Canada's TD, CIBC say restructuring possible in 2020 as RBC, BMO say no more cuts

Toronto Dominion Bank and Canadian Imperial Bank of Commerce chief executives declined to rule out restructuring charges on Tuesday as Canadian banks turn to controlling costs to drive earnings growth in what is expected to be a tough year.

Royal Bank of Canada's chief executive, meanwhile, said its focus will be on eliminating unproductive activities rather than employees, while Bank of Montreal's CEO acknowledged "restructure fatigue" after the lender's repeated one-off charges over several reporting periods.

The executives spoke at RBC Capital Markets' Canadian Bank CEO conference, which was webcast and monitored by Reuters.

Following a year in which most banks posted disappointing earnings growth on higher loan-loss provisions, subdued margin expansion and weak investment banking performance, analysts expect risks to outweigh opportunities in 2020.

Most banks have said they expect earnings growth of 3-4% in 2020, similar to last year, versus their medium-term growth targets of double that rate.

TD CEO Bharat Masrani said restructuring is necessary to adapt to industry changes.

"In the phase we're in, you should expect that this becomes more regular until... the level of innovation slows down dramatically," he said. "Jobs within TD are changing quite dramatically... That requires us to restructure certain parts of our bank."

TD Bank and Royal Bank took restructuring charges of C$154 million and $83 million respectively in the fourth quarter.

BMO took a C$484 million ($372.16 million) pre-tax restructuring charge in the fourth quarter as part of its push to reduce its workforce by 5%, or about 2,300 employees, following a C$120 million charge earlier in the year and a C$260 million charge in 2018.

"We don't intend to pull this lever again," BMO CEO Darryl White said. "We have to make sure that 5% of the work goes away... we're doing that through technology, through rewiring the organization... and it's completely different from anything we've done in the past."

Following the banks' fourth-quarter earnings in December, CIBC analyst Robert Sedran said in a note that the pressure on expenses will not abate and forecast more such charges in the quarters ahead.

Most of the banks said they expect adjusted expense growth to fall to 2-3% in 2020, from about 5% in 2019.

A restructuring charge "is always a possibility," said CIBC CEO Victor Dodig. "If there is an opportunity to take a charge that makes sense, that we can clearly communicate to our investors, we may consider that."

The Canadian banks index closed 0.2% lower on Tuesday, compared with a 0.4% gain in the Toronto stocks benchmark.

By Nichola Saminather