Scotiabank foreign loan losses surge while BMO stays resilient
Bank of Nova Scotia reported a record for soured-loan provisions in the fiscal third quarter, the result of its large foreign business, while Bank of Montreal pulled back from a peak set during the early days of the coronavirus pandemic.
Scotiabank’s international-banking unit, which distinguishes Canada’s third-largest lender from its domestic rivals, delivered its first quarterly net loss in 18 years as higher provisions and a loss tied to its stake in a Colombian bank contributed to the company missing analysts’ estimates.
Bank of Montreal, meanwhile, showed resiliency, with record earnings in capital markets and wealth management, along with an easing of provisions from a peak in the previous three months. That helped the country’s fourth-biggest lender report earnings that beat estimates.
“We have the appropriate defensive positioning for an uncertain environment with our diversified business model, meaningful performing-loan coverage and more capital than we had before COVID-19,” Bank of Montreal chief executive Darryl White said on a conference call with analysts Tuesday.
Scotiabank and Bank of Montreal
are the first Canadian lenders to report results for the three months through July, a period in which the country’s six biggest banks are expected to see an average profit decline of 30 per cent, according to analysts’ estimates. Bank of Montreal’s net income fell 21 per cent, while Scotiabank’s plunged 34 per cent, giving investors an indication of how the pandemic continues to cause havoc for lenders.
“Scotia’s miss was predicated on higher than forecast provisions as Scotia catches up on its allowances for performing loans,” Barclays Plc analyst John Aiken said in a note to investors Tuesday morning. “International bore the brunt of the impact, with its contribution essentially coming in as nil.”
Loan-loss provisions drove the profit declines at both Toronto-based banks, though even in that area the two deviated. Scotiabank earmarked $2.18 billion for bad loans — with more than half from its international division — topping the previous record, set in the second quarter. Bank of Montreal set aside $1.05 billion, less than the prior period’s record, supporting the firm’s earlier view that its allowances are “appropriate” for navigating the crisis.
Scotiabank executives said during a conference call Tuesday that the third quarter marks the
“peak” for loan-loss provisioning, with the bank seeing improvements ahead from what CEO Brian Porter called “a trying time for all.”
“We are beginning to see some positive signs, which provide cause for optimism as we look ahead,” Porter said on the call. “Today business conditions have begun to slowly improve across our footprint, although many challenges remain due to the timing and uneven impact of the recovery. That said, our outlook today is more positive and has improved.”
Scotiabank shares fell slightly to $56.10 at the close in Toronto, and have slumped 24 per cent this year, while Bank of Montreal shares climbed 5.7 per cent to $81.23, and have dropped 19 per cent since the start of 2020.
Both banks showed improvements in their wealth-management and capital-markets divisions, thanks in part to increased dealmaking and heightened trading activity.
Scotiabank’s capital-markets division has been showing signs of a turnaround this year after two years of shrinking revenue and profit. Earnings in the unit jumped 60 per cent to a record $600 million on higher trading revenue and investment-banking fees. Bank of Montreal’s BMO Capital Markets unit regained profitability from its second quarter, as increased trading revenue and fees fuelled a 36-per-cent jump from a year earlier to $426 million.
Scotiabank’s Canadian banking, the company’s largest operation, had earnings of $429 million in the quarter, down 53 per cent from a year ago as loan-loss provisions weighed on results. The international division, which has an emphasis on Latin America and the Caribbean, posted a $28-million loss, after provisions swelled to $1.28 billion. Excluding the company’s share of a loss in Banco Colpatria in Colombia, which Scotiabank doesn’t control, the division reported a $26-million profit. Net income fell to $1.3 billion, or $1.04 a share, while adjusted earnings also totalled $1.04 a share, missing the $1.10 average estimate of 11 analysts in a Bloomberg survey.
Profit at the Bank of Montreal’s Canadian banking division fell 51 per cent from a year earlier to $320 million, while earnings at the U.S. banking unit declined 29 per cent to $263 million, as loan-loss provisions surged from a year earlier in both regions.
Earnings at the wealth-management business jumped 36 per cent from a year earlier to $341 million. Net income fell to $1.23 billion, or $1.81 a share.