08 March 2011

Scotiabank Q1 2011 Earnings

The Wall Street Journal, Caroline Van Hasselt, 8 March 2011

Bank of Nova Scotia capped off a solid first-quarter earnings season for Canada's biggest banks by posting a record first-quarter profit after sharply reducing credit-loss provisions in its domestic and international banking units.

Scotiabank, as it is known, also raised its quarterly dividend by 6%, becoming the second of the five big banks to increase its payout since the 2008 global financial crisis.

Net income for the quarter ended Jan. 31 rose to a record C$1.17 billion, or C$1.07 a share, from C$988 million, or 91 Canadian cents, a year earlier, the bank said. Operating earnings of C$1.09 a share surpassed the Thomson Reuters mean estimate of C$1.06 and were up from 93 Canadian cents a year earlier.

Revenue rose 5% to C$4.2 billion, with acquisitions accounting for almost half of the increase.

Canada's big lenders have benefited from the country's robust housing market and consumers' willingness to borrow and spend against a backdrop of continued economic growth, job creation and low interest rates. They have boosted deposits and are benefiting from strong retail franchises.

"All in all, it was a great quarter for the Canadian banks," said John Kinsey, a portfolio manager at Caldwell Securities Ltd. in Toronto, which manages about C$1 billion in assets.

Like its peers, Scotiabank, the country's third-largest bank in assets, benefited from its strong Canadian franchise. Improved credit quality in emerging economies, particularly in the Asia-Pacific and Latin American regions where it is active, enabled the bank to reduce loan-loss provisions. But the bank also benefited from a lower-than-expected tax rate and racked up higher expenses from acquisitions, higher stock-based compensation and pension costs.

"Scotia marches to the beat of a different drummer than the others," Mr. Kinsey said. "They have a lot of international business. So, some of their business is higher risk, but perhaps higher reward. But both the Canadian and international personal banking did very well for them."

Scotiabank's provision for credit losses declined sharply to C$269 million from C$371 million a year earlier, reflecting an improved global economy and higher recoveries from U.S. loans, the bank said. In Canada, provisions fell 10%, while in international, provisions declined 65%, mostly from commercial portfolios in the Caribbean and Peru and lower retail provisions in Mexico from a one-time recovery under the Mexican government's mortgage support program.

Scotiabank has operations in 50 countries, including the Cayman Islands, Jamaica, Chile, Mexico, Peru, Puerto Rico and Thailand. In the quarter, it acquired Royal Bank of Scotland Group's's corporate and commercial banking business in Chile and agreed to buy Nuevo Banco Comercial, Uruguay's fourth-largest private bank in loans and deposits, and Pronto!, the country's third-largest consumer finance company.

In Canada, Scotiabank's earnings rose 14% to C$496 million, primarily from 9% growth in residential mortgages and 2% increase in other consumer loans. Average deposits grew 3%.

In international, earnings rose 35% to C$342 million, reflecting retail and commercial loan growth and the contributions from recent acquisitions in Puerto Rico and Thailand.

The bank's newly created global wealth-management division earned C$216 million, up 18%, on increased sales of mutual funds and financial products.

Net income at Scotia Capital fell 19% to C$308 million, reflecting more normalized market conditions, the bank said. The investment bank garnered higher capital-markets trading revenue but non-trading fee and spread revenues were off marginally, said National Bank Financial analyst Peter Routledge.

Return on equity was 18.7% versus 17.4%.

Scotiabank increased its dividend to 52 Canadian cents a share from 49 Canadian cents, payable on April 27 to holders of shares of record on April 5. The country's second-largest lender, Toronto-Dominion Bank, raised its dividend last week.