TORONTO – In what could be a near-term high water mark, all of Canada’s Big Six banks beat analyst expectations in the first quarter as the economy chugged along through the end of January despite the growing threat of tariffs and the apparent crumbling of the world order.
Banks all got a boost to varying degrees from trading revenues that shot up thanks to heightened market activity after Donald Trump was elected U.S. president in November.
Earnings were also helped by the lack of any concrete tariff policies as of Jan. 31, so banks weren’t forced to shift some earnings into provisions for the potential loan losses those tariffs would likely prompt.
As Scotiabank chief risk officer Phil Thomas put it on an analyst call, “It’s difficult to act on headlines and tweets.”
Banks said they will be ramping up loan-loss provisions if the tariffs do come, but it’s still not clear what could happen as Trump said Thursday they were again on for March 4, one day after he said they would be delayed until April 2.
BMO chief executive Darryl White’s comment Tuesday that the shelf life of any prediction these days is only worth about 24 hours seems be holding up better than the predictions themselves.
“It’s difficult to figure out where all this lands,” he said.
Bank leaders, however, did all make clear that the threat of tariffs is already having an effect, as consumers and especially businesses hold off on big spending decisions.
“Clients across the board, across the country, are feeling a little more tentative in terms of commitments going forward until there’s more certainty. I think that holds true on both sides of the border,” said CIBC chief executive Victor Dodig.
“Businesses and personal clients like certainty to move forward, so the sooner we can get that certainty, the better.”
RBC chief executive Dave McKay said the bank is seeing signs of lower business confidence and delayed investment decisions.
Executives noted that the effects of the tariffs will depend on their breadth, size and how long they last, but also noted that there are ways for businesses to respond and the effects won’t all hit at once.
“The world’s not going to collapse overnight,” said McKay.
Under RBC’s worst-case economic scenario, by mid-to-late 2026 Canadian unemployment would rise to 10.4 per cent and real GDP falling by 7.4 per cent, but it also factors in several less severe options.
Whatever may come, banks emphasized they have the capital buffers and prudent reserves to weather the hit. Those cushions were helped by collective earnings of $16.8 billion in the first quarter.
But they also all see this as an important moment to address Canada’s economic shortcomings. The interprovincial trade barriers were widely cited, as was the general issue of productivity.
National Bank chief executive Laurent Ferreira had a laundry list ready, including calling for a non-partisan head of deregulation, accelerated depreciation on capital investments, reduced taxes on capital gains for business owners, and allowing tax deferrals on some business transfers, among other suggestions.
“We must not only rebuild our relationship and negotiate economic and trade terms with our largest partner, we must also get investments off the ground in our country,” he said.
Dodig said that to address the immediate threats, Canada will likely have to drop the digital service tax that has riled U.S. tech executives and caught the attention of Trump, and also tackle any overly-subsidized steel and aluminum being passed into the U.S. through Canada.
“Then of course we all know that the USMCA is going to be renegotiated. That’s a medium term action. And in the long term we’ve just got to engineer the great Canadian comeback, which I think we can do.”
McKay said it’s a moment to approve high-impact energy and infrastructure projects.
“Importantly, this is the chance for Canada to make structural improvements to the country’s economic productivity and competitiveness.”
He said that while there’s uncertainty ahead, the bank has plans and stability and is ready for what comes.
“We’re hoping for the best, preparing for the worst.”
This report by The Canadian Press was first published Feb. 27, 2025.
Companies in this story: (TSX:CM; TSX:RY; TSX:BNS; TSX:BMO; TSX:NA: TSX:TD)
