Welcome to Bay Street Edition, our weekly newsletter devoted to what’s happening in Canadian finance, covering strategy, deals, people moves and economics.
I’m Christine Dobby, Bloomberg’s Toronto-based banking reporter, and you’ll find me in your inbox every Friday. This week, we’re talking about the Bank of Montreal CEO’s arguments for looking beneath the headlines, US bank earnings and Scotiabank job cuts.
Plus: On the first episode of The Mishal Husain Show, a new podcast from Bloomberg Weekend, Mishal is joined by Prime Minister Mark Carney. Just seven months into the job of running a country at the forefront of the disrupted world, Carney talks about trade battles, climate policy, Vladimir Putin’s miscalculations, and what he has learned from Donald Trump.
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Below Average
America’s biggest banks trounced analyst expectations as they reported third-quarter results this week. Canada’s banks did the same in August. North American stock markets have smashed their way to new records.
Meanwhile, last week’s Canadian labor force report showed the country gained 60,400 jobs in September, well ahead of the median forecast of 5,000. The US labor picture has become harder to track with the government shutdown, but the unemployment rate has so far remained low at 4.3% in August.
With all the disruption caused by US President Donald Trump’s trade war, why does the economic picture look relatively OK? What gives?
That was the question Bank of Montreal CEO Darryl White tackled this week. Speaking at the Toronto Global Forum, he cautioned against relying too much on headlines driven by averages. With a growing gulf in fortunes in both Canada and the US, no one is “average” and he’s increasingly worried about the people at the unlucky end of the spectrum.
Investment bankers, wealth managers and traders are doing very well amid active markets, “but move from Wall Street to Main Street and it’s not so pretty,” White said.
Slow loan growth is a signal of weak demand and US banks reported some cracks in credit quality, particularly when it comes to unsecured debt like credit cards — “usually the first to go when somebody’s worried about paying a bill on Friday.”
People with real estate, stocks and bonds are enjoying increased wealth, but for a large portion of the population, “this is a tougher ride than the headlines would suggest,” White said.
“I think we’re getting more and more and more uncomfortable,” he said, “and that includes society risk with respect to income inequality that is very real.”
Canada’s income gap — the difference in the share of disposable income between households in the top 40% and the bottom 40% — was at a record high of 48.4 percentage points in the second quarter, according to new data published by Statistics Canada.
Households across the spectrum have enjoyed a boost when it comes to net worth, but — wait for it — the wealthiest have benefited the most as financial assets rip higher.
White said he expects Canada’s unemployment rate to rise from its current level of 7.1% to more than 8% before it comes back down. Talks have continued between top US and Canadian officials on sectoral tariffs but there’s been no resolution yet, making the upcoming review of the North American free-trade pact even more crucial.
We got a glimpse this week of just how painful Trump’s policies could be for some workers when Stellantis NV canceled plans to make the Jeep Compass sport utility vehicle at its Brampton, Ontario plant, opting for Illinois instead to get around tariffs. There are about 3,000 unionized workers at the plant, and many thousands more who work at auto suppliers that depend on that one factory.
Cracks are evident south of the border, too. Federal Reserve Governor Christopher Waller, a contender to replace Jerome Powell as chairman, called out the faltering labor market on Thursday, pointing to data from private-sector sources over the past six weeks.
And investors looked past the strong performance of the biggest firms’ capital-markets businesses this week, sending bank stocks on a wild ride after a small number of regional lenders raised concerns about distressed loans.
Coming back to White’s warning about relying on average economic and financial indicators, he told the audience: “It’s like having your feet in the freezer and your head in the oven. On average you feel fine, but it’s pretty damn uncomfortable.”
Other news about BMO and the Canadian economy this week:
As discussed above, Wall Street banks mostly had a bang-up quarter. Bloomberg’s Rick Green has a great round-up in this week’s Banking Industry Monitor (gross photo warning thanks to Jamie Dimon’s cockroach remarks). The firms’ trading divisions in particular have benefited from active markets as Trump’s policies continue to keep investors on edge.
Morgan Stanley saw revenue from trading stocks surge by 35% to $4.12 billion, beating analyst estimates for a 6.6% increase. That also topped Goldman Sachs Group Inc.’s $3.74 billion from trading, despite Goldman’s recent track record of dominating the equity-trading business.
Lest you fret over Goldman’s performance, the firm still turned in its best third-quarter revenue ever, boosted by rapid growth in its investment-banking business.
Up and Down Bay Street
Bell strategy moves. BCE Inc. aims to save C$1.5 billion ($1.1 billion) in costs and expand internet services in western Canada and the US in a bid to restore growth. The shares dropped during the company’s investor day on Tuesday, then bounced back after a round of analyst upgrades showed support for the company’s plans to address its debt and improve its growth.
TD people moves. Toronto-Dominion Bank said Andre Ramos (ex-JPMorgan) will join the firm as US chief financial officer and Brian Callanan (who previously worked for the US Treasury Department) will become US general counsel. Separately, Paul Mutter left a role as head of US fixed income and global head of fixed-income sales after joining TD just last year. The bank said Jason Ince has now added responsibility for global fixed income. In other leadership changes, Rhys Brooks and Phil Cushman became co-heads of global equities.
BMO people moves. Bank of Montreal bolstered its coverage of financial services with new investment-banking hires in New York: Dan Miller (ex-Macquarie) becomes vice chair of FIG and Ben Meltzer (ex-UBS) joined as a managing director. The firm plans to add another managing director to the group in January.
Teck Resources reports third quarter earnings on Oct. 22 while Rogers Communications is up the next day. I’ll be listening to the latter’s call for any hints about the Toronto Blue Jays’ payroll.
Beyond Bay Street
Hot money. One of the newest tenants of Trump Tower in New York City is a startup investment bank called Dominari Holdings Inc. It’s located only two stories below the headquarters of the Trump Organization — a proximity that Dominari’s president, Kyle Wool, considers a point of pride. Wool spent years cultivating a relationship with the Trump family, and he has emerged as a financial fixer for the president’s two eldest sons and a cadre of senior Trump Organization employees. Together they’ve struck a succession of lucrative deals.
It burns. If you know a young person who’s really into pink-packaged, super-spicy, South Korean instant ramen, you’ll want to read this piece on how the Buldak brand has harnessed internet fame to build an enduring business. You must, at the very least, watch the extremely funny linked video of a birthday girl’s reaction to receiving a package of said ramen. They’re happy tears! (Until she eats the stuff, at which point they’re real tears...)
The brand’s first brush with fame came in 2014 when a YouTuber sparked the “fire noodle challenge.” Yum?
Photo illustration: Ryan Haskins; Photos: Buldak (3); Getty Images (2)
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