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Canadian Banks to Resume Layoffs to Cut Costs, Boost Efficiency

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Last year, Canadian banks were compelled to announce significant job cuts in order to control costs on shrinking profitability due to the rising challenges, including slowdown in consumer spending, pressure from new digitally-based financial service companies and sluggish capital markets with reduced IPOs.

However, these banks had put brakes on job cuts amid the coronavirus pandemic and held off all immediate unnecessary investments.

Nevertheless, the Canadian banks plan to resume their retrenchment process under the mounting pressure for cost reduction, terminating a number of positions, with rigorous job cuts in the coming period.

At the online Scotiabank Financials Summit on Wednesday, some of the big Canadian banks, including Bank of Montreal (BMO - Free Report) , The Toronto-Dominion Bank (TD - Free Report) , Canadian Imperial Bank of Commerce (CM - Free Report) and The Bank of Nova Scotia (BNS - Free Report) , came up with their views of cost reduction through job cuts planned late last year or early this year else holding off on investments.

Among others, the head at The TD Bank expects disciplined expense management in the current environment. Being Canada's largest digital bank by a number of users, the bank will resume investing in projects that are important for the bank’s growth prospects.

Also, per CEO Darryl White of Bank of Montreal, the bank plans to resume the expense-reduction program announced last December, including a 5% reduction in workforce with the expectation of savings of C$375 million annually by 2021. Per the bank, 50% of the program was executed before the pandemic and the remaining will be resumed now, with the benefit anticipated to be visible toward the tail end of this year or beginning next year.

Bank of Nova Scotia also plans to resume further cost-cutting actions in its international markets, while CIBC intends to move forward with job cuts paused due to pandemic.

Notably, The Bank of Canada also keeps the target for the overnight rate at 0.25% and continues with the quantitative easing program with significant asset purchases. "The Bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support. The pace of the recovery remains highly dependent on the path of the COVID-19 pandemic and the evolution of social distancing measures required to contain its spread,” the central bank said in its statement.

Therefore, with economic activity bouncing back with the removal of restrictions and cost-control measures, banks might report rise in profits in the coming quarters.

All the above-mentioned banks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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