Canada’s two largest lenders have delivered a measured verdict on the country’s economic health, telling investors that households and businesses are navigating the turbulence of US trade policy with surprising poise—even as Ottawa and Washington trade blows in an escalating tariff dispute.
Bank of Montreal and Bank of Nova Scotia both reported third-quarter profits on Tuesday that surpassed analyst forecasts, despite persistent concerns that trade frictions would throttle lending growth. Their results kick off a busy week of bank earnings, with National Bank due to report on Wednesday and Royal Bank of Canada, Toronto-Dominion Bank, and Canadian Imperial Bank of Commerce all scheduled for Thursday.
The numbers arrive at a pivotal moment. Over the weekend, Prime Minister Mark Carney pulled the plug on trade negotiations with Washington, prompting US President Donald Trump to slap fresh 50 per cent tariffs on approximately $28-billion worth of Canadian goods. Ottawa responded on Tuesday with its own counter-tariffs on American imports, set to take effect on 8 September.
Executives Acknowledge a “Period of Adjustment”
BMO chief executive Darryl White struck a sober but steady note during a conference call with analysts. He characterised the Canada-US relationship as undergoing “a period of adjustment,” warning that uncertainty poses a headwind for trade-dependent sectors and broader domestic affordability.
“Assumptions businesses have relied on for decades, particularly around the predictability of trade policy, have been tested in the last year and a half,” Mr White said.
He emphasised that BMO is working alongside clients to reassess investment decisions, reorganise supply chains, and explore new markets. Businesses, he added, are currently “adjusting very well.”
There is a silver lining, in his view. As global firms seek resilient destinations to hedge against mounting uncertainty, Canada is well positioned to attract them. The country offers a stable financial system, abundant natural resources, a deep pool of skilled workers, and access to what Mr White described as “the world’s most comprehensive set of free trade agreements.”
Scotiabank boss Scott Thomson echoed that optimism, declaring the Canadian economy has “proven to be much more resilient than expected” since the United States first rolled out new tariffs last year. He urged Ottawa to accelerate its plans to stimulate growth, dismantle interprovincial trade barriers, and streamline regulatory approval timelines.
“There’s uncertainty, but it does feel like a manageable force to get through as a country,” Mr Thomson said. He argued the government could bolster the economy by “getting big things done and continuing to diversify trade while also continuing the great trade relationship we have with the US.”
Loan Books Show Limited Direct Exposure
The risk officers at both banks moved quickly to allay fears that a prolonged trade conflict could trigger a wave of defaults.
BMO’s chief risk officer, Piyush Agrawal, said he does not anticipate the collapse of trade negotiations to produce widespread loan losses. Internal stress tests on portfolios most exposed to trade disruption revealed that less than 1 per cent of BMO’s loan book carries direct tariff risk—and the majority of those clients are investment-grade borrowers. Mr Agrawal indicated that fourth-quarter provisions for credit losses are likely to mirror the level set aside this quarter.
Scotiabank’s chief risk officer, Shannon McGinnis, offered a similar assessment, noting that the ultimate impact of tariffs will hinge on their scope and duration. Clients directly affected currently represent under 1 per cent of the bank’s loan portfolio.
Profit Beats and ROE Targets
The bottom-line results painted a picture of resilience. BMO posted net income of $1.75-billion, or $2.38 per share, for the three months ending 31 July—a 25 per cent drop from the same period last year. Adjusting for certain items, however, profit climbed 19 per cent to $2.86-billion, or $3.96 per share, narrowly exceeding the $3.75 analysts had projected, according to Bloomberg data. The bank also unveiled a share buyback programme.
Scotiabank, by contrast, saw net income rise 17 per cent year-on-year to $2.95-billion, or $2.27 per share. On an adjusted basis, earnings came in at $2.28 per share, ahead of the $2.10 consensus estimate, buoyed by robust capital markets activity and broad-based business performance.
Both lenders have been concentrating on lifting return on equity—a closely scrutinised profitability benchmark—rather than chasing large-scale mergers. BMO has set a target of reaching a 15 per cent adjusted ROE by the end of 2027; in the latest quarter, it delivered 14 per cent, up from 12 per cent a year earlier.
Mr White left the door open for selective US acquisitions but drew a firm line. “Might we engage in M&A in the US? Only if it meets very strict conditions,” he said. “We wouldn’t look at anything that would delay our ROE promises from a timing perspective.”
Scotiabank has been steadily building its American footprint, having taken an additional stake in Cleveland-based KeyCorp late last year and announcing a deal in May to acquire MapleMark Bank, a Texas-based commercial lender. Mr Thomson, however, made clear his preference for organic growth, though he signalled openness to “tuck-in” deals in capital markets and wealth management.
Investors Watch for Signs of a Ceiling
Canadian bank stocks have surged this year, outpacing both the broader Canadian market and shares of major US lenders. With valuations now stretched, Wednesday’s and Thursday’s earnings releases from the remaining big banks will go a long way towards determining whether the rally has further to run—or whether the sector is due for a breather.
Why it Matters
The contrasting messages from BMO and Scotiabank—steady earnings, limited loan exposure, but a clear warning that trade frictions are here to stay—offer a window into how Canada’s financial system is absorbing one of the most disruptive shifts in North American economic policy in decades. With less than 1 per cent of their loan books directly exposed to tariffs, the immediate danger to bank balance sheets appears contained. Yet the longer-term concern is more diffuse: a sustained chill in cross-border investment, delayed business decisions, and the erosion of predictability that executives say has underpinned decades of integrated commerce. For policymakers in Ottawa, the banks’ calls to dismantle internal trade barriers and accelerate stimulus are not just friendly suggestions—they are a tacit warning that the country’s economic resilience, while real, cannot be taken for granted.
