Scotiabank, BMO keep steady bank earnings season on track.
Benefit from growth outside Canada
TORONTO• Bank of Montreal and Bank of Nova Scotia drew on their growing businesses south of the border to deliver upbeat quarterly results on Tuesday, continuing a solid earnings season thus far for Canada’s big banks.
Cost control and a larger footprint in Latin America helped Toronto- based Scotiabank report a profit of approximately $2.34 billion for the three months ended Jan. 31, an increase of more than 16 per cent from the first quarter of last year.
Revenue for Scotiabank rose three per cent to around $ 7.09 billion on a year- overyear basis, and non- interest expense, such as salaries and benefits, declined 5 per cent for the quarter to nearly $3.5 billion.
Scotia bank, Canada’ s third- largest lender by market cap, said the first quarter included a $ 150- million accounting benefit created by the “remeasurement” of a liability connected to employee benefits.
Scotiabank’s exposure to South America and Mexico, unique among Canadian banks, also paid off, as net income for its international banking unit for the quarter grew about 16 per cent yearover- year to $ 667 million. The bank said this was due in part to “solid loan and deposit growth in Latin America.”
“On a consolidated basis, the bank beat on most key metrics,” said Scott Chan, analyst at Canaccord Genuity, in a note.
BMO, meanwhile, also reported strong results that were weighed down by a one- time, non- cash charge of $ 425 million for its first quarter, which was related to tax reform in the United States.
Overall, the bank reported net income of $ 973 million for the three months ended Jan. 31, down 35 per cent compared to a year ago, but excluding the revaluation of the bank’s U.S .- based deferred tax asset, which BMO had anticipated, adjusted net income was down only about seven per cent, to $1.42 billion.
BMO said the dip for the quarter was due in part to a one- time gain on the sale of Moneris Solutions Corp.'s U.S. Operations, which was recorded in the year- ago quarter, as well as record performance from the bank’s capital markets unit.
Bank of Montreal, like others, will benefit going forward from the reduction in the U.S. corporate tax rate, especially as its U.S. segment represents approximately 25 per cent of its adjusted earnings, according to BMO’s investor presentation.
The lender said reported net income for its U. S. personal and commercial business was $ 310 million for the quarter, a 24-per-cent increase over last year that was aided by a lower U.S. tax rate.
“Our U. S. segment overall continues to be a differentiating strength for us,” said Darryl White, CEO of BMO Financial Group, on a conference call.
BMO’s Canadian personal and commercial banking business recorded a profit of $647 million for the quarter, a decrease of 13 per cent from last year. But, when certain items are taken out of the equation, the bank says the Canadian P& C segment saw underlying earnings growth of nine per cent.
Steve Theriault, analyst at Eight Capital, called BMO’s quarter “a relatively modest beat.”
“Similar to peers, BMO is off to a good start in 2018, with additional tailwinds from U. S. corporate tax cuts over the remainder of 2018,” Theriault said.
Although still beating expectations, and given the “tough” quarter to compare itself to, Chan characterized BMO’s results as “arguably the weakest amongst peers thus far.”
The showings from BMO and Scotiabank follow strong earnings from Canadian Imperial Bank of Commerce and Royal Bank of Canada last week. The Canadian banks have all seen their results benefit from interest rate hikes, the lowering of the U.S. corporate tax rate and relatively good economic growth.
Results from Toronto- Dominion Bank and National Bank of Canada, the remaining members of Canada’s Big Six, are to come later this week.
BMO and Scotiabank have also been keeping tabs on the NAFTA negotiations, a seventh round of which began this week.
“As we have said before, we are confident in our footprint, and particularly, in the resilience of the Mexican market,” said Brian Porter, president and chief executive of Scotiabank, on a conference call with analysts.
Scotiabank recently deepened ties to South America. The lender said at the end of January that its Colombian subsidiary had agreed to buy Citibank’s consumer and small and medium enterprise businesses in Colombia, pending regulatory approval.
Scotiabank said in December that its approximately $2.8-billion offer for a majority stake in BBVA Chile had been formally accepted by Banco Bilbao Vizcaya Argentaria S.A. Scotiabank intends to merge BBVA Chile with its own Chilean business, turning it into the third- largest private-sector bank in Chile.
Canada, t hough, still provides the bulk of Scotiabank’s earnings, and the lender reported first-quarter profit for domestic banking rose 12 per cent compared to a year go, reaching $ 1.1 billion on the back of strong asset growth and lower expenses.
Scotiabank also signalled Tuesday that it would hold onto its Scotia-Mocatta metals trading business, albeit in a leaner form, following a strategic review and speculation about a possible sale.