Scotiabank beats profit estimates on wealth management, capital market strength

By Nivedita Balu and Arasu Kannagi Basil

(Reuters) -Bank of Nova Scotia on Tuesday reported better than expected quarterly earnings, boosted by gains in its capital market business, rises in brokerage revenue in Canada and mutual fund fees overseas.

Scotiabank, Canada’s third largest bank by assets, has laid out a new plan under CEO Scott Thomson to focus on growth in flourishing markets such as Mexico and the United States and possibly exit underperforming markets such as Colombia.

At home, Canadian banks have been struggling amid high interest rates that have weighed on consumers paying mortgages and credit card bills. That in turn has forced the banks to set aside more funds in case of loan defaults, weighing on profits.

“Although we believe the monetary tightening phase of the rate cycle in Canada is now complete, our prior expectation for multiple rate cuts in the back half of the calendar year feels less certain,” CEO Scott Thomson told analysts.

“The reality of a higher for longer rate scenario will naturally result in a continuation of elevated credit provision in our retail portfolios.”

Executives on the call noted that rate cuts in regions it operates, including Mexico and Peru, are starting to bear fruit and provide relief for consumers.

For the second quarter, higher loan loss provisions due to deterioration in the auto finance portfolio, weighed on its Canadian business. In its international business, net income fell 2% but was better than expected.

“We have a mildly positive view,” RBC Capital markets analyst Darko Mihelic said, noting Scotiabank’s credit quality was stable and had positive operating leverage.

Net income at its global wealth management unit rose 8% in February-April, its second quarter, driven by a 6% increase in Canada and a 19% rise in international markets, which span Latin America, the Caribbean and Central America. Income from its capital markets segment rose 7%.

Provisions for credit losses for Scotiabank increased to C$1 billion ($733.94 million) in the quarter from C$709 million in the year-ago period.

Scotiabank’s net interest income – the difference between what lenders earn on loans and pay out on deposits – rose to C$4.69 billion in the quarter, compared with C$4.46 billion a year earlier.

Its profit declined to C$2.11 billion, or C$1.58 per share, for the three months ended April 30, from C$2.16 billion, or C$1.69 per diluted share, a year earlier.

Analysts were expecting C$1.56 per share, according to LSEG data.

($1 = 1.3630 Canadian dollars)

(Reporting by Arasu Kannagi Basil in Bengaluru and Nivedita Balu in Toronto; Additional reporting by Manya Saini; Editing by Shinjini Ganguli, Susan Fenton and Nick Zieminski)