Scotiabank’s Overseas Earnings Growth Helps Lender Top Estimates

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(Bloomberg) -- Bank of Nova Scotia is benefiting from its sharpened focus on Latin America.

  • Scotiabank has announced exits from 20 countries and redeployed about C$7 billion of capital in the past four years to focus on key areas such as Mexico, Peru, Chile and Colombia, bringing its international presence down to 34 countries. Still, Scotiabank’s international banking division earned C$902 million ($681 million), up 90% from a year ago to mark the biggest profit gain among the lender’s three main segments. That helped the company beat analysts’ estimates.

Key Insights

  • While Scotiabank is Canada’s most international bank, most of its profit still comes from domestic banking. That continued in the quarter, with earnings from Canadian banking rising 2.7% to C$1.16 billion.
  • At Scotiabank’s Global Banking and Markets unit, revenue had declined from a year earlier for the past eight quarters and profit had grown in only two of the periods, prompting National Bank Financial analyst Gabriel Dechaine this month to call the company’s smallest division the “biggest source of disappointment in recent years.” That trend continued as the unit posted earnings of C$374 million, down 15% from a year ago as revenue fell in the fiscal third quarter.
  • Scotiabank latest move in its international retreat was its June agreement to sell its Puerto Rican operations to OFG Bancorp’s Oriental Bank. The announced sale resulted in a C$402 million after-tax loss in the third quarter, compared with its C$400 million guidance in June.

Market Reaction

  • Scotiabank is down 0.4% this year through Monday, making it the second-worst performer among Canada’s large lenders and underperforming Canada’s eight-company S&P/TSX Commercial Banks Index, which has gained 3.7%.

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  • Net income for the three months through July 31 rose 2.3% to C$1.98 billion, or C$1.50 a share, from C$1.94 billion, or C$1.55, a year earlier. Adjusted earnings totaled C$1.88 a share, beating the C$1.85 estimate of 14 analysts in a Bloomberg survey.
  • Scotiabank increased its quarterly dividend by 3.4% to 90 Canadian cents.
  • Read more about Scotiabank’s quarterly results here.

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