TORONTO/VANCOUVER (Reuters) - First-quarter earnings dropped 18 percent at Bank of Nova Scotia (BNS.TO), results showed on Tuesday, a touch below market expectations as weak capital markets and higher provisions for loan losses took a bite out of the bottom-line.
Scotiabank, Canada’s third-biggest bank by market value, reported earnings of C$835 million ($843 million), or 82 Canadian cents a share, in the three months ended January 31. That compares with net income of C$1.02 billion, or C$1.01 a share, in the same period a year earlier.
If a bunch of various credit market-related writedowns — worth about 17 Canadian cents a share — are added back to earnings, the figures are just below analysts’ average estimate of C$1.01 a share, according to Reuters Estimates.
“This should be viewed as a good quarter for Scotiabank but not sustainable — this is basically true of all banks that reported this quarter,” said CIBC World Markets analyst Darko Mihelic in a note to clients.
“I expect loan loss provisions and further capital markets weakness to affect future quarters,” he added.
Scotiabank President and Chief Executive Officer Rick Waugh said that while the bank had anticipated a difficult first quarter, results were weaker than expected.
“This was due primarily to substantial volatility in global financial markets. Our exposure to these stressed markets is modest and well diversified, but our portfolios did experience some valuation writedowns,” Waugh said in a statement.
Looking ahead, however, Waugh noted some light at the end of the tunnel, especially a pick up in capital markets activity, leading the bank to maintain the financial targets it set at the beginning of the year.
“Funding costs have begun to improve, asset growth remains strong in all three of our business lines, and increased attention to managing costs supports our confidence going forward,” he said.
He also expected the Canadian dollar, which rose sharply in 2007, to have less of a negative impact later this year.
Meanwhile in the first quarter, Scotiabank’s provisions for credit losses, which are rising across Canada’s bank sector after years of record lows, increased 23 percent to C$91 million.
Scotiabank said net income at its domestic banking unit rose 1.7 percent to C$367 million.
Profit at Scotiabank’s international operations, which include businesses in the Caribbean, South America and Mexico, fell 10.7 percent to C$282 million.
Profit at Scotia Capital, the group’s investment banking and capital markets unit, slumped 36 percent to C$187 million from a year earlier as trading revenue fell.
Scotiabank has targeted earnings per share growth of 7 percent to 12 percent in 2008, and return on equity of between 20 percent and 23 percent.
At a time when banks in Canada and around the world are taking hits from investments linked to the crisis-plagued U.S. subprime housing market, Scotiabank has said it has no direct exposure to this market and only “nominal holdings” of troubled Canadian nonbank asset-backed commercial paper.
Reporting by Frank Pingue and Nicole Mordant; Editing by Renato Andrade