Canadian financial services provider Bank of Nova Scotia (BNS,BNS.TO) on Friday reported a 10% year-over-year decline in profit for the third quarter, hurt by higher provisions for credit losses, and writedowns on non-trading securities.
This was partially offset by higher net interest income and loan fees from asset and customer growth, strong trading results and the positive impact of foreign currency translation. The company maintained its quarterly dividend and reiterated its forecast for fiscal year 2009 earnings growth.
Canadian banks have largely managed to evade the global slump that has slapped the U.S. financial firms. Canada is the only nation in the group of seven industrialized nations that has not bailed out its banks since the onset of the financial crisis. Strict capital requirements, conservative lending policies and periodic regulatory reviews are some factors contributing to the stability of Canada's financial system.
In a statement, president and chief executive officer, Rick Waugh said, "Record quarters from Canadian Banking and Scotia Capital and a solid contribution from International Banking have allowed Scotiabank to continue to deliver strong core earnings through challenging conditions. Provisions for credit losses, including an increase in the general allowance, are within our expectations and risk appetite, and we are continuing to prudently manage our loan portfolios across geographies and industries."
Third Quarter Results
Halifax, Canada-based Bank of Nova Scotia or Scotiabank, Canada's third largest bank, reported net income of C$882 million for the third quarter, down 9.8% from C$978 million in the year-ago quarter. On a per share basis, earnings declined 11.2% to C$0.87 from last year's C$0.98.
Net interest income for the quarter, on a taxable equivalent basis, grew 9% to C$2.24 billion from C$2.05 billion in the same period last year. Other income was C$1.60 billion, up 12% from C$1.43 billion in the year-ago quarter.
Net interest margin on total average assets was 1.76%, down from 1.79% last year, due to the significant decline in interest rates, and the impact of assets repricing faster than liabilities, increased cost of liquidity, lower tax-exempt income and growth in non-earning assets.
Total revenues for the quarter increased 12.2% to C$3.78 billion from C$3.37 billion in the same quarter last year. On a taxable equivalent basis, total revenue for the quarter was C$3.84 billion, up 10.3% from C$3.48 billion in the previous-year quarter.
The increase in revenues reflect higher net interest income from asset growth in all business lines and wider spreads in corporate lending, strong contributions from capital market activities, higher securitization revenues and the positive impact of foreign currency translation. These items were partly offset by increased writedowns on non-trading securities.
Peer Performance
Among Scotiabank's peers, Montreal, Canada-based BMO Financial Group (BMO,BMO.TO) reported on Tuesday a 6.9% year-over-year decline in profit for the third quarter, reflecting lower provision for credit losses as well as 8.4% revenue growth. Net income was C$557 million or C$0.97 per share, compared to C$521 million or C$0.98 per share in the prior-year quarter. Total quarterly revenues rose to C$2.98 billion from C$2.75 billion in the same quarter last year.
Toronto, Canada-based Royal Bank of Canada (RY,RY.TO) reported on Thursday a 24% rise in profit for the third quarter, driven by strong revenue growth. The company attributed the earnings growth to strong results from Capital Markets and Insurance. Net income grew to C$1.49 billion or C$1.05 per share from C$1.24 billion or C$0.92 per share in the prior-year quarter. Excluding items, cash net income increased to C$1.60 billion or C$1.07 per share from C$1.30 billion or C$0.95 per share in the year-ago quarter. Total quarterly revenues surged 32.3% to C$7.82 billion from C$5.91 billion last year.
Toronto, Canada-based TD Bank Financial Group (TD,TD.TO) reported on Thursday a decline in third-quarter profit, hurt by several charges. Excluding items, profit increased from the previous year, on higher earnings contributions from the wholesale banking and Canadian personal and commercial banking segments. Net income was C$863 million or C$1.01 per share, down from C$980 million or C$1.21 per share in the year-ago quarter. Adjusted net income rose to C$1.25 billion or C$1.47 per share from C$1.109 billion or C$1.35 per share last year. Total quarterly revenues increased to C$4.67 billion from C$4.04 billion a year ago.
Segmental Details
Canadian Banking segment's net income grew 8% from the prior-year quarter to C$500 million. Total revenue for the segment increased 7% from a year ago to C$1.81 billion. Net interest income for the quarter was C$1.21 billion, up 8% from the prior-year period, driven by growth in both average assets and deposits. Other income rose 5% from the same quarter last year to C$593 million. The segment made good progress its wealth management channels, and led the industry in mutual funds net sales for the second consecutive quarter.
International Banking segment's net income for the quarter declined 7% from the prior-year quarter to C$312 million. Excluding the positive impact of foreign currency translation, net income decreased C$38 million from last year. Total revenues for the segment grew 3% from a year ago to C$1.28 billion. Net interest income increased 16% to C$979 million, while other income dropped 24% to C$296 million from last year.
Scotia Capital segment's net income climbed 58% to C$470 million from the year-ago quarter. Total revenues for the quarter soared 69% from the prior-year period to a record C$1.10 billion. Net interest income climbed 57% to C$423 million, and other income climbed 78% from the year-ago quarter to C$681 million.
The "Other" segment reported a net loss that significantly widened to C$351 million from C$85 million in the same period last year. The segment reported a negative revenue of C$409 million, compared to negative revenues of C$200 million a year ago. Net interest income was negative C$438 million for the quarter, and other income was C$29 million.
Other Metrics
Scotiabank's provision for credit losses was C$554 million in the quarter, up from C$159 million in the year-ago quarter, reflecting increased provisions in all three business lines. Canadian banks have recently shown large increases in their provisions for bad loans, a sign that they expect deterioration in their core lending businesses. Non-interest expense for the quarter grew 4% to C$1.96 billion from C$1.89 billion in the year-ago quarter.
Scotiabank's productivity ratio for the quarter was 51.0%, compared to 54.3% reported for the same period last year, reflecting continued focus on expense control across all business lines. Return on equity for the quarter was 18.0%, down from 21.0% in the year-ago period.
As at July 31, 2009, the company's Tier 1 ratio was 10.4% and Total capital ratio was 12.7%, compared to Tier 1 ratio of 9.8% and Total capital ratio of 11.5% as at July 31, 2008.
The company said that its direct loan exposure to the North American and European automotive industry was C$4.3 billion as at July 31, 2009, compared to C$5.2 billion as at October 31, 2008. According to the company, about 29% of this exposure is rated investment grade.
Scotiabank said that it is actively managing its exposure to this sector and has contained its exposure to North American OEMs. The company added that regular stress tests are performed on this exposure, covering a number of different scenarios, including the potential default of a North American OEM.
Scotiabank noted that its capital position continues to improve and remains strong by international standards, allowing the Bank to continue to deliver consistent dividends to shareholders and pursue on-going business development opportunities. High levels of profitability and retained earnings have contributed to the improvement in the banks capital ratios.
Scotiabank also declared a quarterly dividend on its common shares of C$0.49 per common share for the fourth quarter, payable on October 28, to shareholders of record at the close of business on October 6, 2009.
Nine Month Highlights
For the nine months, Scotiabank reported net income of C$2.51 billion or C$2.48 per share, down from C$2.75 billion or C$2.77 per share in the year-ago period.
Net interest income for the period, on a taxable equivalent basis, grew to C$6.44 billion from the same period last year, and other income was C$4.49 billion, up 20% from the year-ago period.
Total revenues, on a taxable equivalent basis, for the quarter grew 13% to C$10.94 billion from C$9.71 billion in the same period last year.
Looking Ahead.........
"Economic conditions in the second half of 2009 are improving. With the solid results achieved during the first nine months of the year, the Bank is maintaining the objectives established at the beginning of the year," Waugh added.
For fiscal 2009, Scotiabank maintained its forecast for earnings to grow in a range of 7% to 12%. Return on equity is still anticipated between 16% and 20%, with productivity ratio of less than 58%.
Stock Quotes
In Friday's regular trading session, BNS is currently trading at US$42.92, down US$1.26 or 2.85% on a volume of 0.41 million shares. In the past 52-week period, the stock has been trading in a broad range of US$19.24 to US$48.21.
On the Toronto Stock Exchange, BNS.TO is currently trading at C$47.05, down C$1.06 or 2.20% on a volume of 1.72 million shares. The stock has been trading in a range of C$23.99 to C$50.69 in the past 52 weeks.
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