Canadian banks beginning to ail from US/EU debt crises
August 30, 2011
While Canada continues to try and stay on the sidelines of the fiscal turmoil that is currently racking markets in the U.S. and Europe, the spillover is beginning to take its toll on the country's economy, most recently the finance sector.
Last week, Royal Bank of Canada and National Bank of Canada both noted weak investment returns, as those institutions are among the most active in foreign markets and bonds trading, according to the Globe and Mail. However, other banks such as the Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and a number of others have also been struggling as a result of the crises.
In the U.S., economists expect unemployment and weak consumer spending to hold back the economy through next year, the Associated Press reports, while across the Atlantic analysts have been hard-pressed to find any sign of a long-term solution to the eurozone's sovereign debt crises.
Toronto-Dominion has enjoyed strong prospects in the automotive industry, but recent promises by the U.S. Federal Reserve to keep interest rates low for the next two years may challenge the bank's revenue hopes.
"We continue to have a high degree of confidence in the ability of TD to deliver consistently solid results in both Canadian banking and capital markets," Sumit Malhotra, an analyst at Macquarie Capital Markets, told the Globe and Mail. "But we think the market is underestimating the challenges all banks are facing in the U.S."
Meanwhile, RBC recently reported a net loss of C$92 billion during the third quarter. The bank pulled in C$1.27 billion over the same period in 2010.
Canada has been able to emerge fairly strongly from the global recession, boasting relatively healthy unemployment figures and a strong GDP.
Unlike in the U.S. - where more than 2 million construction jobs have been lost since the recession due to the country's weak housing market - Canada's contracting sector is running strong. Last month, according to Reed Construction Data Canada, the nation hit a record-high construction industry employment figure of 1.3 million.
However, most analysts agree that as long as the fiscal dilemmas in Europe and the U.S. continue, the Canadian economy will have to defend itself against its own foreign investments.