By Nivedita Balu and Prakhar Srivastava
Aug 25 (Reuters) - Canadian lenders Bank of Montreal and Bank of Nova Scotia on Tuesday beat quarterly profit estimates, driven by strength in their capital markets and domestic businesses, as bank CEOs brushed aside the impact of U.S. President Donald Trump's new tariffs.
The country’s big six banks account for more than 90% of the country's banking assets and have so far remained resilient, supported by strong earnings across segments, as Canada and the U.S.
negotiate a trade deal. The two neighbors failed to reach an agreement last week, with each side blaming the other for derailing three days of intensive negotiations.
Banks lend to several Canadian businesses, including in sectors hit by tariffs, but CEOs said they were monitoring the impact on their clients and working with them on liquidity investment decisions, supply chain adjustments and market diversification.
"We have to recognize that whatever impact this might have has a very high chance of being mitigated in many ways. ... Clients have adjusted very well and have proven that they can adjust very well," BMO's CEO Darryl White said.
"Is it manageable? Of course it is, and in fact, there may be some opportunities in the challenge that we've got in front of us," White told analysts about recent tariffs.
RECORD QUARTER
At Scotiabank, which operates in the U.S., Mexico and some South American countries, income from the global banking and markets unit grew 37%, driven by record underwriting and advisory fees. Net income rose 8% at its international business and 12% in Canada.
The period was "a record quarter" for the bank, Scotiabank’s CEO Scott Thomson said, with two segments hitting record earnings. "In particular, we exceeded our 14% return on equity target this quarter," he said, hitting a financial goal the bank set for 2027.
Thomson said global banking and markets posted record earnings, helped by roles on Canada's two largest debt capital markets deals and the country's biggest IPO since 2021.
BMO said adjusted net income at its capital markets segment rose 45% in the third quarter ended July 31, reflecting higher fee income and lower loan loss provisions. Adjusted net income at its U.S. banking business rose 11%, and Canadian personal and commercial banking grew 15%.
The banks are benefiting from reserves built up over the past year to guard against potential loan defaults, as credit losses have remained manageable while macroeconomic uncertainty fueled by the conflict in the Middle East has kept financial markets volatile. Meanwhile, the Canadian economy has shown signs that it is coping with U.S. tariffs and international tensions, adding far more jobs in July than expected with the unemployment rate dropping to a two-year low.
SHARES MOVE HIGHER
The Canadian banks have outperformed the broader Toronto index so far this year, trading at historically rich valuations. Analysts have raised questions about whether future earnings growth can justify those premiums, raising the expectation for banks to deliver solid earnings.
"The expectation is that a lot of the loan loss provision that the banks have taken on over the last few years can be released (back into the income statement) as delinquencies and loan losses come in better than expected," said Philip Petursson, chief investment strategist at IG Wealth Management. "That would be my expectation for the remainder of the year and into 2027."
On Tuesday, BMO shares were up 0.8% in early trading. They have gained 34% so far this year. Scotiabank's shares, which have gained 18.8% this year, were up 3%.
BMO reported adjusted earnings of C$3.96 per share, beating the estimate of C$3.76, according to LSEG data. Scotiabank’s adjusted profit of C$2.28 per share was also above the estimate of C$2.10.
($1 = 1.3861 Canadian dollars)
(Reporting by Nivedita Balu in Toronto, Pritam Biswas and Prakhar Srivastava in Bengaluru; Editing by Sriraj Kalluvila, Jan Harvey and Mark Porter)
