Scotiabank misses estimates as loan-loss provisions increase

Scotiabank

Scotiabank is the only lender among the big Canadian banks that have so far reported second-quarter results to show further credit erosion from the industry’s unexpected surge in provisions in the previous three months.

Bank of Nova Scotia reported earnings that missed analysts’ estimates as higher provisions for loan losses tied mainly to takeovers hurt results in the fiscal second quarter. Canada’s third-largest lender by assets set aside more money for soured loans in its Canadian banking and international divisions, leading to a 63% jump in overall provisions across the bank.Provisions for credit losses totalled C$873mn ($648mn), the bank said in a statement yesterday, higher than analysts’ estimates of C$665mn.Scotiabank is the only lender among the big Canadian banks that have so far reported second-quarter results to show further credit erosion from the industry’s unexpected surge in provisions in the previous three months. The Toronto-based bank had set aside C$688mn for bad loans in the first quarter and C$534mn a year earlier.


“Scotia’s earnings were negatively affected by provisions related to acquisitions which, from our standpoint, generated the miss,” Barclays Plc bank analyst John Aiken wrote in a note to clients. “We believe that Scotia’s underlying performance appears to be quite strong and should be rewarded.” Scotiabank’s net income for the three months through April 30 rose 3.8% to C$2.26bn, or C$1.73 a share, with adjusted per-share earnings of C$1.70 missing analysts’ estimates by four cents. Scotiabank spent about C$7bn ($5.2bn) on five deals last year, including buying a 68% stake in a Chilean lender and acquiring Canadian money managers Jarislowsky Fraser and MD Financial Management. While Canadian banking remains Scotiabank’s largest division, the international operations — driven by chief executive officer Brian Porter’s Latin America focus — now account for 34% of the bank’s overall net income.


Scotiabank recorded C$151mn in provisions tied to takeovers in Peru and the Dominican Republic in the quarter, according to financial statements.Scotiabank saw its biggest earnings gain in its international banking division, with a 3.2% increase in profit to C$769mn, while Canadian banking earnings, which include wealth management, climbed 3% to C$1.05bn. Those gains countered the 6% earnings decline from a year earlier in its global banking and markets division. Scotiabank’s productivity is showing signs of improvement after being hurt by last year’s acquisition spree. The company’s productivity ratio — or expenses as a percentage of revenue — improved to 51.8% in the second quarter from 54.9% in the previous three months. Scotiabank shares rose 3.7% this year through Monday, the second worst performance among Canada’s large lenders and lagging behind the 10% return for Canada’s eight-company S&P/TSX Commercial Banks Index.

Sources and photo-credits: Gulf Times, Bloomberg