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As strong consumer confidence and a suddenly favourable corporate tax regime fuel Canadian banks’ ambitious U.S. growth plans, those same conditions are beginning to sap business investment from Canada.

Bank of Montreal and Canadian Imperial Bank of Commerce both reiterated their optimism over rising profits from U.S. operations on Thursday. Yet, as executives held court at separate annual meetings in Markham, Ont., and in Halifax, BMO chief executive officer Darryl White sounded a note of caution about the potential cost of shifting competitive dynamics between the two countries.

Mr. White cited deep U.S. corporate tax cuts passed late last year as one factor among a “basket of conditions” that have spurred optimism in the United States, and which may be creating an “arbitrage opportunity” to earn higher returns on capital invested south of the border.

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“I would say we are seeing some departure of capital as a result of the regime. I wouldn’t say it is profound at this stage,” Mr. White told reporters on Thursday. “But I would say that in real time we are seeing the early stages of a decision that’s being made to invest at the margin in the United States before Canada, with some of our customers.”

Mr. White noted that capital flows are “hard to track with good data” because they’re dispersed across a variety of business lines. But Royal Bank of Canada CEO Dave McKay also told The Canadian Press in a recent interview that he believes a “significant” flight of capital to the United States is already under way, particularly in energy and clean technology.

On Thursday, Mr. White stopped short of saying Canada has a competitiveness problem. But he urged all levels of government in Canada “to ensure that we’re always thinking about the balance.”

“At this point I don’t think we’ve got a competitive disadvantage,” Mr. White added, “but it’s definitely something to keep our eye on.”

At BMO, which has had a presence in the U.S. Midwest since the 1980s, more than a quarter of all profit comes from U.S. businesses − about $1.43-billion in 2017. And Mr. White aims to increase that share to roughly one-third within five years.

Meanwhile, CIBC has rebooted its U.S. strategy with last year’s US$5-billion acquisition of PrivateBancorp Inc., a bank focused on commercial and high-net-worth clients. First-quarter results from CIBC’s U.S. region surpassed expectations, and executives have set a target to nearly double the share of total profit derived from the United States in three years.

The major risk to those growth plans is still uncertainty about the outcome of negotiations to revamp the North American free-trade agreement.

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Once again, both Mr. White and CIBC CEO Victor Dodig stressed on Thursday that they remain hopeful for a positive outcome. Yet, in the event of major disruptions in trade or continuing skirmishes over tariffs, both banks could be more exposed than their U.S. peers.

BMO Harris Bank and CIBC Bank USA, which includes the former PrivateBancorp, are both headquartered in Chicago, and have extensive banking networks across the U.S. Midwest. A recent report from Fitch Ratings Inc. predicts that states in that region would be among the most affected if the United States withdraws from NAFTA.

Higher resulting tariffs could be damaging to Michigan, which plays a crucial part in the North American automotive supply chain, for example. And energy and agriculture-dependent states, such as Iowa and North Dakota, could also bear heavy costs.

“We continue to believe that a NAFTA deal, and a modernized NAFTA deal, is a good deal for the North American economy,” Mr. Dodig said at CIBC’s annual meeting. “ The supply chains are incredibly integrated and the standard of living has improved as a result of NAFTA for the broader population.”

With files from Jacqueline Nelson

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