Like a Transylvanian townsperson trying to ward off Dracula with garlic, Canada’s banking sector is trying to keep spooky times at bay with layoffs.
What happened: Scotiabank is the latest Canadian bank to roll out cost-cutting measures as the outlook for the economy worsens, moving to cut 3% of its employees (amounting to about 2,700 jobs) and bracing for a $590 million hit in restructuring charges this quarter.
- RBC has also moved to cut 2% of its full-time equivalent staff as expenses surge, while BMO has trimmed staff in investment banking, research, and other areas.
- Although TD Bank has not announced layoffs, it’s keeping a close eye on its expense management.
Why it matters: A healthy banking sector is the bedrock of the economy. Canada’s Big Five face mounting profitability challenges in the face of a consumer spending slowdown, the rise in digital banks, and slumping deal activity (capital markets have been a target for layoffs).
- In the eyes of analysts, the cost-cutting measures are positive for the sector, which is already seen as relatively secure given the dominance of only a handful of players.
- At the same time, banks might have to give up a lot more revenue if the federal government is successful in forcing banks to reduce fees and help mortgage holders.
Big picture: One thing to watch in the coming months is how loan defaults weigh on bank balance sheets. Earlier this year, the Big Five collectively set aside the most money for loan losses since 2020, as Canadians start to feel the full impact of high interest rates.
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