February 25, 2020 / 2:58 PM / 3 months ago

WRAPUP 2-Scotiabank, Bank of Montreal capital markets strength drives earnings beats

Feb 25 (Reuters) - Bank of Montreal and Bank of Nova Scotia, two of Canada’s biggest banks, posted better-than-expected first-quarter profits on Tuesday driven by trading and advisory earnings, but some international challenges weighed on shares.

Even as capital-market profits, which had lagged over the past few quarters, grew strongly, Scotiabank’s global business, the biggest among Canadian banks, was hit by economic headwinds and divestitures, while U.S. loan losses and increased provisions weighed on Bank of Montreal.

BMO stock fell 1.7% to C$97.75 in morning trade in Toronto, and was on track for its lowest close in almost four months. Scotiabank shares dropped 0.7% to C$72.61, in line with the benchmark Toronto stock index.

“As we look forward, we do think credit losses will decrease over the balance of the year,” BMO’s Chief Financial Officer Tom Flynn said in an interview.

BMO’s U.S. business posted a 20% decline in earnings and credit-loss provisions more than doubled to C$349 million.

“While we modeled higher loan losses for the quarter, they were significantly higher than expected as a series of issues in the United States (both in commercial banking and capital markets) held the result back,” CIBC Capital Markets analyst Robert Sedran wrote in a note.

BMO’s net income before one-off items was C$2.41 per share, versus analyst estimates of C$2.37 a share.

BMO reported a 38% jump in capital markets earnings and Scotiabank 35%, following rival Royal Bank of Canada which posted a 35% increase last week.

“Results in this business segment are subject to economic conditions as well as market volatility, making it difficult to predict earnings trends,” Rob Colangelo, an analyst at DBRS Morningstar, said by email.

Earnings from Scotiabank’s international banking unit - focused on the Pacific Alliance trading bloc of Peru, Mexico, Chile and Colombia - fell 4% from a year ago, even excluding the impact of divestitures.

“We expect (international) earnings to grow starting in Q2, and continue to improve gradually to achieve our 2020 outlook of high-single-digit growth” on a constant-dollar basis, executives said on an analyst call on Tuesday.

Scotiabank’s adjusted net income was C$1.83 per share, compared with analysts’ estimate for profit of C$1.74 per share, according to IBES data from Refinitiv.

$1 = 1.3286 Canadian dollars Reporting by Nichola Saminather in Toronto; Additional reporting by Abhishek Manikandan and C. Nivedita in Bengaluru; Editing by Alistair Bell and Bernadette Baum

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