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COVID-19 roundup: Bay Street’s difficult earnings season begins

Bank towers are shown from Bay Street in Toronto's financial district in June 2010. The Canadian Press/Adrien Veczan
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It’s day 77 since Canada’s 100th coronavirus case. The number of cases is 86,614 as of publication time, up 903 since yesterday—a 15 per cent decrease from the seven-day prior average of new cases. On their respective 77th day, U.S. daily new cases were down one per cent from the seven-day prior average; the U.K. was down 23 per cent in daily new cases from the seven-day prior; and in Italy, new cases were down 22 per cent.*

Bay Street blues: On the first day of what’s expected to be a difficult earnings season for Canadian financial institutions, Scotiabank reported a 41 per cent year-over-year profit drop to $1.13 billion in its fiscal second quarter, while the Canada Pension Plan Investment Board posted a 3.1 per cent return for its fiscal year, its worst performance since the last recession.   

Scotiabank’s adjusted net income from its Canadian and international banking businesses dropped 42 per cent and 73 per cent, respectively, as it set aside an extra $984 million to cover loan losses over the quarter, which runs from February to April. Still, earnings beat analyst expectations. Domestic deposit volumes grew, while the company’s global wealth management division posted a four per cent adjusted earnings increase and “outperformed market benchmarks and industry peers.”

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Scotiabank’s results were “significantly impacted by the COVID-19 pandemic,” CEO Brian Porter said; the bank granted 300,000 individual and business customers financial relief on $60 billion worth of credit. Porter said the outbreak has caused deep economic damage, and predicted banks will continue to feel the effects for some time. “This is not a one-quarter or two-quarter event,” he said on the firm’s earnings call. Scotiabank’s stock rose 7.41 per cent in Tuesday trading.  

CPP Investments also felt the outbreak’s effects. The plan’s fiscal-year return was dragged down by a 3.7 per cent decrease in the first three months of 2020, which it attributed to equity-market declines. It had $409.6 billion in net assets as of March 31. The plan still outperformed the “reference portfolio” against which it benchmarks, which produced a 3.1 per cent drop over the fiscal year. In an interview with The Logic to be published this evening, CEO Mark Machin noted that markets have improved somewhat since the fund’s last quarter, but hesitated to say the worst was over. “Values have gone up a little bit as of this second, but we expect a slow and protracted economic recovery—we don’t expect overall output from economies to be back at [pre-COVID-19] levels until the second half of 2022.”

Reporting after the bell, National Bank—the smallest of the Big Six—posted net income of $379 million for the second quarter, a 32 per cent year-over-year reduction despite “revenue growth being generated across all business segments,” including an 11 per cent jump in wealth management. Like Scotiabank, National hiked its credit-loss provisions significantly to “reflect a significant deterioration in the macroeconomic outlook caused by COVID-19 and the expected impacts on our clients.”  

Doubling down on ESG: Canada’s institutional investors are increasingly bullish on sustainable investing in the wake of the COVID-19 pandemic, according to a report by financial-consulting firm Millani. In a survey of 23 pension funds and wealth managers representing $2.3 trillion in assets under management, 74 per cent said they believe the pandemic will have a positive impact on environmental, social and governance (ESG) investing. Sixty-five per cent of investors said they expect companies to disclose more information about ESG risks to their business, while just four per cent said they expect disclosure to decline. The report follows strong quarterly growth in ESG investing in Canada compared to traditional funds. 

In the markets: The Canadian dollar hit a two-month high Tuesday, rising 1.34 per cent to 72.46 cents U.S. in late afternoon trading. All major North American indices closed up today as rising oil prices and reopening economies boosted investor confidence. The S&P 500 broke 3,000 for the first time since March 5. 

The uptick comes despite a steady stream of the kind of news that typically depresses markets, including rising trade tensions between the U.S. and China and dour macroeconomic indicators. The combined first-quarter GDP of OECD nations fell 1.8 per cent quarter over quarter, the largest drop since the 2009 financial crisis. Total employment in Canada fell by three million people between February and April and hours worked dropped nearly 30 per cent. The Bank of America warned that the current rally is creating “fake markets” underwritten by central-bank bond purchases, and Deutsche Bank’s CEO said markets are “too optimistic” about a potential recovery. 

Tuesday wasn’t all doom and gloom. U.S. crude futures for July hit 3.2 per cent and U.S. consumer confidence ticked up slightly to 86.6 in May, below analyst expectations, but up from 85.7 in April. Goldman Sachs is launching its cash management business in the U.K. by September and Nasdaq president Nelson Griggs is predicting a good season for IPOs if the stock rally holds. 

“Microsoft is perhaps unhealthily preoccupied with killing us, and Teams is the vehicle to do that”: Slack CEO Stewart Butterfield spoke with The Verge about competing with Microsoft in a time when remote work is on the rise. 

Cross-country checkup: Soldiers sent to fill staffing shortages at long-term care facilities in Ontario reported “extremely troubling” conditions, including lack of training and medical supplies, neglect and abuse by staff and unsanitary conditions. Half of Canadians believe governments are withholding information about the COVID-19 pandemic, according to a poll; at the same time, the majority of respondents were satisfied with how their local, provincial and federal governments have responded to the crisis. Ontario Premier Doug Ford said “there will be consequences” for commercial landlords who don’t sign up for rental assistance for their tenants, after business groups signed a joint letter calling for a pause on commercial evictions. Halifax is considering waiving the licensing fees for cafes and restaurants to operate sidewalk patios for the rest of the year.

Tech tax credits flowing: The Canada Revenue Agency processed $80 million in scientific research and experimental development (SR&ED) credits since The Logic reported audits would be processed “as soon as possible” in early May. As of May 21, $76 million remains under review. SR&ED has distributed $480 million in refundable credits since the start of the pandemic. 

Cinching a deal: Toronto-based data-technology company Cinchy has closed a $10-million Series A. The funding round was led by Information Venture Partners and included Manulife Investment Management, as well as return investors BDC Capital, ScaleUp Ventures and Techstars. Dan DeMers, Cinchy’s co-founder and CEO, told The Logic the round was always planned, but was “accelerated” once COVID-19 forced businesses to work from home. Saskatchewan’s Concentra Bank, for example, used Cinchy’s technology to shift to a fully digital system in under a week, DeMers said. The company’s Series A comes after The Logic reported Cinchy had pitched a “command centre” to the federal and Ontario governments as a system to help public health agencies use data from contact-tracing technologies securely. DeMers said the latest investment will be used to grow into the health-care space and other sectors, while also expanding its 38-member workforce.

Bay Street to Main Street: While CPP Investments released its earnings today, most of Canada’s largest public pensions still won’t say how they performed during the first quarter, despite widespread economic turmoil. In March, The Logic reported that the 10 largest funds had lost an estimated $104 billion in public equities alone, but no pension offered detailed financials at that point. Today, The Globe and Mail reported they’re remaining mum on financial performance, as well as, for the most part, on whether executives have taken pay cuts or staff have been laid off. The top 10 pensions manage a combined $1.7 trillion in assets, the retirement nest eggs for millions of Canadians. Many of them only disclose results once a year. The latest data available for the Public Sector Pension Investment Board and British Columbia Investment Management Corporation, for example, ends on March 31, 2019. And while the Alberta Investment Management Corporation is releasing first-quarter results to its money management clients after losing $2.1 billion in recent market turmoil, it is not releasing those results to the public. 

  • COVID-19 has Ottawa ramping up investments in high-speed internet for rural areas. Meanwhile, the Federal Court of Appeal has dismissed a request by large telecoms to delay a hearing into the wholesale rates they charge small suppliers. The hearing will take place on June 25 and 26.
  • Michael Denham’s term as CEO of the Business Development Bank of Canada is being extended by another year. He has led the bank since 2015; his term now ends in August 2021. 
  • Facebook Canada is offering $5,200 grants to about 650 small businesses through cash and advertising credit. The deadline is June 2, and applications can be made here.
  • A third of businesses say they may run out of cash in less than a month, according to a survey of about 500 firms by the Canadian Lenders Association. 
  • General Motors is selling 10 million masks to the federal government at cost over the next year. “As we speak, GM employees are already making these masks,” Prime Minister Justin Trudeau said Tuesday.
  • Six thousand people arrived at Canadian airports from overseas countries in April. That’s a 97.7 per cent drop from the 257,000 in April 2019. 
  • Hotel workers in Nunavut and the Northwest Territories have been unemployed for weeks as the territories severely limit travel. 
  • Ryerson University’s DMZ and the Town of Innisfil, Ont. have launched a virtual incubator to help scale tech startups. Eight startups are participating so far.

Crowdsourcing the crisis: Toronto’s ScaleUp Institute has launched a Recovery Activation Program to help businesses accelerate their digital transformation. The Future Skills Centre has launched a $15-million call for proposals for solutions that build resilience in the labour market during the pandemic; you can apply here.

Trace me on my cellphone: Two eminent former judges have joined Covi Canada, the arm’s-length non-profit organization overseeing privacy and human rights concerns for users of a contact-tracing app being developed by Montreal-based research institute Mila. Former Supreme Court justice Louise Arbour, who is also the former UN commissioner for human rights, will serve as Covi Canada’s honorary president, while former Quebec appeal court justice Louise Otis will chair its board of directors. Meanwhile, India has released the source code for its contact tracing app, which has been downloaded by over 114 million users in less than two months. The government is offering cash prizes of up to US$1,325 to anyone who can identify any bugs and vulnerabilities in the app. 

In the lab: U.S. drugmaker Merck announced three initiatives Tuesday to fight the coronavirus. It is partnering with the International AIDS Vaccine Initiative to develop a vaccine using the same technology as Merck’s Ebola vaccine. The drugmaker is also acquiring Themis Bioscience, a Vienna-based biotech company that has been developing a vaccine based on a measles shot that will be tested in humans “in just a few weeks.”

Elsewhere, the U.K. approved the use of Gilead Sciences’ antiviral drug remdesivir for some COVID-19 patients, after early clinical trials showed it could shorten recovery time by four days. U.S. biotech company Novavax will begin human trials in Australia. William Haseltine, a researcher who has done work on HIV/AIDS, told Anderson Cooper that behavioural change, not a vaccine, is needed to eradicate the coronavirus: “The idea that science is going to reach into its bag and pull out magically the cure is fanciful.”

Drinking from the firehose: 

  • Top digital officials in France, Italy, Spain, Germany and Portugal published an op-ed criticizing U.S. tech giants for exerting too much control over how COVID-19 tracking apps are developed and used, calling on the European Union to establish more independence from Silicon Valley. 
  • Some businesses across Europe are calling on governments to maintain relief funding for out-of-work employees, even as lockdowns lift.  
  • Recording label Warner Music plans to sell US$1.8 billion in stock, valuing the company at over US$13 billion, when it goes public on the Nasdaq in June. The IPO could be the biggest New York listing this year so far. 
  • Jio Platforms, an Indian digital-service company whose backers include Facebook, is preparing for an overseas IPO potentially this year, after raising US$10 billion in one month. 
  • A group of tech firms is developing a patch powered by a microchip that people could wear to monitor their temperature. 
  • Uber and Lyft drivers in New York have sued Governor Andrew Cuomo and the state’s Department of Labor, claiming the state illegally failed to pay benefits to drivers in a timely manner. 

Around the world: The European Commission is presenting its coronavirus-recovery package tomorrow; it is expected to be worth around a trillion euros. The U.K. will announce a cutoff date for workers to join its furlough scheme, which has shut out judges who are paid on a case-by-case basis. Demand for the U.S. small-business relief fund has “just dried up,” leaving US$150 billion untapped. California is bracing to lose more in the coronavirus-induced recession than any other state. 

A study has found that almost 96 per cent of Italy’s coronavirus fatalities had previous medical conditions. Two major sporting events in the U.K.—the Cheltenham Festival and Liverpool’s Champions League match against Atletico Madrid—increased the number of cases “several-fold,” according to the scientist leading the country’s largest COVID-19 tracking project. Wuhan tested its 6.5 million residents by going door to door to register residents and take them to testing stations, while also testing samples in batches.

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“Hun Sen: The Handsome Hero Who Went Against the Current to Fight COVID-19”: That’s the title of an upcoming 270-page book documenting the unconventional decisions taken by Cambodia’s leader during the pandemic, including travelling to Beijing and allowing a U.S. cruise ship to dock. 

* We’re emphasizing new cases, rather than running totals, because “flattening the curve” is when each day’s new cases are fewer than those of the previous day. The percentage increase is determined based on how today’s cases compare to a rolling seven-day prior average. Numbers may also vary based on countries’ individual testing capacity and reporting.

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