Scotiabank of Canada misses estimates as financial market earnings slump

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By Nichola Saminather and Manya Saini

TORONTO (Reuters) – The Bank of Nova Scotia (Scotiabank) reported third-quarter profit slightly below estimates on Tuesday as a sharp decline in revenue at its capital markets unit overshadowed strong loan growth in its international business. .

Canada’s third-largest lender has kicked off the release of quarterly results for the country’s largest banks, with markets watching closely for signs of how they will be hit in the coming quarters by decades-high inflation and rapid rate hikes. central banks.

Scotiabank shares fell 3.8% in morning trade in Toronto, the largest intraday loss since June 2020, to C$77.72. The Toronto stock index rose 0.3%.

“Overall, it wasn’t a bad quarter, but we think the market will focus on the shortfall and investors will look to the uncertain outlook,” Barclays analyst John Aiken wrote in a statement. note.

The main drag on Scotiabank’s earnings came from its capital markets unit, which saw a 26% drop in profits for the three months ended July 31, as advisory and trading revenue fell. in difficult market conditions.

The bank expects spending growth in its capital markets business to outpace revenue expansion this fiscal year. However, earnings are expected to rebound by the fourth quarter, helped in part by pending transactions, executives said on a call.

Scotiabank has increased its provisions for credit losses (PCL) in anticipation of longer-lasting inflationary pressures and further interest rate hikes from the central bank.

Still, “we don’t see any big credit headwinds on the horizon,” Chief Risk Officer Philip Thomas said on the call. “Consumer health continues to be very, very strong.”

Adjusted profit before tax and before provisions fell 1% compared to the previous year.

Scotiabank’s international business posted a 30% rise in adjusted earnings, boosted by strong loan growth. But the unit’s net interest margin (NIM) slipped 1 basis point from the prior quarter, which executives attributed to higher funding costs as more customers turned to deposits. eventually.

The Canadian company recorded a 12% increase in profits.

Scotiabank said net income excluding special items was C$2.10 per share, down from C$2.01 a year earlier. Analysts were expecting C$2.11 per share.

Scotiabank shares are now down 14.8% since the start of this year.

($1 = 1.3021 Canadian dollars)

(Reporting by Nichola Saminather in Toronto and Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri and Susan Fenton)