March 3, 2015 / 12:32 PM / 3 years ago

UPDATE 3-Scotiabank profit misses expectations; shares slip

(Adds interview with CFO)

By John Tilak

March 3 (Reuters) - Bank of Nova Scotia posted a lower-than-expected quarterly profit on Tuesday, hurt by an increase in credit-loss provisions and higher expenses, and its shares fell 1.4 percent.

The results at Scotiabank, Canada’s No. 3 lender, round out a mixed quarter for the country’s big banks. Royal Bank of Canada and Canadian Imperial Bank of Commerce topped profit expectations, but Bank of Montreal fell short.

Investors had been concerned about the effects of an oil-price slump on Canadian banks’ performance.

Scotiabank’s provisions for credit losses jumped 30 percent to C$463 million ($369.8 million) in the first quarter ended on Jan. 31, and non-interest expenses rose about 3 percent.

Loans outstanding to corporate clients in the oil-and-gas sector rose 20 percent to C$15.4 billion from the fourth quarter, despite low energy prices.

“If that meant that they are making large, incremental bets on the oil-and-gas sector, that makes me a little bit nervous,” said Edward Jones analyst James Shanahan.

Scotiabank Chief Financial Officer Sean McGuckin said the growth in corporate lending in the energy sector was helping offset any broader impact due to the lower oil prices.

“We expect to see some more investment banking as the pipeline for M&A deals is starting to pick up,” he told Reuters, adding that Scotiabank saw opportunities to lend to large, investment-grade companies.

Scotiabank recorded sharp growth in loans and deposits at its closely watched international banking division. The numbers come four months after the bank, considered Canada’s most international, announced significant restructuring at the unit.

“Some of the margin headwinds that we saw last year are starting to fade away,” McGuckin said. “We won’t really see a whole lot of the benefit until the second half of the year in terms of the efficiency gains that come with that, but we are tracking right on schedule.”

Scotiabank’s Canadian banking division benefited from higher net interest margins, and profits at its wealth management division were robust.

Net income rose to C$1.73 billion, or C$1.35 per share, from C$1.71 billion, or C$1.32 per share, a year earlier.

Excluding special items, earnings of C$1.36 per share missed the analysts’ average estimate of C$1.38, according to Thomson Reuters I/B/E/S.

Scotiabank raised its quarterly dividend to 68 Canadian cents per share from 66 Canadian cents.

$1=$1.25 Canadian Additional reporting by Sneha Banerjee in Bengaluru; Editing by Sriraj Kalluvila, Peter Galloway and Lisa Von Ahn

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