Donald Trump’s victory could be a boon for these Canadian banks

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A second term for Donald Trump as president of the United States could have a possible impact Canadian banking sector more than a win of Kamala Harris because of his proposed corporate tax cuts and aggressive focus on re-shoring, some analysts say.

In such a scenario, Canadian banks that have the most exposure in the United States would likely benefit the most from a Trump presidency, CIBC Capital Markets analyst Paul Holden said, but Vice President Harris would not change the banks’ current outlook. so much.

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“When you consider which Canadian financial institutions would benefit from a Trump presidency and which would not, the analysis is relatively simple: which companies have the highest percentage of employees celebrating Thanksgiving in November versus October,” he said in an Oct. 24 note. “And what proportion live in countries that don’t celebrate Thanksgiving at all?”

A Trump presidency will likely benefit the economy Bank of Montreal the most because it generates the majority of revenue from the US

“BMO has both a large U.S. commercial bank that would benefit from U.S. reshoring and a large U.S. investment bank that would benefit from more activity in the capital markets,” Holden said.

Toronto Dominion Bank is expected to be the second largest beneficiary, despite an asset limit imposed on the lender by US authorities on issues related to money launderinghe said.

Both banks underperformed in the quarter and missed analysts’ expectations due to their exposure to the US

BMO had to set aside significantly more money to cover potential losses on impaired loans, which mainly came from the US segment, while TD posted a rare loss due to the $2.6 billion it set aside to address money laundering concerns of money in the US to solve.

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Bank of Nova Scotiawhich earns about the same from its businesses in Mexico as from those in the U.S., is likely to benefit the least, Holden said, because there is a chance the Trump administration will become more aggressive in renegotiating the Canada Free Trade Agreement. the US and Mexico, which expires in 2026.

This could make Scotiabank’s North American corridor strategy less attractive, he said. As part of the strategy, the bank wants to recycle capital from its Latin American operations to North America.

“We wouldn’t conclude that a Trump presidency would be a net negative for BNS, but we think it poses some risks that don’t apply to the other Canadian banks,” Holden said.

He does not believe the election outcome is likely to have a meaningful impact on the other banks.

Basel III reforms

The U.S. election could also influence Canada’s efforts to fulfill its obligations to the United States 2017 Basel III reformsScotiabank analyst Meny Grauman said in a note on Oct. 28.

These reforms were brought about by central banks and banking supervisors from 28 countries after the great financial crisis. Published in 2010, they promised common standards for measuring, reporting and managing financial risk across 28 jurisdictions by imposing higher capital requirements: the money a bank sets aside to cover bad loans and losses.

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Canada has taken the lead in implementing the reforms, he said, but others, including the U.S. and Europe, have questioned them and may consider implementing a modified version of the reforms.

“There is a clear recognition that Canada’s capital rules cannot live in a vacuum and will need to be reviewed if other major banking jurisdictions do not adopt similar rules,” Grauman said. “In our view, this is an outcome that is increasingly likely, especially if Trump wins the White House.”

Overall, the policies proposed by both Harris and Trump are expected to increase debt south of the border. According to the Committee for a Responsible Federal Budget, Harris’ plan would add $3.95 trillion over 10 years, while Trump’s plan would add $7.75 trillion.

Harris has proposed significantly expanding child tax credits and other individual tax credits, increasing support for housing and health care, expanding Medicare, cutting taxes on tips and strengthening border security.

She has also called for spending and tax breaks for child care, education, long-term care, preschool, paid leave, domestic research and manufacturing, and small businesses.

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Trump has proposed further cutting taxes for corporations and small businesses, increasing military spending, strengthening border security, expanding deportations and immigration enforcement and increasing support for housing, health care and long-term care. He has also proposed eliminating taxes on tip income, overtime and Social Security benefits.

To offset the costs of her plan, Harris has proposed raising taxes on businesses and high-income households and lowering prescription drug prices. Trump would impose new tariffs on imports, rescind spending, tax cuts and regulations on green energy and environment-related businesses, and scale back fraudulent spending.

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