Scotiabank’s Profit Misses Estimates Amid Higher Expenses and Taxes
The Bank of Nova Scotia’s latest quarterly earnings report fell short of expectations, driven by higher-than-anticipated expenses and taxes, as well as weaker profits in its capital-markets business.
Higher Expenses Weigh on Earnings
The Toronto-based lender reported adjusted earnings of C$1.57 per share, below the C$1.60 average estimate of analysts surveyed by Bloomberg. Non-interest expenses totaled C$5.3 billion for the quarter, exceeding the C$4.85 billion average estimate. The bank attributed the increase to higher performance-based compensation, technology, and advertising costs, as well as taxes.
One-Time Impairment Charge Hits Earnings
Scotiabank’s results also included a one-time impairment charge of C$379 million related to its investment in Bank of Xi’an Co. in China. This charge contributed to the bank’s earnings miss.
Cost-Cutting Efforts Underway
Scotiabank has been working to reduce costs in its international division over the past year, aiming to improve productivity in regions such as Mexico, Peru, Chile, Colombia, and the Caribbean. The bank is also focusing on expense reduction in its domestic business.
Capital-Markets Unit Disappoints
Net income at Scotiabank’s capital-markets unit declined 2.7% from a year earlier to C$403 million, while fee income decreased from the previous quarter. Provisions for credit losses totaled C$1.03 billion, less than the C$1.06 billion analysts had forecast.
Credit Conditions Remain Challenging
Although central-bank interest-rate cuts have eased some investor concerns about bad loans, credit conditions continue to deteriorate as some consumers and businesses struggle to pay down debt.
Strategic Acquisition in the US
In August, Scotiabank announced a deal to acquire almost 15% of Cleveland-based KeyCorp for $2.8 billion, marking a shift in its capital allocation from Latin America to the US. The bank completed the purchase of the first 4.9% of KeyCorp shares at the end of August and plans to close the remainder of the acquisition in the 2025 fiscal year.
CEO’s Strategy to Lift Shareholder Returns
The acquisition is part of CEO Scott Thomson’s strategy to improve shareholder returns, which have underperformed those of Scotiabank’s peers over the past five years but started to gain momentum this year. Thomson noted that the past 12 months marked “a foundational year for Scotiabank as we launched and made early progress against our new strategy,” citing “solid revenue growth and positive full-year operating leverage.”
Segment Performance
Adjusted net income at Scotiabank’s Canadian banking unit increased 34% to C$1.06 billion in the quarter, while the international business grew 14% to C$634 million. The bank’s wealth-management division posted 28% growth in adjusted earnings, to C$426 million.
Shares Fall on Earnings Miss
Scotiabank’s shares dropped 4.5% to C$76.22 following the earnings release, as investors reacted to the earnings miss. However, analysts expect the market to find some relief in the fact that the bulk of the disappointment centers around a higher-than-expected tax rate.
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