Ahead of the earnings season for Canadian financial institutions, the five major banks traded decisively lower in the last week. Royal Bank (RY) lost around 15% YTD. Bank of Montreal (BMO), CIBC (CM), and TD (TD) are not faring well, either.
Bank of Nova Scotia (BNS) has been a notable underperforming bank stock recently. The firm was late in cutting 3% of its workforce. Furthermore, it took a significant $432 million charge related to a China bank holding.
Power Financial is bucking the trend. The holding company has interests in asset management and financial services.
Investors are bracing for heavy losses ahead for the bigger banks. In Toronto, “The One” announced it entered receivership. The project is operating far above its initial budget. It is nowhere near constructing nearly 90 stories. This project is symbolic of the Canadian real estate market. Project bankruptcies in real estate will disrupt banks. It reminds mortgage holders that the sector faces trouble ahead.
Although the Bank of Canada did not raise rates in October, higher interest rates will persist for at least another year. Mortgage holders on variable rates must re-negotiate upon renewal in 2024 at more than double the interest rate.
Banks offered unsustainable 47-year mortgages. This allows customers to avoid defaulting but could lead to paying only the interest portion of the debt.
Banks are due for a relief rally. This will prove short-lived as markets await their quarterly earnings result.