Strong results from Canadian banks

Feb 26, 2021 | Elinesky Schuett Private Wealth Management


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An upward view of RBC Tower

In our featured economic commentary, we discuss the Canadian banks which reported strong earnings results this past week, the virus trends in North America, and reflect back on early 2020 and the impact of the virus on the global equity markets.

This week’s blog post also includes a few other interesting articles and resources:

  • Real-world vaccine success
  • Seven tips to keep you safe this tax season
  • Ways to calm racing thoughts and focus more on you

In case you missed our post earlier this week, we have also included your invitation to our online event celebrating International Women’s Day. Event details and your RSVP link are below. We hope that you can join us!

As always, we end our weekly blog post with a few good news stories from in and around our community.


 

Your economic update

Investors continue to be on edge about rising bond yields, which moved higher yet again over the past week. Anxiety persists despite commentary from U.S. Federal Reserve Chairman Jerome Powell, who reiterated that any inflationary pressure this year is unlikely to force the central bank to change its approach around interest rates. In our commentary below, we discuss the Canadian banks, which reported strong earnings results this past week, a potential reversal of trends on the virus front in North America, and reflect on this time last year which marked the beginning of a tumultuous period for global equity markets.

Coronavirus update

This week can be characterized as a minor setback in North America as the improving trend that had been witnessed over the past month appears to have stalled. Canada’s seven-day average rate of new daily infections rose modestly to nearly 3,000 from 2,900 the week prior, which is the first increase in some time. It was led by increases across British Columbia, Alberta, and Ontario, while case infection rates across Quebec, Saskatchewan, the Maritimes, and the Northern Territories all declined. Meanwhile, in the U.S., the seven-day moving average of new daily infections is near 63,000, below the 69,000 from the same period a week ago, but there are also signs of slowing progress. The next few weeks will help to clarify whether this is a temporary reversal of trend, or the start of something more concerning, like a third (or fourth) wave which is anticipated to occur over the next few months.

Strong results from Canadian banks

The Canadian banks have performed well to start the year. That trend continued over the past week as they reported their first quarter earnings results for the period from November through January.

The results unveiled two predominant themes. First, the credit issues that arose at the onset of the pandemic last year are now subsiding. Each bank reported significantly lower than expected provisions for credit losses. These are capital cushions of sorts that the banks set aside to absorb future losses from loans that consumers and businesses may struggle to repay. As banks believe they are adequately prepared and begin to anticipate lower future losses, they tend to provision less, and may even release and redeploy this capital. The second theme that was apparent from the results was the stronger than expected revenue growth across many business lines of the Canadian banks: commercial and retail banking, capital markets, and wealth management for example.

Investors are now left to wonder what to expect from the banks going forward. We foresee more of what transpired this past quarter. More specifically, we expect credit will continue to fade as a headwind, while the reopening of the global economy should act as a meaningful tailwind for revenue growth. This latter point will prove more significant as the year goes on, with more businesses and consumers gaining confidence in their ability to invest and spend, thereby requiring the many products and services offered by financial institutions. Moreover, the rise in bond yields we have witnessed to date is a powerful tailwind to the banks’ net interest margins, a critical source of profits for the banks that measures the difference between the interest income they earn and interest expenses they pay. Overall, the operating environment has shifted meaningfully over the past year, and we expect revenue growth to be a driver of potential upside to earnings expectations for the sector.

On the dividend front, we expect key regulators to consider lifting the restrictions on bank dividend increases, potentially by the end of the year, paving the way for mid-single digit dividend growth to resume over the next few years. Investors should be left feeling more confident in this sector, particularly with valuations that remain inexpensive.

Reflecting on February 2020

The COVID-19 virus is widely acknowledged to have first surfaced in late 2019. Global equity markets began to take it very seriously in late-February 2020 after the first fatality from the virus in Italy was reported, which was then followed by a broad outbreak across Europe and ultimately throughout the rest of the world.

Global equity markets initially fell by over 30 percent between late February and March 2020. One year later however, most equity markets have made up the lost ground, with many now trading at new highs. There are a host of reasons why, from governments and stimulus, to central banks and low rates, and promising vaccines.

The investing experience over the past year serves as a useful reminder that, while it is easy to fall victim to human emotions and panic at the onset of a crisis, it is not helpful and can be detrimental to outcomes. Instead, a strategy for long-term investing success includes having a proper plan, staying level-headed, and employing a disciplined process of rebalancing and due diligence at all times.


Real-world vaccine success

Amidst falling virus infections, Chief Economist Eric Lascelles explores the challenges towards herd immunity and looks at post-pandemic scenarios for the workforce. He also shares late January to early February economic data in Canada, the United States, and the U.K.

Laptop on a desk with a blurred background. Laptop has a picture of a man on the screen. Text: RBC Global Asset Management. Real-world vaccine success. #MacroMemo with Eric Lascelles. RBC logo in bottom right corner.

Watch the video online: Real-world vaccine success

 

In our local community, there has been significant progress in the distribution of vaccines. The Wellington-Dufferin-Guelph Public Health Unit launched an online COVID-19 vaccine pre-registration portal earlier this week, noting that people in the identified priority groups need to live in Wellington-Dufferin-Guelph to be eligible.

You can read more about this on the CTV News website: Pre-registration for COVID-19 vaccine opens for priority groups in Wellington-Dufferin-Guelph

 

Seven tips to keep you safe this tax season

There’s more at risk than your money and identity this tax season. Scammers may offer “tax services” that will steal your identity and your tax refund, lure you with offers of bigger write-offs, and create fake websites or tax forms to fool you into giving criminals your personal or financial information.

You can read the full article online: Seven Tips to Keep You Safe This Tax Season

 

Join us to celebrate International Women’s Day

Wednesday, March 10, 2021 - 1:00 - 2:30 p.m. via WebEx

Please join us for our third annual International Women's Day event on Wednesday, March 10, from 1 p.m. - 2:30 p.m.

We are excited to be joined by Shakiba Shayani, President & CEO, Guelph Chamber of Commerce, Suzanne Bone, CEO, The Foundation of Guelph General Hospital, and Kate Drummond, Canadian Actor, Public Speaker, Former School Teacher.

These three extraordinary women will be sharing their personal and professional journey, and how gender-equality has played a role in their lives.

Panelists:

 

 

Business woman

Business woman

Business woman

Shakiba Shayani

President & CEO
Guelph Chamber of Commerce

Suzanne Bone

CEO
The Foundation of Guelph General Hospital

Kate Drummond

Canadian Actor,
Public Speaker,
Former School Teacher

Visit our website to read the biographies of these three exceptional women!
International Women’s Day 2021

Kindly RSVP by Monday, March 8, using the link below.

Ways to calm racing thoughts and focus more on you

Women sitting on a couch with her eyes closed. Canada’s current reality might have you more than a little on edge. Between the pandemic and uncertain global economic conditions, many Canadians now feel like they have adrenalin coursing through their veins 24/7. It could be a recipe for fatigue, burnout, anxiety, and unfocused decision-making — which is never a good mix for an investor.

This article includes tips to help slow down racing thoughts and calm your nerves, so you can focus on what really matters to you: Ways to calm racing thoughts and focus more on you.

 

Community Corner

Each week, we like to end our blog posts with a few good news stories from in and around the community. We hope that they brighten your day!

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.