With Donald Trump’s victory in the U.S. presidential election, analysts predict that his promised tax cuts, deregulation, and reshoring initiatives could have a ripple effect, benefiting Canada’s major banks. U.S. financial markets have already seen a surge in bank share prices, with the hope that Trump’s policies will provide a favorable environment for businesses and financial institutions. Several of Canada’s top banks, particularly Bank of Nova Scotia, Bank of Montreal, and Royal Bank of Canada, are poised to reap the rewards of these changes.
Scotiabank’s U.S. Investment: KeyCorp Stake Set to Yield Returns
One of the banks that could directly benefit from Trump’s policies is the Bank of Nova Scotia (Scotiabank), which has made significant investments in the U.S. market. In August, Scotiabank agreed to purchase a 14.9% stake in Cleveland-based KeyCorp for US$2.8 billion. This investment was made at a price of US$17.17 per share, but KeyCorp’s stock has since risen to US$19.49 per share, reflecting a 13% increase.
Scotiabank had already completed the first phase of the deal, acquiring about 4.9% of KeyCorp. The second and final stage of the investment is scheduled to be completed early next year, which could further benefit Scotiabank as KeyCorp continues to experience positive growth. Given that Trump’s business-friendly policies, such as tax cuts and deregulation, are likely to boost U.S. financial markets, Scotiabank stands to gain from its strategic positioning in the American banking sector.
Bank of Montreal’s U.S. Exposure: Recovery Likely Ahead
Another Canadian bank expected to benefit from Trump’s victory is the Bank of Montreal (BMO). The bank has significant exposure to the U.S. market, and its stock could be positioned for a rebound. BMO’s performance had been weaker than expected in its most recent quarter, primarily due to a higher-than-expected provision for loan losses, particularly in its U.S. operations.
However, analysts are optimistic that the worst is behind BMO, especially with expectations that Trump’s policies will improve the U.S. economy and financial markets. National Bank of Canada analyst Gabriel Dechaine noted that the positive market sentiment surrounding Trump’s election could drive the bank’s stock price upward. While BMO may face another weak quarter in the short term, its long-term prospects are bolstered by the positive economic outlook for the U.S. under Trump’s leadership.
Royal Bank of Canada: Positioned for Growth
Among the top Canadian banks, the Royal Bank of Canada (RBC) is also expected to benefit from Trump’s win. RBC has substantial operations in the U.S., and its diversified revenue streams could see a boost from Trump’s pro-business policies, including tax cuts and deregulation. The expectation is that these policy changes will help drive economic growth in the U.S., benefiting banks with significant U.S. exposure, such as RBC.
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Impact of Trump’s Policies on the Global Financial Landscape
Trump’s election could also influence the global banking environment, particularly with respect to the 2017 Basel III reforms. These reforms, which were developed by central banks and regulators from 28 countries following the global financial crisis, are designed to improve capital reserves at financial institutions and enhance global financial stability.
According to Scotiabank analyst Meny Grauman, Canada has been a leader in implementing these reforms. However, other banking jurisdictions, including the U.S. and Europe, have expressed concerns about the necessity of such regulations. Under a Trump administration, it is likely that the U.S. will relax some of these regulations, which could lead to a reevaluation of Canada’s banking rules as well. If Trump pushes forward with deregulation in the U.S., Canada may also need to consider revising its own capital requirements to remain competitive on the global stage.
Winners and Losers: Canadian Banks Set to Thrive
Overall, Canadian banks with significant U.S. exposure are the biggest winners in the wake of Trump’s victory. Scotiabank, BMO, and RBC stand to benefit the most, thanks to their investments in the U.S. banking sector and the likelihood of favorable market conditions under Trump’s leadership. While there are some short-term uncertainties, especially for BMO, analysts remain optimistic about the long-term prospects for Canada’s top banks.
As the U.S. economy gears up for potential growth under Trump, Canadian banks are well-positioned to capitalize on the opportunities created by his policies. Investors looking to benefit from this trend may want to keep an eye on these major financial institutions as they navigate the evolving landscape of U.S. economic policy.