😰 BMO Crashes 9%, the Bank's Worst Day in 4 years...

Plus, the US approves Ethereum ETF...

📉 BMO Crashes 9% as Canadian Banks Report Mixed Earnings

😰 Canadian banks reported earnings this week, and let’s just say for some… it wasn’t a pretty picture.

BMO was hit the hardest, down ~9% so far this week, with TD and Scotia also dropping over 2% since Monday.

When I started writing this last night, I expected all the Canadian banks to be in the red, but after reporting earnings this morning, CIBC and RBC surprised us with both stocks jumping over 4% today, putting them both in the green despite losses earlier this week.

💡 Canadian Banks represent some of the most held stocks on Blossom, with TD Bank ranking as the #2 most popular holding right after VFV (The Vanguard S&P 500 index).

😬 The Headline: It’s Rough Out There

Let’s start by looking at the bigger picture: the banks have had a rough year.

From regulatory issues to higher-than-expected reserves, here are some of the key themes of this quarter’s earnings:

🚫 Increased Regulation

Earlier this month, TD crashed ~8% after a shocking discovery that TD was the primary bank used in a $653 million money laundering and drug trafficking operation.

Not only were the criminals depositing huge bags of cash across multiple branches, they were even bribing tellers with gift cards.

This not only had a HUGE impact on TD (who had to set aside $450 million to cover fines), it sent ripple effects across the industry as experts called for stricter regulatory oversight.

Any increase in regulation increases costs for the banks, cutting into their profits amid already challenging times (i.e. TD is investing an additional $500M in improvements to its anti-money-laundering program).

 💵 Climbing Reserves for Loan Losses

With high interest rates, consumers and businesses are struggling, increasing the likelihood of defaults on loans.

This means the banks have to put aside higher reserves for losses - that’s money they can’t lend out and earn interest on.

We already knew it was bad, but it was even worse than expected, with the banks setting aside up to 20% more provisions for credit losses than analysts predicted.

 🏦 All Eyes on the Central Bank to Cut Rates

Interest rates have risen from 0.5% to 5.25% in the last 2 years

The best strategy for the banks right now seems to be crossing their fingers and hoping the Bank of Canada cuts rates in June, and with cooling inflation and analysts bumping up the chances of a rate cut from 40% to 65%, this hope is not unwarranted.

A rate cut would not only help “stave off the housing problems,” reducing the risks of mortgage defaults but would also likely shift the markets from pessimism to optimism.

💡 The Office of the Superintendent of Financial Institutions warned that 76% of outstanding mortgages are coming up for renewal by the end of 2026, meaning thousands of homeowners will be faced with dramatically increasing interest payments.

That said, there are many analysts who believe a rate cut is already well-priced into the bank stocks:

“I certainly wouldn’t be trading on the potential for a Bank of Canada cut to provide a meaningful lift for financials.”

Philip Petursson, IG Wealth Management Chief Investment Strategist

With the bigger picture in mind, let’s now take a quick look at some of the biggest headlines from earnings week:

💰 TD Actually Had Strong Earnings (Despite the Money Laundering)

Despite the scandal and fines from the money laundering issues, TD actually posted strong earnings with earnings per share of $2.04 per share, over 10% higher than expected.

This was boosted by the bank’s strong wealth management business, which increased net income 19% year over year.

Even so, the impact of the money-laundering scandal overshadowed most of the good news - and for good reason. It will not only lead to fines, but also dealt a significant reputational hit to one of Canada’s most trusted institutions (with some credit rating agencies even downgrading TD from stable to negative).

TD has also continually pointed to the US for its next phase of growth, and the AML scandal has dealt a huge blow to those expansion plans - with it now clear that its failed merger with First Horizons Bank was due to these regulatory issues.

📉 BMO Hit the Hardest, Stock Plummets ~9%

Despite TDs regulatory and anti-money laundering issues, it was actually the Bank of Montreal that was hit the hardest, with the stock falling a whopping 8% this week. This was driven by a few factors:

  • Earnings per share was 6% under analyst estimates

  • Provisions for credit losses were ~20% higher than expected

  • Net Income in the US (which is a big growth market for BMO) plunged 26% from last year

💡 BMO is the #25 most bought stock this week on Blossom, and only the #47 most sold, meaning many Blossom users are seeing this drop as an opportunity to pick up shares.

📈 RBC and CIBC Jump ~4% Today

RBC and CIBC just posted earnings this morning, so we won’t go too deep into these two, but here are some quick highlights:

  • RBC Beat Expectations with 6% higher-than-expected earnings, lower-than-expected provisions for credit losses, and a 31% increase in capital markets revenue

  • CIBC Beat Expectations with growth in all 4 of it’s core business segments and a massive 70% profit growth from its U.S. operations.

💡 Want to read more about the bank earnings? Just search the bank’s ticker on Blossom to read 100s of insightful posts and discussions in the community!

💸 Spot Ether ETFs: Canada Paving the Way for US Markets (Again)

Earlier this year, the US approved spot bitcoin ETFs… but it was nothing new in Canada. It seems like history is repeating itself – rather quickly, we might add – as the US has recently approved the path for spot ether ETFs. Again, this product was already available here in Canada with the Purpose Ether ETF ($ETHH), providing a secure and easy way to gain exposure to Ethereum, a decentralized, open-source blockchain platform.

The Purpose Ether ETF simplifies investing:

  • No digital wallet is required.

  • Physically settled ether safely held in cold storage.

  • Simple trading like any other ETF.

  • TFSA/RRSP eligibility to save on taxes.

$ETHH simplifies the process of investing in ether. The ETF structure removes the complexities and brings the investment under the purview of regulated financial markets, enhancing security and trust.

💰 You can also gain exposure to ether while adding some monthly yield to your portfolio.

The Purpose Ether Yield ETF ($ETHY) features all the benefits listed above and harvests volatility with its covered call strategy. The strategy has consistently provided investors with more than 5% yield per annum since its inception in 2021.

Be sure to sign up for our Notes from the Blockchain newsletter for in-depth analyses of the crypto markets each month and important updates for exciting launches like our upcoming ether staking ETF.

*See Purpose Investments Disclaimer at the end of the newsletter.

🤯 We’re Hosting a 600+ Person Investor Meet-up in Toronto!!

🥳 In case you missed my post on Blossom, we have a huge announcement - we just booked a 600+ person venue to host the most epic DIY investor meet-up in Canadian history…

🔥 We’re PUMPED to announce this year’s Toronto event will be hosted at Stackt Market - which in my opinion is the coolest venue in Toronto.

😍 The event will be a whole mini-conference, complete with break-out sessions on dividends, covered calls, crypto, real estate, and more.

🍔 We’ll also have food, drinks, and tents from our sponsors Harvest ETFs (🏆 Headline Sponsor), Global X (🌟 Platinum Sponsor), addy, BMO ETFs, moomoo (🏅 Gold Sponsors), CBOE, Hamilton ETFs, and Coinsquare giving out tons of free swag!

🚨 We’ve already sold over 200 tickets, with the event still about a month out, so don’t sleep on getting your ticket! We fully expect to sell this one out 🙌

If you’re not in Toronto, don’t worry! We’ll also be hosting events in NYC, Montreal, Calgary, and Vancouver - grab your ticket below:

🎙️ Top Discussions on Blossom

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Disclaimer from Purpose Investments Inc:

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated.

If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed; their values change frequently, and past performance may not be repeated.

A preliminary prospectus relating to the fund has been filed with certain Canadian securities commissions or similar authorities. You cannot buy [units] [shares] of the fund until the relevant securities commissions or similar authorities issue receipts for the prospectus of the fund.