Canadian banks could benefit from Trump’s victory

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The rise in share prices among banks in the United States on hopes that incoming president Donald Trump will deliver on his promise to lower taxes for corporations, enforce fewer regulations and focus more on reshoring could rub off on Canada’s biggest lenders as well, some analysts say.

For example, Bank of Nova Scotia is likely to benefit due to the US$2.8-billion investment it made in Cleveland-based KeyCorp. in August, when it agreed to buy 14.9 per cent of the American bank at US$17.17 per share.

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KeyCorp was trading at US$19.49 around noon on Wednesday, up about 13 per cent from its previous close and much higher than the price fixed for the deal. Scotiabank has already completed the first stage of the deal and owns about 4.9 per cent of KeyCorp. The second and final stage of the deal is expected to be completed early next year.

Bank of Montreal is also expected to benefit from Trump’s win due to its huge exposure to the United States. The bank underperformed and missed analysts’ expectations in its last quarter because it had to keep significantly more money aside to cover potential losses on impaired loans, mainly within its U.S. segment.

But the perception that “the worse will be behind them is a likely driver of the stock,” National Bank of Canada analyst Gabriel Dechaine said in a note sent on Wednesday. However, he also said buyers of BMO will need to look through “what could be another weak quarter” later this year.

Overall, he said the “winners of the outcome” were BMO and Royal Bank of Canada, followed by Scotiabank.

Trump’s victory could also influence Canada as it tries to fulfill its commitments to the 2017 Basel III reforms, Scotiabank analyst Meny Grauman said in a note on Oct. 28.

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These reforms were created by central banks and bank regulators from 28 countries after the great financial crisis. Published in 2010, they promised common standards for measuring, reporting and managing financial risks across 28 jurisdictions by imposing higher capital charges — the money a bank reserves to cover bad loans and losses.

Canada has been leading in terms of implementing the reforms, Grauman said, but other jurisdictions such as the U.S. and Europe have questioned the need for them and may look to implement a modified version.

“There is a clear acknowledgement that Canadian capital rules cannot live in a vacuum and will need to be revisited if other key banking jurisdictions don’t institute similar rules,” he said. “In our view, this is an outcome that’s becoming increasingly likely, especially if Trump wins the White House.”

The Canadian Bankers Association, which represents more than 60 banks, said it will continue to assess developments related to Trump’s win with its members “to determine what those changes mean for Canadians and their banks.”

• Email: nkarim@postmedia.com

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