Scotiabank Profit Falls 12% on Soured Loans, Restructuring

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  • Domestic, international banking offset by capital markets drop
  • CEO Porter sees bad energy loans easing from ‘next quarter’

Bank of Nova Scotia said fiscal second-quarter profit fell 12 percent on higher losses from energy loans and restructuring charges as it shifts toward digital banking.

Net income for the period ended April 30 slid to C$1.58 billion ($1.21 billion), or C$1.23 a share, from C$1.8 billion, or C$1.42, a year earlier, the Toronto-based bank said Tuesday in a statement. Scotiabank said profit excluding some items was C$1.48 a share, beating the C$1.42 average estimate of 14 analysts surveyed by Bloomberg.

Canadian and international banking had year-on-year profit gains, which were offset by a decline in earnings in Scotiabank’s capital markets division, higher provisions and C$278 million in restructuring charges. Chief Executive Officer Brian Porter, who has been realigning the bank’s operations as consumers do more banking online, said bad energy loans are likely to ease from the next quarter.

Bad-loan provisions were “well above consensus expectations,” John Aiken, a Toronto-based Barclays Plc analyst who has an equal-weight rating on Scotiabank, said in an e-mailed note. “While some of it related to energy exposures, the incremental deterioration in international credit will not likely be well received.”

Scotiabank shares have gained 16 percent this year, the best performance in the eight-company S&P/TSX Composite Commercial Banks Index, which climbed 9.3 percent.

Oil and Gas

The bank set aside C$752 million for soured loans in the quarter, up from C$448 million a year earlier. Impaired oil and gas loans were C$351 million at the end of April, up from C$336 million the previous quarter and C$92 million a year earlier.

Canadian banking profit, which includes domestic wealth management and insurance, jumped 18 percent to C$977 million after including the gain on a sale of a lease financing business. Excluding the gain, profit for domestic banking rose 6 percent, the bank said.

“The strength of our results this quarter underscores the continued strong performance of both our Canadian banking and international banking businesses," Porter, 58, said in the statement. “Partly offsetting our earnings growth were elevated loan losses in the energy sector, which are expected to decline beginning next quarter."

International Earnings

Earnings from international banking, which includes wealth management and insurance overseas, rose 15 percent to C$561 million on an increase in loans, deposits and fees. The lender has operations in more than 55 countries.

The global banking and markets unit posted profit of C$323 million, a 28 percent decrease from a year earlier, after setting aside more money for soured corporate loans and a lower contribution from trading equities.

Scotiabank is the fifth of Canada’s six largest lenders to report second-quarter earnings, with Bank of Montreal being the only one to miss analysts’ expectations so far. National Bank of Canada, based in Montreal, is set to report results Wednesday.