Eyes On Oligarchs: The Canadian banks made $14.39 billion in profits in three months

Aug 27, 2021

$14.39 billion

It is becoming clear to me that one challenge with Eyes On Oligarchs is going to be finding ways to understand and convey extremely large numbers.

The big five Canadian banks make an obscene amount of money. It’s a mind-bending amount of money.

In just three months between the start of May and the end of July, RBC, TD, Scotiabank, BMO and CIBC collectively earned $14.39 billion.

Let’s really emphasize that number:

$14.39 billion.

In three months!

So far in 2021, the big five banks have earned $40.67 billion in profits.

Here’s the profits for each bank:

Royal Bank earned $4.3 billion
TD earned $3.6 billion
Scotiabank earned $2.5 billion
BMO earned $2.3 billion
CIBC earned $1.7 billion

The big takeaway here is just that the COVID-19 pandemic is over, at least as far as the economy is concerned. And with the economy on an upswing, it’s a great time to be a banker.

After each bank reports their finances, senior executives hold a conference call where they take questions from investment analysts. Most of the questions are highly technical, but on the calls, various executives were asked about the delta variant. The general sentiment among the bank executives was that delta might slow down the post-pandemic recovery, but we are past the crisis, and things are on an upswing. And of course, why wouldn’t you feel that way when you’re raking in $14.39 billion in three months?

Because Liberal Party strategists can read bank websites as keenly as a lowly Substack writer, on Wednesday Prime Minister Justin Trudeau announced an election promise to hike taxes by 3 per cent on banks with more than $1 billion in annual profits, along with a temporary “Canada Recovery Dividend” which is some kind of extra temporary tax scheme that’ll last four years.

What’s striking is how chintzy this election promise really is.

The Liberals say that the 3% tax hike (from 15 to 18 per cent) plus the temporary Canada Recovery Dividend will bring in somewhere around $2.5 billion or maybe a little more.

So one way to look at it is like this:

The banks recorded $40.67 billion in profits so far this year (and with one more quarter left in the year, they’ll almost certainly pass $50 billion by the end of 2021.)
The Liberals say they will tax them to get $2.5 billion per year
The federal government deficit this year is $354.2 billion

There was a funny moment on the CIBC earnings call where chief executive officer Victor Dodig was asked a spectacularly loaded question by an investment analyst from TD, who wanted to know if the banks were “in the crosshairs” from policymakers for being too profitable.

“What’s your impression? Does it feel like the banks may be a victim of their own success?” analyst Mario Mendonca asked.

Dodig was careful, waving away the question by saying that banks are always in the crosshairs, but he argued that big profits for banks are actually good for everyone because it’s really just citizens paying themselves in a roundabout way.

“Most Canadians, whether through large pension plans or through their own investments, have investments in banks, and they benefit from those dividends that we pay and they benefit from our economic growth, and that contributes to their livelihood,” Dodig said.

This is the sort of statement that sounds clever at first, but it sounds more and more like bullshit the longer you spend thinking about it.

For whatever it’s worth, the Conservatives are promising to enact open banking legislation, which could theoretically give consumers more power and introduce more competition into the Canadian banking sector. But … y’know … the devil is in the details, so let’s not hold our breath.

Dodig’s comment about open banking was that it’s inevitable so “bring it on” although I think it’s safe to say his lobbyists in Ottawa taking a more nuanced approach.

The NDP’s platform says they’ll do some stuff to get tough on the banks too, but because the NDP is polling a distant third and this isn’t primarily a newsletter about politics, I’m not going to dig too deeply into it.

Just as a concluding thought, I’d like to point out that the 2021 Ontario government budget sets aside $31.3 billion to run the whole eduction sector (excluding colleges and universities.) And the whole Prince Edward Island budget is about $2.5 billion.

So if you took the profits that the big five banks have earned in nine months, you could fund the entire Ontario k-12 school system for a year and have enough money left over to fund the operations of the P.E.I. government for three years, and still have more than a billion dollars left over.

$14.39 billion!

This is only the second-ever post from Eyes On Oligarchs. If you think this is interesting and you want me to write more, please share and encourage more people to subscribe.

I had originally planned to write something about mortgages, but the sheer size of the banks’ profits forced me to switch gears. I’ll be writing about mortgages in a couple weeks with more really, really big numbers. If you like big numbers with dollar signs, you’ll like it.

Eyes On Oligarchs