Investment banking boom boosts earnings at Canada’s Big Six

As Prime Minister Mark Carney continued his high-stakes talks with U.S. President Donald Trump over tariffs, Canada’s banks were cashing in as companies engaged in talks of their own. All six of Canada’s big banks reported a strong third quarter for investment banking, with CIBC, National Bank and Scotiabank pulling in record amounts for advising on and underwriting deals—a good sign for the economy following a period of turmoil.

By the numbers: The Big Six, all of which beat estimates on profit with the exception of National Bank, said investment banking contributed to third-quarter gains. In addition to CIBC, National Bank and Scotiabank’s record quarters, RBC said in a filing that underwriting and advisory fees increased 26 per cent from last year to $850 million, as demand for new debt and equity offerings as well as mergers and acquisitions increased across most regions. BMO’s investment and corporate banking revenue increased nine per cent to $723 million, primarily thanks to higher fees for advising and underwriting deals. TD flagged strong growth in its global markets and corporate and investment banking business as drivers of a 15 per cent increase in the Wholesale Banking division’s revenue from last year to $2.1 billion.

On a call with analysts, Scotiabank’s head of global banking and markets Travis Machen said that in addition to investment banking, high trading volatility and a strong stock market helped his division pull in profit of $473 million, up 29 per cent from last year. “All the pieces were really coming together,” he said. Trading revenue is up 50 per cent year to date, CEO Scott Thomson said.

Corporate confidence returns: The blockbuster quarter for investment banking is surprising, considering takeovers of Canadian companies fell to a nine-year low in the second quarter amid uncertainty over Trump’s tariff threats. But Sarah Gingrich, a Calgary-based lawyer who co-leads Fasken’s mergers and acquisitions group, said companies that have been waiting out the volatility are getting more comfortable putting their dry powder to work. Carney’s promise to get big infrastructure projects built faster poses an opportunity for companies to develop them and for banks to fund them. And while the trade war is far from over, Trump has walked back from his most nuclear tariff threats. “When there’s confidence, when interest rates are flat, when geopolitical uncertainty appears to be a little calmer, that’s when deals get done,” Gingrich said.

The new normal: Analysts had predicted Canada’s banks would make a fine showing in this week’s earnings, now that the economy appears to have avoided a total meltdown and companies and individuals are at a lower risk of defaulting on their loans. Stock markets plunged on Trump’s so-called “Liberation Day” tariff announcement in April, but the S&P/TSX Composite Index has since surged 26 per cent from its low point. If things stay steady, Gingrich said she expects the deal flow to keep picking up. “I think there’s a pressure to transact, there’s momentum to transact, and so if the conditions remain stable, you will see this continue.”

Clouds still on the horizon: On a call with analysts, RBC CEO David McKay cited China’s retaliatory tariffs on Canadian canola products and the renegotiation of Canada’s trade deal with the U.S. as risks to the stabilizing economy. While each of the Big Six met or beat expectations for how much money they would set aside for bad loans, the banks are still maintaining sizable funds to protect against such risks.

Most of the banks are still setting aside more money to cover potential loan losses. Scotiabank’s allowance for credit losses, or the portion of outstanding loans it expects won’t be repaid, rose 1.5 per cent to $7.4 billion, while BMO’s reached nearly $5.8 billion. CIBC, RBC and National Bank also boosted their provision for credit losses. At BMO, those impairments were up across all loan types from nine months ago, while CIBC set aside more for troubled loans in its Canadian personal and business banking and U.S. commercial banking and wealth management.