Scotiabank, BMO hopeful about economic growth following strong Q3 results

Scotiabank

Two of Canada's major banks are mighty optimistic about the prospects for North America's economic climate after talking to the companies they lend money to.

James McPhedran, executive vice-president of Scotiabank's Canadian banking division, said Tuesday its domestic outlook "has gotten consistently better since January or February" driven by positive sentiment, particularly from its business clients in most of Canada.

"Certainly when I speak to commercial customers across the country they're feeling pretty good about this country's prospects," McPhedran told analysts on the bank's third-quarter conference call.

"It's not everywhere, but I think the mood is pretty good and we're seeing it in our results."

Scotiabank reported improvements in its Canadian retail business were partially driven by loan growth.

Bank of Montreal executives shared the sentiment in the United States where they say corporate clients have expressed sheer confidence looking into next year.

"Most of them would say the economy in the U.S. is pretty good," said David Casper, president and CEO of BMO Harris Bank and group head of commercial banking.

"They expect it to continue and they expect some of the uncertainty to wane as we move forward."

Casper highlighted "lessening of regulations" in the U.S. which he suggested may have "encouraged" some manufacturing clients.

"As you go sector by sector we've had pretty good growth," he said. "I wouldn't say there's any specific area where it's been negative."

However, many observers have noted plenty of uncertainty that could emerge next year as the Bank of Canada and U.S. Federal Reserve contemplate further interest rate hikes. In Canada, debt loads are sky high and a potential economic shock that could hit household incomes could affect some Canadians' ability to pay back loans.

"What we're seeing in consumer delinquencies is a much-awaited and very important trend that's deserving of attention," McPhedran added.

The looming economic uncertainty was one of the few weak spots on otherwise strong Canadian bank earnings reports that continued on Tuesday, with both Scotiabank and BMO reporting third-quarter results that were ahead of analyst estimates.

Bank of Nova Scotia (TSX:BNS) had $2.1-billion of net income for the three months ended July 31, up seven per cent from the same quarter last year, and announced its quarterly dividend will go up about four per cent.

Scotiabank said its strength during the quarter came from its Canadian and international banking arms, while its global markets division grew its net income over last year at a more modest pace.

Bank of Montreal (TSX:BMO) had nearly $1.4 billion of net income over the same period, an increase of 11 per cent from the same time last year, but said its dividend will remain steady.

Canadian banking was also a strong point for Bank of Montreal, as was wealth management, but its U.S. banking division was relatively flat compared with the 2016 third quarter, which was down $1 million to $289 million on an adjusted basis, while net income from its capital markets arm was also down.

Despite the bank's earnings beat, BMO's stock fell $2.36 or 2.5 per cent to close at $90.07 on Tuesday on the Toronto Stock Exchange.

Shares of Scotiabank finished the day up 13 cents, or 0.17 per cent, to $77.33.

Last week, financial results from Royal Bank (TSX:RY) and CIBC (TSX:CM) both came in ahead of analyst expectations.

Montreal-based National Bank (TSX:NA) reports its third-quarter results on Wednesday, with Toronto-Dominion Bank (TSX:TD) reporting Thursday.