August 31, 2010 / 12:05 PM / 7 years ago

UPDATE 4-Scotiabank profit gains on retail strength

* Q3 cash EPS C$0.99 vs est C$1.00

* Loan loss provisions C$276 mln vs C$554 mln

* Stock declines 1.3 pct to C$51.25 (Adds details from conference call, updates shares)

By Cameron French

TORONTO, Aug 31 (Reuters) - Bank of Nova Scotia (BNS.TO) reported a 14 percent rise in quarterly profit on Tuesday, as fewer loan defaults and stronger retail banking profits overshadowed a drop in trading revenue at Canada’s third-largest bank.

Much like the other big Canadian banks, Scotiabank benefited from a healthier credit climate in the third quarter. But it took a hit from the higher Canadian dollar and a lull in capital markets activity in recent months.

“All the trends are very consistent,” said Brenda Lum, an analyst at debt-rating agency DBRS.

“The domestic Canadian banking business was quite good, as expected, and the international bank was fair, although foreign exchange is an issue.”

The bank, which operates mainly in Canada and Latin America, earned C$1.06 billion ($1.0 billion), or 98 Canadian cents a share, in the quarter ended July 31, up from C$931 million, or 87 Canadian cents a share, a year earlier.

The profit was driven mainly by a drop in loan loss provision to C$276 million from C$554 million.

Cash earnings were 99 Canadian cents a share, compared with analyst forecasts of C$1.00 a share.

Return on equity was 18.2 percent during the third quarter, up from 17.3 percent a year earlier.

Speaking on a conference call, Scotiabank CEO Rick Waugh called the quarter “strong and straightforward” and predicted a strong finish to the year, including continued low loan-loss provisions.

“This year, we’ll exceed the financial targets that we’ve set,” he said, referring to objectives that include year-over-year earnings per share growth of 7 to 12 percent, and a return on equity of 16 to 20 percent.

The bank’s shares fell 1.3 percent to C$51.25 on the Toronto stock Exchange, underperforming other Canadian banks.

The results follow a mixed bag of earnings from other Canadian banks last week. Bank of Montreal (BMO.TO) and Royal Bank of Canada (RY.TO) posted lower than expected results, but Canadian Imperial Bank of Commerce (CM.TO) and National Bank of Canada (NA.TO) topped estimates.

Toronto-Dominion Bank (TD.TO), the last of the “Big Six” banks to report, is due to release its results on Thursday.

STRONG RETAIL BANK

Scotia said profit from domestic retail banking rose to a record C$604 million from C$500 million, while income at Scotia Capital, the bank’s brokerage arm, fell to C$305 million from C$470 million as trading revenue dropped.

Bank officials said they do not expect revenues from Scotia Capital to rebound in the fourth quarter.

The year-over-year rise of the Canadian dollar, which pressured revenue from Scotiabank’s international operations, stripped C$89 million from the bottom line, the bank said, while quarterly revenue was virtually flat at C$3.78 billion.

Sumit Malhotra, an analyst at Macquarie Equities Research, said the drop in loan loss provisions was larger than he expected. But he called revenue trends “sluggish” and said that could restrain future stock gains.

The bank’s Tier 1 capital ratio, a key measure of fiscal stability, rose to 11.7 percent from 10.4 percent.

Banks have been stockpiling capital over the past year in anticipation of new global capital and liquidity standards to be released in November by the Basel banking committee. The new measures are meant to help avoid another financial crisis.

Chief executives of Canadian banks, which already maintain high capital ratios by international standards, have said they believe they are well positioned to easily absorb the tighter standards, and Scotiabank’s Waugh echoed those comments. ($1=$1.07 Canadian) (Reporting by Cameron French; editing by Janet Guttsman)

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