Canadian banks see risk of U.S. economic slowdown ahead

Some of Canada’s largest banks, which have been reaching for growth opportunities in U.S. markets, are now acknowledging the risk of an economic slowdown in the neighbor to the south.

During earnings calls this week, top executives at big Canadian banks pointed to several potential U.S. economic snags, including inflation, the possibility of a housing market correction and soaring energy prices in the wake of Russia’s invasion of Ukraine. 

“The volatility … is quite intense,” Toronto-Dominion Bank CEO Bharat Masrani said Thursday during a call with analysts.

Executives at Bank of Montreal, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank this week acknowledged the risks of a U.S. economic slowdown.


TD announced Thursday that it was activating a dividend reinvestment plan discount of 2% that will allow investors to receive additional shares in the company. These discounts are often awarded as a way for a company to create more capital at a time of market volatility.

The use of the discount could indicate a slight shift in the bank’s forecast from February, when TD kicked off an aggressive expansion plan in U.S. southeastern markets with the announcement of a $13.4 billion deal for First Horizon Corp. in Memphis, Tennessee.

On Thursday, TD executives dismissed questions about whether the U.S. regulatory process could delay the First Horizon deal, as it has other bank acquisitions. “We continue to be comfortable and are working hard to get it to closing,” Masrani said.

Masrani did address a potential softening in the housing markets TD Bank serves, which have experienced explosive price growth over the past two years. Masrani underscored that underwriting standards have not changed during the pandemic, and he noted that mortgage borrowers are getting a boost from a strong job market, but he also issued a warning about home values.

“We are expecting some correction in the housing market,” he said.

TD’s quarterly net income of $2.9 billion was 3% higher than it was during the same period a year earlier.

Bank of Montreal, which has a pending $16.3 billion takeover bid for the Bank of the West, also faced questions about the risk of regulatory snags.

During an earnings call Wednesday, CEO Darryl White said that “things are playing out as we expected,” and the bank still aims to close the deal by the end of the year. 

“We don’t expect a delay,” White said. 

The $813 billion-asset company reported 3% quarter-over-quarter commercial loan growth, and executives said they were encouraged by the opportunities of U.S. manufacturers bringing more business from foreign soil.

Business clients have been upbeat despite the threat of an economic slowdown, said David Casper, the U.S. chief executive officer at BMO Financial Group.

“If there’s a downturn, that’s obviously going to impact us,” Casper said on the call. “But in the near term, we really don’t hear that from our clients. They’re still trying to grow and catch up in some cases in terms of still-lower inventories.”

BMO’s quarterly net income of $1.7 billion, when adjusted for changes in fair value contributions from rising interest rates, was up 4% from the same period in 2021.

At Toronto’s Canadian Imperial Bank of Commerce, impaired loans to U.S. consumer and business borrowers, net of its allowance for losses, increased 16% for the quarter ending April 30 from the previous three months. The bank’s $1.1 billion in net income for the period declined by 9% year-over-year.

The $700 billion-asset bank enjoyed 18% year-over-year growth in its U.S. commercial loans, but executives said during a call Thursday that the growth rate is expected to decline to the low double digits. 

CIBC’s business clients are “a bit more cautious” as they deal with “supply-chain issues, employee shortages and inflation,” said Michael Capatides, head of the Canadian bank’s U.S. group. “But they’re focused on growth.”

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