Everything You Need to Know on Tuesday: BMO Misses as Higher Loan-Loss Provisions Dent U.S. Operations

Good morning mooers! Here are things you need to know about today's market:

● S&P/TSX 60 Index Standard Futures are trading at 1,395.50, down 0.24% from previous close

● Trudeau announces 100% tariff on Chinese EVs, signals more measures coming

● REITs in Canada set to recover as rate cuts reign, TD says

● BMO misses as higher loan-loss provisions dent U.S. operations

● Scotiabank beats on performance of domestic, international units

Today, the Canadian dollar is trading at 74.25 cents US, a slight increase as previous close.

S&P/TSX 60 Index Standard Futures are trading at 1,395.50, down 0.24% from previous close.

Canada will impose a 100 per cent surtax on nearly all Chinese-made electric vehicles, including certain hybrids as well as trucks and buses, in a bid to create a protective barrier around the country’s auto industry.

Prime Minister Justin Trudeau announced the measures on Monday while in Halifax where he had gathered his cabinet for a three-day retreat.

“We are transforming Canada’s auto sector into a global leader in building the vehicles of tomorrow,” Trudeau said at a press conference, “but actors like China have chosen to give themselves an unfair advantage in the global marketplace.”

A government press release cast Chinese EV producers as an “extraordinary threat” to Canada’s auto and metal workers — sectors that it said support roughly 255,000 jobs — citing China’s non-market economy, and what it described as “poor” environmental and labour standards.

Trudeau also announced a 25 per cent surtax on imports of steel and aluminum coming from China, effective Oct. 15, and signalled his government could enact similar measures aimed at solar panels and semiconductors in the future.

Canadian real estate investment trusts are primed for a rebound as investors grow more confident in near-term rate cuts across North America, according to TD Cowen.

With the U.S. Federal Reserve ready to pivot and the Bank of Canada widely expected to lower its benchmark rate for the third time when it convenes next week, yield-chasing investors are starting to pull from money market funds and similar vehicles and instead plow their cash into dividend-paying REITs, Sam Damiani, a TD analyst said.

Last week the S&P/TSX Capped REIT index climbed around 4.4%, its second-best weekly run since November. “We see further runway,” Damiani wrote in a research note dated Sunday.

Damiani and his team expect Canadian REITs to outperform “as they have in the past similar periods since 1998.” His top picks include Canadian Apartment Properties REIT, Granite Real Estate Investment Trust and Chartwell Retirement Residences.

Canadian REITs have lagged the broader S&P/TSX market since the onset of the pandemic in March 2020 when Covid-19 lockdowns carved into the office commercial real estate sector and ensuing high interest rates weighed on real estate more broadly. The Bank of Canada has now delivered two rate cuts since June, moving the trend-setting policy rate down to 4.5%.

The Toronto-based firm earned $2.64 per share on an adjusted basis in the fiscal third quarter, it said in a statement Tuesday, falling short of the $2.75 average estimate of analysts in a Bloomberg survey. Provisions for credit losses totaled $906 million (US$673 million) for the three months through the end of July, more than the $745 million analysts had forecast.

Bank of Montreal’s credit performance has been worse than many of its peers in Canada and the U.S. even as consumers and businesses on both sides of the border have increasingly struggled to pay their bills amid an extended period of high interest rates. Tuesday’s miss comes after analysts had already adjusted their expectations for the bank following several previous quarters of higher-than-expected provisions.

The lender, Canada’s third-largest bank by market capitalization, acquired regional player San Francisco-based Bank of the West last year, significantly extending its U.S. footprint, as well as its exposure to potential credit losses in the market.

Its U.S. personal and commercial banking unit posted adjusted earnings of $539 million, down seven per cent from the prior year, as higher credit loss provisions and a decrease in non-interest revenue were not enough to counter lower expenses.

Profit was $1.63 a share on an adjusted basis in the fiscal third quarter, it said in a statement Tuesday, coming in ahead of the $1.62 average estimate of analysts in a Bloomberg survey. Its domestic-banking unit posted adjusted earnings of $1.1 billion (US$817 million) for the three months through July, up six per cent from the same period last year.

The results come after two years of negative or only slightly positive growth in the bank’s important Canadian division, where loan growth has been slow and provisions for loan losses have eaten into the bottom line. Scotiabank had also deliberately paused growth in its mortgage portfolio as it pursued a new strategy of going after clients who have multiple products with the bank.

“The results reflect solid revenue growth from continued deposit momentum and net interest margin expansion, a third consecutive quarter of positive operating leverage, partly offset by an increase in provision for credit losses compared to the prior year,” the Toronto-based lender said in the statement.

Provisions for credit losses totalled $1.05 billion in the quarter, roughly in line with analysts’ forecasts. Consumers and businesses are increasingly struggling to pay off debts amid persistently high interest rates, and Scotiabank has grappled with high credit provisions at its operations in Colombia, Chile and Peru.