Sco­tia­bank, BMO buoyed by strong growth

Wealth man­age­ment, com­mer­cial banking boost prof­its in do­mes­tic arena

Saskatoon StarPhoenix - - FRONT PAGE - BAR­BARA SHECTER

TORONTO Cana­dian banks con­tin­ued 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.

MICHELLE SIU/THE CANA­DIAN PRESS

Bank of Nova Sco­tia and Bank of Montreal posted strong re­sults Tues­day in the do­mes­tic fran­chise, in­clud­ing wealth man­age­ment and com­mer­cial banking, de­spite new and pro­posed reg­u­la­tory changes and pol­icy aimed at cool­ing the hot real es­tate mar­ket.

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