Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO) missed quarterly profit estimates on Wednesday, as they faced higher expenses and set aside more rainy-day funds.
Investor confidence in the markets is eroding amid a relentless rate-hiking cycle and a U.S. banking crisis that began with Silicon Valley Bank’s collapse in March.
Shares of BMO fell as much as 4.3% in Toronto on Wednesday, falling to a more than two-year low of C$112.4, while Scotiabank fell as much as 2.5%, weighing on other major bank stocks.
BMO shares were down 3.5% last week, while Scotiabank shares were down 1.22%.
Their earnings at home, which account for roughly 40% to 50% of their income, were lower in both banks.
In Canada, mortgages are a large portion of the book, and housing is slowing, which is impacting the growth of Canadian banks, said Canaccord Genuity analyst Scott Chan.
As a result of higher credit loss provisions, Scotiabank’s adjusted income from Canadian banking fell 10% and BMO’s 8%.
Scotiabank increased its provisions to C$709 million from C$219 million, citing Chilean and Colombian market conditions and economic uncertainty.
According to Scotiabank’s chief risk officer, Philip Thomas, the bank expects credit loss provisions to remain elevated for the rest of the year, due to inflationary pressures in some Latin American markets.
According to BMO, which completed its $16.3 billion acquisition of Bank of the West in February, its adjusted provision for credit losses was C$318 million at the end of the second quarter, up from C$50 million a year earlier.
In the Bank of the West portfolio, the bank expects impaired loss rates to be between low- and mid-20 basis points.
The executives of both banks expressed caution about broader macroeconomic uncertainty, though BMO insisted the acquisition of Bank of the West would boost earnings.
“Despite the environment, I am more confident today (about the deal).” CEO Darryl White said.
Refinitiv data shows that BMO’s net income, excluding one-time items, was C$2.93 per share for the three months ended April 30. Analysts were expecting C$3.19 per share.
Scotiabank reported adjusted earnings of C$1.7 per share, versus an estimate of C$1.78.
As a result of new investments and personnel spending, both banks announced divided hikes.
Homebuyers are showing signs of financial stress, according to the Bank of Canada, who is more concerned than last year about debt repayment.
The central bank said that by the end of 2026, almost all mortgage holders will face higher payments compared to February 2022, just before borrowing costs started to rise.
BMO and Scotia missed their headlines, suggesting the challenging operating environment may have begun, according to Barclays analyst John Aiken.
On Thursday, the Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO) and CIBC (CM.TO) will report results.