Scotiabank, BMO buoyed by strong growth outlook
Wealth management, commercial banking boost profits in domestic arena
Canadian banks continued TO R ONTO the trend of beating analyst expectations on Tuesday, with Bank of Nova Scotia and Bank of Montreal posting profits buoyed by growth in wealth management and personal and commercial banking in the domestic market.
Scotiabank said the strong results were behind a decision to return money to shareholders through a dividend increase of three cents, to 79 cents a share.
“The increase reflects our confidence in the strength and stability of our business,” Brian Porter, chief executive of the country’s third-largest bank, said on a conference call with analysts.
Scotiabank executives said domestic growth is expected to continue over the medium term, even as new and proposed regulatory changes and government policy aimed at cooling the hot real estate market in pockets including Toronto and Vancouver, take some wind out of mortgage loan growth.
“The mood in the country is pretty positive … We’re seeing it in our results,” James O’Sullivan, group head of Canadian banking at Scotiabank, told analysts.
Earnings grew eight per cent at Scotiabank’s Canadian personal and commercial banking segment, while Bank of Montreal posted a nine per cent year-over-year increase in the segment.
O’Sullivan said Scotiabank’s overall domestic franchise, including wealth management and commercial banking, is expected to see growth of between six and nine per cent over the medium term. This is in spite of what he described as “necessary” and “healthy” steps taken recently by government and regulators to soften recent spikes in home prices increases, particularly in Toronto.
He said Scotiabank executives are keeping a “watchful eye” on Canadians’ record level of consumer debt, something that could be a concern as the bank pushes further into credit cards. But while household debt to income ratios are high, he said it is also important to pay attention to household “balance sheets,” which include high levels of equity. He added that there a few signs of problems in debt servicing by households, which should remain manageable even if interest rates rise.
Gabriel Dechaine, a bank analyst at National Bank Financial, described Scotiabank’s domestic loan growth mix in the latest quarter as “an optimal combination of ‘not too frothy’ mortgage growth” and commercial growth.
In a note to clients, he said Scotiabank’s international operations delivered “impressive results,” including commercial loan growth, despite problems in individual countries such as flooding in Peru.
Overall, Bank of Nova Scotia posted net income of $2.1 billion in the third quarter ended June 30, up from $1.96 billion a year earlier. Adjusted earnings per share were $1.68, compared to an analyst forecasts of $1.64.
Bank of Montreal posted net income of $1.39 billion ($2.05 a share), up from $1.25 billion ($1.66) a year earlier. Adjusted earnings of $2.03, which accounted for a reversal in collective reserves, beat analyst estimates of $2. However, the performance of Canada’s fourth-largest bank was hurt by flat results from its U.S. operations, as well as from industry weakness in the capital markets segment.
“BMO reported a solid quarter that was ahead of expectations,” Barclays Capital analyst John Aiken wrote in a note to clients. “Unfortunately a decent quarter in its U.S. retail banking operations was partially obscured by moves in the CAD (Canadian dollar).”
Despite the bank’s earnings beat, BMO’s stock fell $2.36 or 2.5 per cent to close at $90.07 on Tuesday on the Toronto Stock Exchange. Shares of Scotiabank finished the day up 13 cents, or 0.17 per cent, to $77.33.
Tuesday’s results from Scotiabank and BMO came on the heels of last week’s analyst-beating earnings and dividend increases from Royal Bank of Canada and Canadian Imperial Bank of Commerce. Toronto-Dominion Bank, the last of Canada’s Big Five, reports thirdquarter results on Thursday.
The mood in the country is pretty positive. … We’re seeing it in our results.