Canadians worry about Trump back in office but analysts say he will boost banks

While many Canadians are worried about what a second term in office for Donald Trump could mean for their country, Canada’s banks could benefit from the former president returning to the White House according to some analysts. 

Financial Post recently reported that Canadian banks could benefit under Trump in office thanks to the former president's proposed tax cuts and his focus on reshoring key industries of the United States. 

CIBC Capital Markets analyst Paul Holden explained in an October 24th note that under a Trump presidency, Canadian banks that have high exposure to the U.S. would benefit a lot while a Harris win wouldn’t change their outlook all that much. 

“When thinking about which Canadian financials would benefit from a Trump presidency and which would not, the analysis is relatively straightforward,” Holden explained. 

“What companies have the highest proportion of employees who celebrate Thanksgiving in November versus October… and what proportion live in countries that do not celebrate Thanksgiving at all?” Holden explained. 

The Canadian bank that will benefit the most from a Trump win would likely be The Bank of Montreal (BMO) according to Holden’s analysis. This is because the bank generates one of the highest portions of its earnings from the United States. 

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“BMO has both a large U.S. commercial bank that would benefit from U.S. reshoring and a large U.S. investment bank that would benefit from more capital markets activity,” Holden explained. 

Toronto Dominion (TD) would also see big benefits from a Trump victory in November, it was pegged as the bank that would receive the second-largest benefit despite its recent troubles and the asset cap placed on it by regulators over money laundering issues. 

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The Globe and Mail reported that according to data from BMO, the bank generates as much as 45% of its profits in the United States, whereas the Toronto Dominion netted 35% of its earnings from its business in the US. 

Photo by PiggyBank on Unsplash

On the other side of the scale is the Bank of Nova Scotia, which Holden believes would benefit the least from Trump being elected to the White House for a second term since it generates about the same earnings from its businesses in Mexico as it does the US. 

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The possibility that Trump could seek to aggressively renegotiate free trade agreements like his administration did in 2016 with Canada and Mexico is why Holden believes that the Bank of Nova Scotia could suffer if Trump wins in November. 

“We do not want to conclude that a Trump presidency would be a net negative for BNS, but we believe it would present some risks that are not applicable to the other Canadian banks,” Holden noted, adding he doesn’t believe the election outcome will affect other Canadian banks in any meaningful way. 

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Paul Holden isn’t the only analyst who thinks a Trump win could be a big boon for some Canadian banks. Philip Petursson, IG Private Wealth Management’s chief investment strategist, noted in a recent interview that Trump would be better for Canada’s banks. 

“A Trump presidency would be incrementally better for the Canadian banks than the Harris presidency,” Petursson explained according to The Globe and Mail. “A Trump presidency could see a steeper yield curve and a stronger U.S. dollar.”

The Globe and Mail pointed out that widespread banking reforms in the United States following the failures of Silicon Valley Bank and First Republic Bank resulted in regulations that strengthened stability in the country’s banking sector but led to heavy criticism. 

If Trump is reelected, the former president is likely to scale back some of the Biden administration's changes and seek trade policy that would include higher tariffs, which has investors believing a second Trump term would bolster the country’s banks, and in turn some Canadian banks. 

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