing that will break the thesis," with improvements coming in commercial real estate and transportation sectors.
Potential economic implications of a Donald Trump presidency likewise shape banking sector discussions, with analysts watching out on how the banks might be impacted by proposed corporate tax cuts and potential 25% tariffs.
Immigration policy is yet another factor in the economic outlook, with Canada's recent decision to cut immigration targets affecting consumer spending and economic growth. The expected net reduction of one million students and temporary foreign workers could potentially affect business investment and productivity levels, which adds burden for financial institutions.
With the banking industry operating in a volatile environment of high interest rates, stringent regulations, and possible policy changes, investors and analysist are paying close attention to Big Six banks’ earnings reports.
