Scotiabank’s Wealth Drive Pays Off With Boost to Earnings

(Bloomberg) -- Bank of Nova Scotia is putting the spotlight on its global wealth-management business, for good reason.

The takeovers of Canadian money managers Jarislowsky Fraser Ltd. and MD Financial Management last year contributed to the second-highest quarterly profit from wealth management in five years and the biggest profit growth among the bank’s main businesses in the fiscal fourth quarter, according to a statement Tuesday.

Scotiabank is the first major Canadian lender to report quarterly results for a period analysts anticipate will be tougher for capital markets divisions and banking operations overseas and in the U.S., where rate cuts are eating into margins. The country’s Big Six lenders are expected to post adjusted earnings growth of 4% for the period, the median of estimates compiled by Bloomberg Intelligence.

For Canada’s third-largest lender by assets, wealth management played a key role for earnings growth, with profit from the business rising 16% to C$303 million ($228 million) in the quarter ended Oct. 31. Chief Executive Officer Brian Porter sees so much promise from wealth management that the Toronto-based company is starting to break out earnings from the business as a separate division this fiscal year.

Global Banking

Gains from the unit helped offset a 2.6% decline from global banking and markets, a division that has seen profit growth only once in the past two years. It posted profit of C$405 million and recorded an increase in year-over-year revenue for the first time in almost three years, helped by higher investment-banking fees and trading revenue. Earnings from international banking rose 2.4% to C$823 million, while Canadian banking climbed 2.5% to C$1.14 billion.

The bank’s overall profit rose 1.6% to C$2.31 billion, with per-share adjusted earnings of C$1.82 matching analysts’ estimates.

“Canadian banking and international banking came in below our expectation,” but that was offset by better-than-expected results in global banking and markets as well as the corporate business, Darko Mihelic, an analyst at RBC Capital Markets, said in a note to clients.

Scotiabank shares fell 0.1% to C$75.75 at 9:35 a.m. trading in Toronto. The shares had climbed 11% this year through Monday, making it the worst performer among Canada’s large lenders and lagging Canada’s eight-company S&P/TSX Commercial Banks Index, which gained 15%.

Key Insights

• Scotiabank’s year-end results missed its medium-term objective for earnings-per-share growth of at least 7%, with the lender posting a 2.1% decline for the year on a reported basis or 0.4% increase on adjusted earnings. The bank also fell short of its profitability goal, with return on equity of 13.1% versus its 14%-plus target. It missed its target of achieving positive operating leverage.
• Porter said he expects the bank to deliver organic earnings growth “in the mid-single digits” for fiscal 2020, with “low- to mid-single digit” growth in Canadian banking, “mid-single-digit” growth in its capital markets unit and “high single-digit” growth in wealth.
• Scotiabank said it’s moving to annual dividend announcements starting in the second quarter, altering its practice of making changes to the payout every other quarter.
• The bank set aside C$753 million for soured loans in the quarter, a 5.6% increase since the third quarter and 28% jump from a year earlier, with higher provisions in both retail and commercial lending.

Get More

• Read more about Scotiabank’s results here.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Steve Dickson, Steven Crabill

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