BMO, Scotiabank and National Bank kicked off Canadian bank earnings season with results highlighting continued strength in wealth management and capital markets businesses. Investors are also weighing whether elevated valuations can support further gains in bank stocks.
BNN Bloomberg spoke with Mike Clare, senior vice-president and portfolio manager at Brompton Funds, who said improving return on equity, expense discipline and stabilizing credit trends are supporting profitability across the sector.
Key Takeaways
- Wealth management and capital markets businesses continued to support earnings growth as trading activity and investment banking revenues improved.
- Banks benefited from stronger operating leverage as revenue growth outpaced expenses, helped by ongoing efficiency efforts and AI deployment.
- BMO reported strong performance in U.S. commercial banking, wealth management and capital markets, while lower provisions for credit losses supported results.
- Scotiabank’s higher impaired loan provisions and weaker capital markets performance raised concerns despite stronger Canadian and international banking results.
- National Bank posted continued strength in capital markets and wealth management, while integration synergies tied to Canadian Western Bank remained on track.
Read the full transcript below:
LINDSAY: BMO, Scotiabank and National Bank are kicking off Canadian bank earnings this morning. Looking at all the results, our next guest says a key takeaway is that the banks’ fee-based businesses remain strong. Joining us now to break down the results is Mike Clare, senior vice-president and portfolio manager at Brompton Funds. It’s great to have you join us. Thanks so much.
MIKE: Yeah, thanks for having me.
LINDSAY: So we’ll start there. Why do you feel that’s a key takeaway from all three banks that reported today?
MIKE: Yeah, so I think one of the trends we’ve seen over the last several quarters is growth in a number of these fee businesses for Canadian banks, particularly their wealth management franchises and capital markets businesses.
Of course, wealth management has done very well across all the banks, especially with equity markets moving higher. We’ve seen growth in client balances and additional fee income through that channel.
Capital markets have also been performing very well on the back of increased volatility around geopolitical events and other macroeconomic factors. That’s driven strong results across the board for all the banks, both in Canada and the U.S. on the trading side, and now we’re starting to see a resurgence in investment banking revenues as well.
LINDSAY: Yeah, and the banks trade at 15 times price-to-earnings versus the historical range of about 11 to 13 times. What’s driving that premium, and is that sustainable?
MIKE: Yeah, I think it’s one of the key questions this year. Canadian banks are up roughly 60 per cent on average over the past year and are now trading at elevated earnings multiples. The question is whether that’s sustainable.
I think one of the key drivers is improving return on equity. When it comes down to it, all of their businesses are performing well at the same time, which isn’t something we usually see.
One of the key drivers is interest income. Over the past 15 to 20 years, interest income really suffered during the era of zero interest rates. Banks generally generate margins by lending assets at a higher rate than the deposits they take in, but when rates go to zero, you can’t lower deposit rates below zero, so lending margins compressed during that period.
Now that we’re no longer in that environment, lending margins have improved. We haven’t seen much loan growth yet, but that could come in the next several quarters and years.
At the same time, we’ve seen very strong fee-based businesses and solid expense management. Banks are producing positive operating leverage, with revenue growth outpacing expense growth. Some of that may come through AI and other efficiency initiatives.
Credit, which had been weak for several quarters, has also begun to stabilize and could improve further in the back half of this year and into 2027.
When you put all that together, banks are producing record earnings, strong profitability and improving return on equity. They also have strong capital levels that support dividend growth and buybacks.
So I think banks can trade above the historical range of 11 to 13 times earnings, but the key question is whether these results are enough to justify a 15-times multiple.
LINDSAY: Yeah, it’ll be interesting to see how investors react once trading gets underway later today.
You mentioned loan growth could return within the next few years for some of the big banks. Why do you think that’s coming, especially as Scotiabank’s CEO expressed optimism about the Canadian economy in 2027?
MIKE: Yeah, I think it ultimately comes down to some optimism around the Canadian economy. Canada has been stagnant on a per-capita basis for a number of years, but I think we’re starting to do things as a country that are positive for growth, and ultimately that should flow through to bank balance sheets.
One area that could remain challenged is the residential mortgage market, but banks may be able to make up for that through corporate loans and other lending segments.
Loan growth has been challenged, but looking ahead to 2027, it’s an area that could improve alongside the broader economy.
LINDSAY: How are banks using AI to drive efficiencies on both the cost side and the revenue side?
MIKE: Yeah, that’s a really key point. When people think about artificial intelligence, the first thing that comes to mind is job losses and what happens to white-collar employment.
But when you talk to banks and other companies deploying AI, I think more of the benefit comes on the revenue side than the cost side.
For example, customer service agents can use AI-generated insights to better serve customers and cross-sell products more effectively. If you walk into a branch, employees may be able to generate automated insights on the spot to help recommend different products.
Another important area is compliance and fraud detection. Banks spend a lot of time on administrative and compliance-related work, and AI could improve efficiencies there.
Banks are among the businesses best positioned to take advantage of those technologies and potentially improve profitability over time.
LINDSAY: Let’s start with Bank of Montreal. We saw strong fee revenue growth across capital markets and wealth management. What’s behind that strength?
MIKE: Yeah, I think it was a pretty strong quarter for BMO across the board. Assets under management in wealth management were up 33 per cent year over year, driven partly by stronger markets and also by new business growth.
That’s an area that’s performing very well and should continue to do so.
The capital markets business is also producing record revenues and earnings. In particular, BMO has a strong mining franchise, which we think is well-positioned given everything happening in the mining sector and broader Canadian economy.
We also saw strong results from the U.S. personal and commercial banking business, which had been weaker in previous quarters and years. Earnings there were up 25 per cent year over year, and we’re seeing moderate commercial loan growth, which is a key positive.
LINDSAY: Looking at Scotiabank next, the company beat profit estimates and raised its dividend, but some of that was overshadowed by provisions for credit losses and weaker capital markets performance. What concerns you there?
MIKE: Yeah, if we look at the credit-loss picture for Scotiabank, total provisions for credit losses were down substantially year over year, but it’s important to break down what’s happening underneath that.
Banks provision for impaired loans, which are loans where payments have stopped or the loan is otherwise impaired, and they also provision for performing loans based on the broader macroeconomic environment.
Last year, banks including Scotiabank took large performing-loan provisions because of tariff-related concerns. Those have now normalized.
But if you look specifically at impaired loan provisions for Scotiabank, they continued to move higher quarter over quarter, while some peers are reporting flat or slightly lower impaired provisions.
Scotiabank highlighted its international corporate portfolio as a key driver, including one specific customer. So it may not be as bad as feared, but we’d still like more detail there.
On the capital markets side, revenues came in below consensus because of weaker trading revenues and higher expenses. Capital markets earnings can be lumpy, so this may not be the start of a broader trend, but it’s still an important difference versus the other banks that reported today.
LINDSAY: Yeah, and I want to get to National Bank as well. Profit and revenue beat expectations. What drove those results?
MIKE: Again, it was a pretty strong quarter for National across the board, especially in fee-based businesses. Wealth management revenue was up 14 per cent year over year.
National has also delivered consistently strong results in capital markets for several quarters now. Trading revenues remained strong, and importantly, investment banking revenues reached record levels across corporate banking, mergers and acquisitions, and equity capital markets.
Expense management was also solid, and credit losses were a strong result. Their impaired loan provisions came in at the low end of guidance, which compares favourably with peers, especially Scotiabank.
LINDSAY: Your overall view on National Bank is still mixed despite the beat. Why is that?
MIKE: I think the mixed view comes from lower net interest margin and lower net interest income, which could be viewed negatively by the Street.
They have their conference call later this morning, so it’ll be important to hear more detail on what drove that.
Overall, it’s still a strong business trading at an elevated valuation, but I’m not sure there was enough in the quarter to push the stock materially higher from here.
LINDSAY: Okay, lots to discuss there. Mike Clare, senior vice-president and portfolio manager at Brompton Funds. Really appreciate your time. Thanks so much.
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This BNN Bloomberg summary and transcript of the May 27, 2026 interview with Mike Clare are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
