(Bloomberg) — Canada’s largest banks all are poised to pay their employees more in variable compensation for 2024, with stock-market favorites Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada increasing bonus pay the most. 

The country’s Big Six lenders set aside 12.2% more on average in fiscal 2024 compared with the previous year, with bonus pay rising across the board despite a generally challenging environment for dealmaking and capital markets during the year.

While there was decent activity in debt capital markets this year, there was a dearth of Canadian initial public offerings — a dry spell that finally ended when Groupe Dynamite Inc. went public last month — and mergers and acquisitions were muted for most of the year. Still, that didn’t lead to a wave of job cuts, said Bill Vlaad, managing partner and chief executive officer of Toronto-based recruitment firm Vlaad & Co.

“We haven’t had a bloodbath in 2024,” he said. “Things haven’t been good, but there’s been really good management of personnel. Yes, there’s been some cleaning up and yes, there’s been a little restructuring, but for the most part it hasn’t been catastrophic.”   

Incentive pay at Canadian banks is based on performance, and the figures the firms report in their quarterly filings reflect the amount reserved, not paid out. The fiscal year ended on Oct. 31, but bonuses are typically distributed in December.

The trend in Canada echoes what bankers south of the border are expecting. Investment bankers, traders and asset- and wealth-management professionals are all poised to see increases in year-end incentive pay reaching into the double digits, according to a report last month from Johnson Associates Inc. Bankers who help companies sell debt may see the biggest gains, with payouts set to rise as much as 35%, the compensation consultant said.

Variable compensation is particularly important to capital-markets professionals — including investment bankers, analysts, salespeople and traders — who typically count on a large portion of their take-home pay coming from bonuses. But employees in other divisions, such as wealth management, insurance and asset management, also receive incentive pay on top of their base salaries.

RBC, CIBC, National Bank

Bonus pay at Royal Bank and CIBC increased by 16.2% and 19.1%, respectively, in 2024. While Royal Bank’s dominant capital-markets franchise saw profit increase by more than 10% last year, net income at CIBC’s equivalent unit was little changed.

Canada’s fifth-largest bank has been on a winning streak in recent quarters, however, with its stock routinely hitting new all-time highs on strong financial performance. 

“We pay competitively and have a pay-for-performance philosophy that aligns compensation to our bank’s financial and non-financial performance,” CIBC spokesperson Tom Wallis said in an email, adding that non-financial metrics including environmental, social and governance progress are also a factor. 

Royal Bank Chief Executive Officer Dave McKay cited the bank’s strong capital-markets results on an earnings call this week and noted the lender has a “robust pipeline that continued to build as we progressed through 2024.”

National Bank, which has also enjoyed a run-up in its shares for most of the year and is poised for growth if it completes its acquisition of Canadian Western Bank as planned, increased bonus pay by 13.9% during the year. Its capital-markets business saw profits increase about 19% in fiscal 2024. 

“Our variable compensation is in line with revenue growth and the solid performance of our teams across business lines,” spokesperson Alexandre Guay said. 

BMO, Scotiabank

Bank of Montreal and Bank of Nova Scotia both boosted the size of their bonus pools — with increases of 5.1% and 4.2%, respectively — despite capital-markets profit declining at both companies. 

The slump at Bank of Montreal was largely due to higher provisions for potentially bad loans — an issue that has plagued the bank overall — while Scotiabank said in its latest quarterly report that profit at its capital-markets business slipped on higher expenses. 

“Our compensation framework is designed to deliver long-term shareholder performance, is a reflection of business results and is competitive with the market,” said Bank of Montreal spokesperson Jeff Roman.

Scotiabank employees are its “most important asset and recognizing them through performance-based compensation is one of the many ways we reward their valued contributions,” Chief Financial Officer Raj Viswanathan said. “This year’s all-bank performance-based compensation reflects early progress against our strategy amidst continued challenging market conditions, and confidence in our execution,” he said, referring to a strategy the bank put in place about a year ago.

Toronto-Dominion

Bonuses were up a healthy 10.2% at Toronto-Dominion Bank, despite a rough year for the lender, which reached a $3.1 billion settlement with US authorities over money-laundering charges in October. It said Thursday it’s suspending its guidance on growth as it undertakes a sweeping business review.  

Still, on the capital-markets front, the bank is enjoying momentum following its takeover of US investment bank Cowen Inc. But its 45% profit increase for the division is outsize partly because last year’s figure included significant costs related to the Cowen integration.

“This year’s incentive compensation reflects a combination of factors including year-over-year annual salary increases and higher business specific incentives reflecting strong performance in wholesale banking (including a full fiscal year of TD Cowen) and wealth management,” spokesperson Elizabeth Goldenshtein said in an email. 

–With assistance from Melissa Shin.

TOUCHPOINT: Tell us the ideal candidate – who’s the private equity stream after?

Bill Vlaad: The private equity stream is looking for the person that is ultra-focused on this career path, the one that is the gold medalist at your school, the one who professors know in the finance class, the one who gets the interviews and gets the job at the big investment bank first. Your path to getting the premier job started the day you showed up for your MBA.

TP: So there’s no way to skirt the investment banking side of things?

BV: Really, the investment banker is the prime candidate to get into private equity. They’ve got the work acumen, they have the training, they have the basic fundamentals of the market.

TP: How does personality fit into the mix?

BV:There’s a pace and a cadence to every type of professional. There are professionals who have a cadence that lends well to trading – they need a quick reward. That’s great for sales and trading but in private equity you plant your vegetable and you sit back and wait and wait and wait. It’s a long process; the expectation of return could be seven or eight years down the road. It requires patience.

TP: But isn’t it possible to fight that nature, to adjust your outlook?

BV: You can, but I think over time it creeps in and it bites you in the butt. There’s a banker I worked with for years and she said if you want to get a job being X, the best way of doing that is to do a really good job at Y, because then people are going to talk about you, they’re going to want you on their team. If you don’t like what you’re doing and you’re not passionate about it, why fake it? Faking takes a lot of energy – I would argue it takes twice as much energy to fake something than it is to do it naturally. So, can you? I did it for many years. Investment banking was not my calling but it was very tiring and eventually, it creeps into your psyche and you realize the emperor has no clothes.

TP: Stepping back a little, why the two-year commitment?

BV: Two years is the window of change. If you can stick something out for two years, it gives you a great backbone. It’s a good foundational career.

Like a farm team for the NHL?

BV: If we’re speaking specifically of asset management or private equity on the buy-side they are the ones who go to the OHL and they pick the best players. They’re not the ones who go and say to prospects, ‘We’re going to give you a shot at the NHL’ – no, you already have to be good at what you’re doing. You can’t go from high school to private equity. Very few do. They go from high school to MBA or HBA, then investment banking to private equity.

TP: What’s your role as a recruiter? How do you find the best?

BV: We keep a tally of superstars. We take a look at the resume and then we go and take a look at the deals they’ve worked on that are public and we find out if they’re the meaningful deals.

TP: How do you suss out the fakers?

BV: There are questions that can be asked, market color that can be given. In interviews, we’ll ask typical modelling questions or we’ll get them to present some of the strengths of the M&A deal they just did between A Co. and B Co. and see how well they know the market or if they are just going and giving the company line; if they’ve just been sitting in a back room hammering away at a model but really don’t understand the dynamics of the business and you ask enough questions, you can find out whether this person’s got any substance behind them. If you’re faking it’s going to be exposed.

TP: But there has to be something you can do besides just putting your head down and working your butt off.

BV: I don’t know if there is. If you’re going to be the best track star on the track, you’ve got to run, even in your time off. These guys we talk to, these young people trying to get into these careers, they read the newspapers, they’re online, they eat, breathe and sleep this stuff and people say, well, that’s a bit excessive because they’re already working until one in the morning. Yeah, the difference being a net present value that is extremely high. If you stop and take your hand off the jet ski, the jet ski becomes very unstable. You’ve got to keep the pressure going because the second you stop, there are two other jet skis on your ass that want your job.

TP: In a sense, you’re saying the capital markets feed themselves?

BV: There are people who are always wanting to get into it. So, if young people start getting cocky or assuming they’re indispensable and irreplaceable, all they have to do is coast for a quarter and they’ll quickly find out that once they’re pushed out of the peloton, it’s very difficult to pedal back in…it’s a very unforgiving industry. It’s not that they punish you, but there are so many more people willing to take your spot.

TP: What about finding a mentor?

BV: One variable that could change your career is finding a meaningful person who’s a senior individual. Not a mentor, not somebody who’s going to tell you what to do right and what to do wrong but somebody who is going to promote you, to be there at the table for you. For that, you need to do a really good job because they’re going to put their name behind you. If you take a look at most ‘heads of’ or really progressive bankers or people in private equity that have done well, they’ve had a sponsor, a senior individual at their own firm or at another firm who they hooked their boat up to and said I’m going to make your life easy and in reciprocation you’re going to help make sure I don’t make any mistakes.

TP: There seems to be a clearly defined track for breaking into the buy-side but what about at an early stage, any advice for young people at the outset of their career?

BV: You’ve got to be willing to read all the books, to be in the market and be knowledgeable about the business at a level that is not just superficial. Because if it is, then you’re just there with the other fish. And if you’re there with the other fish, there may be a statistical chance that you will get a job at a higher level, an opportunity like a private equity shop, but your chances are very slim. I don’t think there’s a short cut – it takes a lot of investment and that has to be genuine.

Andre-Philippe Hardy has returned to the bank where his career began.

After nearly 17 years at Royal Bank of Canada RY-T -1.17%decrease, most recently as head of Canadian and Asia-Pacific research, Mr. Hardy rejoined Toronto-Dominion Bank TD-T -1.24%decrease earlier this month as head of Canadian research. His new responsibilities are expected to involve merging TD’s Canadian research offerings with those of Cowen Inc., the New York-based independent investment bank that TD acquired for US$1.3-billion in 2022.

“I know from past conversations with TD bankers that their priority is integrating the TD Securities’ Canadian platform with Cowen’s U.S. platform,” said Bill Vlaad, the chief executive officer of Toronto-based executive search firm Vlaad and Co. “And RBC runs an integrated global equity research platform, which Andre-Philippe helped create and manage.”

TD Securities spokesperson Jillian Tanouye confirmed via e-mail that Mr. Hardy had recently started in his new role, adding that he will be reporting to global head of research Robert Fagin. Mr. Hardy’s appointment represents the latest in a number of personnel changes TD has made in the wake of the Cowen deal.

Sante Corona was promoted to co-head of TD’s global equity capital markets business in March, 2023, and relocated to New York two months later to create “seamless connectivity” between TD and Cowen, the bank said at the time. In December, 2023, as TD was preparing to cut roughly 3,000 jobs, the bank announced nearly a dozen new hires for its investment banking, equity sales and research teams in order to expedite its U.S. expansion plans.

Mr. Hardy first worked at TD as an equity research associate and analyst covering financial services from mid-1998 through August of 2004. He spent more than two years as a financial services analyst at Merrill Lynch before joining RBC in early 2007.

His time as a banking analyst spanned 13 years, starting in November, 2000, when he received his first promotion at TD, until the end of 2013, when RBC promoted him to head of Canadian research. His portfolio was expanded in late 2019 to include the Asia-Pacific region.

Canada’s largest banks set aside 9% more on average for bonuses in fiscal 2023 than they did a year earlier, with increases at all six companies despite a broadly disappointing year for dealmaking.  

That increase is somewhat at odds with the mood on Bay Street, according to Bill Vlaad, managing partner and chief executive officer of Toronto-based recruitment firm Vlaad & Co., who called the equities market of the past six months “abysmal” and said most people in the capital-markets business have been bracing for much lower bonuses.

“We’re getting early indications and people are getting hammered,” he said in an interview Friday, noting that many people his firm speaks with have been saying for months they expected a bad year for bonuses.

Employees in other divisions, such as wealth management, insurance and asset management, also receive variable compensation on top of their base salaries, and those payouts are included in the overall numbers the banks report, which are not broken down by business line.

But capital-markets professionals — including investment bankers, analysts, salespeople and traders — typically count on a much larger portion of their take-home pay coming from bonuses. Capital-markets employees don’t account for the majority of employees at many banks, so lower bonuses in those businesses may not drag down the overall numbers, Vlaad said.

Incentive pay at Canadian banks — which doesn’t include base salaries — is based on performance, and the figures the firms report reflect the amount reserved, not paid out. The fiscal year ended on Oct. 31, but bonuses are typically distributed in December.

Those figures range from a very small increase at National Bank of Canada to a whopping 23.1% spike at Toronto-Dominion Bank, which acquired New York-based financial services firm Cowen Inc. earlier this year.

Revenue production was down across the board this year in capital markets, “whether you look at mergers and acquisitions, IPOs, financing activity, debt capital markets — you name it,” said Vlaad and Co. President Mark Stipe.

Stipe said his firm has been hearing that bonuses for those at the managing-director level could be down by as much as 25%, while analysts were likely to be better protected from big declines, with incentive pay down about 5% to 10%.

Here’s a breakdown of bonus reserves by bank:

Toronto-Dominion Bank 

Toronto-Dominion, Canada’s second-largest lender by assets, set aside C$4.07 billion ($3.01 billion) for incentive compensation, an increase of 23.1%, making it the bank with the largest hike.   

Adjusted net income across the bank fell 1.8% last year and plunged 17% to C$1.12 billion in its capital-markets business. But the bank pointed to a number of other factors that drove the growth in its bonus pool, including its acquisition of New York-based financial-services firm Cowen Inc., a deal that closed in March. 

“This year’s incentive is a product of a combination of factors, including year-over-year increases in full-time employees from the acquisition of Cowen Inc., salary increases (including employees) and the foreign-exchange impact of the weakening Canadian dollar on US segment incentive-compensation expenses,” spokesperson Elizabeth Goldenshtein said in an email. “These factors were partially offset by lower financial performance compared to 2022.”

Royal Bank 

Royal Bank of Canada, which has the largest capital-markets business among Canadian banks — including a significant US franchise that ranks No. 9 in the global league tables — increased variable compensation 6.7% to C$7.61 billion.  

On an analyst call earlier this week, Chief Financial Officer Nadine Ahn pointed to an increase in earnings at Royal Bank’s capital-markets business in the fourth quarter — where activity in the US was strong — which helped boost the unit’s profit for the year to C$4.14 billion, a 23% increase, making it an outlier in the group.

“Results this quarter reflected record fourth-quarter revenue underpinned by market-share gains across investment banking and global markets,” Ahn said. 

Bank of Nova Scotia 

Bank of Nova Scotia posted a more modest increase in performance-based compensation for the year, boosting money set aside for bonuses by 3.9% to C$2.08 billion despite a drop in overall adjusted net income for the year.

Chief Financial Officer Raj Viswanathan said the increase was due to a number of variables, “including the bank’s ability to deliver for our shareholders, our performance relative to peers and, of course, individual performance.”

“Our all-bank performance-based compensation this year reflects challenging market conditions and an uncertain macroeconomic outlook,” he said in an email. “However, we believe employees are our most important asset, and recognizing our employees through variable compensation is one of the many ways we reward their valued contributions.”

Canadian Imperial Bank of Commerce 

With adjusted net income down slightly to C$6.5 billion for the year, Canadian Imperial Bank of Commerce increased its bonus pool by 2.2% to C$2.51 billion. The bank’s capital-markets division saw adjusted net income increase by 4% to C$1.99 billion. 

“We think we did a lot of things well” in 2023, Chief Financial Officer Hratch Panossian said in an interview. “It was a balanced year, and our compensation reflects that.” 

Bank of Montreal 

Bank of Montreal increased its incentive compensation pool by 11.7% to C$3.57 billion in fiscal 2023. Its capital-markets business was down slightly for the year, but rose in the fourth quarter. 

“Our compensation framework is designed to deliver long-term shareholder performance, is a reflection of business results and is competitive with the market,” spokesperson Jeff Roman said in an email.

National Bank of Canada

Montreal-based National Bank of Canada, which depends on capital markets for a high proportion of earnings, increased bonus payments by just 0.1% to $1.34 billion. 

While the bank posted higher capital-markets profit than expected in the fourth quarter, the division’s earnings for the full year were down slightly from fiscal 2022. 

A National Bank representative declined to comment on the firm’s bonus payments.

Tell us about yourself?

Bill is a reformed investment banker. He served time in corporate development and has dabbled as an entrepreneur. He has been fired twice and has gone through the process of negotiating severance, dealing with lawyers, and the anxiety of looking for new career directions. He has been sold a bill of goods from headhunters in the past and has had to deal with the dilemma of handing over job search control to recruiting firms.

With all that experience, what he has learned as a father of four and an MBA from a school formerly called Western, Bill built the market’s leading executive financial recruitment firm in Canada.

If you could go back in time a year or two, what piece of advice would you give yourself?

I would advise myself to take some time to do something unique. Learn a language, master a skill, or pack up and try living in a little village somewhere… There was so much focus on the business and the markets, as we didn’t really know how bad it might get.

What problem does your business solve?

We are an executive financial recruitment firm. Our recruitment professionals connect exceptional talent with highly sought-after finance roles. We solve many problems for employers, including elevating human capital, replacing key contributors, restructuring talent structure, facilitating team/project expansion, delivering options for employee diversity, and others.

We develop long-lasting partnerships in the market and provide exclusive insight, accurate and relevant compensation data, and a tailored approach to meet recruitment needs.

What is the inspiration behind your business?

I have always been a connector. Recruitment was a way to apply this skill to a business and lean into a personal strength. I’ve also always been someone who takes initiative. When it came to starting a business, you could say that I had more initiative than information. Disenfranchised with a previous work environment, I believed I could do it better. They say there are one thousand reasons not to do something. I focused on the reasons to go for it. I love the industry we cover and have found a human-centric vehicle to contribute to its sustainability. I was able to create a business that focuses on the people side of finance.

What is your magic sauce?

We’re truly talent-driven. Our team is laser-focused on our niche, and we stay connected to what’s happening on the street. Yes, we have a growing and dynamic pool of finance-focused candidates, but we go beyond our database and drill down deep. We look at social footprint and personality tests and can assess fit to find talent that is committed to client objectives. A workforce is made of a mosaic of unique individuals. Our people put in a great deal of effort to get to know and really understand the professionals we put forward as candidates to our clients.

How do we stay in touch with the market?

Partnering with our clients, our team of dedicated recruiters continuously reaches out to the market’s top talent. We identify and connect with top performers in each sector we cover.

Talent is sourced using deep research and market mapping. We connect frequently with potential candidates using our newsletter, Bill’s Buzz. The newsletter connects with both active and passive job seekers. It’s also an excellent opportunity for our clients to get in front of a very interested audience of finance-focused professionals.

What is the plan for the next 5 years? What do you want to achieve?

Each year, we strive to do better than the last. That might sound pretty run-of-the-mill, but it’s no easy feat. The dynamics of the markets keep them constantly changing. Competitive pressures approach from different directions. Our vision for ourselves is to continue to serve our community as it manages change. To do the best job we can at supporting a community with a material impact on the health and wealth of our country.

What is the biggest challenge you’ve faced so far?

Our biggest challenge is staying lean and true to our roots. There is a lot of opportunity for recruitment firms to grow, even in a softer market. However, we believe in serving our existing clients above all else. It’s easy to grow a company in different directions, but we know our strengths and want to remain known for solving problems. We know from experience and feedback from our clients and candidates that being the biggest doesn’t necessarily make you the best.

Half of Canada’s six biggest banks reported higher profits for their 2023 fiscal year and half saw profits sink, but year-end bonus payments were consistent: They were boosted across the board.

While the increase in performance-based compensation varied widely from as low as 0.2 per cent at National Bank of Canada NA-T +0.75%increaseto a whopping 23 per cent at Toronto-Dominion Bank TD-T -0.47%decrease, all six institutions collectively set aside $21.2-billion for bonus pay in the fiscal year ended Oct. 31. That total represents a 9-per-cent increase from 2022.

Last year, the country’s largest lenders raised bonuses by a narrow 1.9 per cent amid a tight labour market that sparked competition for talent. Compensation experts had been expecting draconian cuts to Bay Street bonuses this year amid weak deal-making activity and plans for widespread job cuts of between 2 per cent and 5 per cent of each bank’s global work force.

Despite the dramatic increase the banks delivered instead, many bankers are still likely to receive smaller payouts.

“Depending on what room you sit in and at what bank, your bonus conversation is likely to be very different this year,” Travis O’Rourke, president of recruitment agency Hays Canada, said in an interview. “M&A activity has been very slow. IPOs have been very slow, so it is likely that bonuses will be low if you’re in one of those sections. Your A players are still your A players, but those who are on a list somewhere as maybe more expendable, they are the ones who are feeling the brunt of this. C players know they are C players.”

Bill Vlaad, chief executive of Toronto-based executive search firm Vlaad and Co., said one reason why banks have been able to set aside more money for performance-based pay in the face of a challenging market is because bonuses were increased much more modestly in 2022.

“The numbers were bad this year, but they could have been worse,” Mr. Vlaad said. “I think a few firms last year took a little bit off the top in preparation for” a more challenging 2023.

Bonuses are based on performance, and the bulk of that compensation is paid to capital markets employees, which include traders, analysts and investment bankers, whose pay is traditionally more variable depending on performance and market conditions.

Bank of Nova Scotia BNS-T +0.66%increase set aside $2.08-billion in performance-based pay, a 4-per-cent increase year-over-year compared, with a 4-per-cent drop in 2022. The lender’s capital markets profit fell 7 per cent to $1.8-billion on softer trading revenue and higher loan loss provisions.

The bank said in October that it plans to cut 3 per cent of its global work force in an attempt to reign in costs. Its employee base fell 1.7 per cent in the fourth quarter, with the most significant culling in its capital markets division. That unit’s staff numbers fell 4.6 per cent from the previous quarter.

The reductions come as Scotiabank prepares to launch its turnaround plan in December to focus its operations on areas where it believes it can bolster its growth and revive its beleaguered share price.

“Loan growth has moderated considerably in recent quarters as our [global banking and markets] team continues to take a more targeted approach to client selection with a focus on industries and geographies where we can deliver higher returns and more multiproduct value-add to our clients,” chief executive Scott Thomson said during a conference call with analysts on Tuesday.

Royal Bank of Canada RY-T +0.62%increase earmarked $7.6-billion for variable compensation, a 6.7-per-cent increase year-over-year compared with a 0.25-per-cent drop in 2022. Capital markets profit surged 23 per cent from last year to $4.1-billion on a boost in revenue from corporate and investment banking, and global markets as the bank launched new products and expanded its advisory services.

TD allocated $4.1-billion in incentive pay, a 23-per-cent jump from last year when the bonus pool was increased by 7 per cent. Profit in its capital markets unit fell 42 per cent to $770-million from last year, weighed down by higher expenses and costs related to its takeover of New York-based investment bank Cowen Inc.

The boom in bonuses is coming from several factors, including the bank’s larger employee base, its acquisition of New York-based investment bank Cowen Inc. and impact from foreign exchange owing to a stronger U.S. dollar, TD chief financial officer Kelvin Tran said in an interview. Incentive pay was partly offset by lower financial performance, he added.

“We are delivering compensation that is market competitive and performance-based, and also with practices in place to promote fair and consistent outcomes and alignment between executives and our employees,” Mr. Tran said.

Bank of Montreal BMO-T +1.34%increase set aside $3.6-billion in performance-based pay, a 12-per-cent increase year-over-year as the lender brought on bankers from its takeover of California-based Bank of the West. This year’s boom in bonuses compared with a 1-per-cent drop in 2022. The bank’s profits edge higher by 5 per cent to $1.7-billion as a boost in revenue in corporate and investment banking offset a drop in underwriting and advisory activity

Canadian Imperial Bank of Commerce CM-T +0.03%increase increased its bonuses by 2.2 per cent to $2.5-billion, a drop from last year’s 5.6-per-cent increase. Capital market net income edged higher by 4 per cent to $2-billion.

National Bank of Canada raised bonuses by the slimmest margin, increasing variable compensation by 0.2 per cent to $1.3-billion. Last year, the lender increased bonuses by 5 per cent.

Data from recruitment firm Robert Half suggest the vast majority of finance and accounting professionals in Canada will receive at least as much performance-based compensation this year as they did in 2022.

Based on a survey conducted in early November of 171 finance and accounting managers across Canada – 32 of which worked for companies with 1,000 or more employees – 52 per cent said they expected bonus payments to be about the same as last year, 27 per cent expected to pay more in 2023 than they did last year and only 11 per cent said bonuses were down compared with 2022 levels. The remaining 10 per cent said their company would not be awarding year-end bonuses this year.

Canadian banks have resumed cutting jobs after a three-year hiatus, with lenders and investment banks so far dismissing at least 6,000 workers, and analysts predicting more to come as revenue remains under pressure.

Bank of Nova Scotia, Royal Bank of Canada and Bank of Montreal all disclosed plans in the past few months to reduce headcount by 2 per cent to 3 per cent, while smaller players Desjardins Group and Canaccord Genuity Group Inc. have also trimmed staff.  

“This is probably just the beginning stages,” said Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods. “The rest will depend on how things recover and if you go into a recession. There’s always potential for more.”

The moves come as Canadian lenders grapple with numerous stresses. As with banks in other countries, they’ve seen a significant jump in the cost of deposits and a slowdown in new mortgages. And deals have stalled in their capital-markets businesses: There hasn’t been a completed initial public offering of more than $500 million (US$360 million) in Canada this year, according to data compiled by Bloomberg.

Meanwhile, as credit conditions deteriorate, with housing and commercial real estate under pressure, the banks are expected to take significant loan-loss provisions in the fiscal fourth quarter. And they may be facing another increase in the minimum amount of capital regulators require them to hold.

Wall Street banks resumed cutting staff months earlier, and, in some cases, the cuts have been deeper than those in Canada.

Goldman Sachs Group Inc. embarked on one of its biggest rounds of job cuts ever in January, when it moved to eliminate about 3,200 positions, amounting to 6.6 per cent of its workforce as of the end of last year. Morgan Stanley was also preparing a fresh round of about 3,000 cuts, Bloomberg reported in May, which came to about 5 per cent of staff excluding financial advisers and others in its wealth-management division. That came after it already trimmed its work force by about 2 per cent late last year.

Citigroup Inc. has also cut about 7,000 positions so far this year, its Chief Financial Officer Mark Mason said this month, though with a workforce that had swelled to 240,000, that represents just under 3 per cent, more in line with the cuts seen so far in Canada. Still, Citigroup is also preparing for more amid a strategic overhaul of the lender though it hasn’t put a number on the level of eliminations.

Canadian banks, like their U.S. peers, joined the scramble for technology and banking talent during the pandemic.

“Honestly, we overshot — we overshot by thousands of people,” RBC Chief Executive Officer Dave McKay told analysts in May.

After the wave of hiring, banks are now seeing lower attrition than usual thanks to the high level of economic uncertainty, Rizvanovic said. 

Except for Canadian Imperial Bank of Commerce, all of the country’s big six banks reported negative operating leverage in the third quarter, meaning non-interest expenses grew at a faster clip than revenue. As they pledge to reverse that in 2024, they need to rein in costs. 

HISTORIC PATTERN

There’s an incentive for them to get some of the cutting done now, as Scotiabank did last week, so that restructuring charges fall into the fiscal year that ends Oct. 31, which has already been a bad one. When the final numbers are in, five of the country’s six largest banks are expected to show annual declines in earnings per share, according to estimates compiled by Bloomberg. 

The recent workforce reductions mark a return to a longstanding pre-pandemic pattern of trimming jobs before the end of October to start the following year with a lower cost base, according to Bill Vlaad, president of Toronto-based recruitment firm Vlaad & Co.

“Every year we sit on pins and needles between the 15th and 31st of October,” he said. “So the anxiety that’s there is not empty. There’s a history to back it up.”

CIBC, Toronto-Dominion Bank and National Bank of Canada haven’t publicly announced job cuts, but analysts have said they too could be looking at reductions. Rizvanovic also said much bank downsizing goes on behind the scenes through smaller trims that don’t demand public reporting. 

“The banks are currently facing a challenging operating environment with slower loan growth, depressed capital markets and macroeconomic uncertainty,” said Carl De Souza, senior vice president and head of Canadian banking at DBRS Morningstar. “I think there are likely more cuts to come.”

Front-line tellers are at risk, De Souza said, noting that consumers now do much of their everyday banking online, and that branches are now tailored toward advice on mortgages and financial planning. 

Vlaad doesn’t expect the banks to make “large changes in operational strategy,” but instead predicts strategic cuts in underperforming businesses. That’s what Canaccord Genuity did, making sizable cuts in its investment bank while leaving the more-stable wealth-management unit relatively unscathed. 

Rizvanovic said targeted reductions may be ahead in capital-markets divisions and in areas where banks tend to hire consultants, such as technology.

Bank of Montreal and Scotiabank made big cuts and announced corresponding severance charges of C$162 million and C$247 million, respectively. But other banks may seek to avoid large announcements, Rizvanovic said, as they can raise concerns for both shareholders and the government at a time when Canada’s financial sector has increasingly become a political target amid a cost-of-living crisis.

“Optically, it might look bad,” he said, “if there’s this oligopoly of banks in Canada — that earns substantial returns on capital invested in the Canadian business, and billions of dollars in annual income — and they come out and say, ‘Well, we’re cutting staff.’”