Analysts weigh in on how US tax cuts and deregulation might fuel Canadian bank profits
Donald Trump’s election win may provide a boost not just for US banks but for Canada’s big banks as well, with analysts predicting that his plans for tax cuts, deregulation, and encouraging domestic investment will create a positive ripple effect for Canadian lenders.
Scotiabank, for example, recently made a substantial investment in Cleveland-based KeyCorp, purchasing a 14.9% stake at US$17.17 per share for a total of US$2.8 billion. Since then, KeyCorp’s share price has risen about 13% to US$19.49. The bank currently holds 4.9% of KeyCorp, with the rest of the deal expected to close early next year.
BMO, with its expansive US operations, may also benefit from Trump’s policies. While BMO’s recent performance suffered due to a higher reserve set aside for potential losses in its US loan portfolio, National Bank of Canada analyst Gabriel Dechaine sees hope.
Dechaine said that BMO’s stock could gain if investors believe “the worst is behind them,” though he cautioned that BMO might face another weak quarter before seeing improvements.
Dechaine said BMO and Royal Bank of Canada (RBC) are the main “winners” of Trump’s victory, followed by Scotiabank.
Potential regulatory changes
Trump’s win could also influence Canada’s approach to the Basel III reforms, a set of global banking regulations established in 2010 following the financial crisis. These reforms require banks to hold higher capital reserves as a safeguard against potential losses.
Canada has been proactive in implementing Basel III, but Scotiabank analyst Meny Grauman suggests that Trump’s administration may push the US to adopt a more lenient version of these rules.
“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,” Grauman said, adding that Canada may reconsider its commitment to these standards if other countries, especially the US, take a different approach under Trump’s leadership.
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“In our view, this is an outcome that’s becoming increasingly likely, especially if Trump wins the White House.”
The Canadian Bankers Association, representing over 60 banks, has stated it will monitor changes under the Trump administration to assess the potential impact on Canadian banks and their customers.
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