Scotiabank CEO upbeat on U.S. deal with Mexico

Big banks exposed to trade uncertainty

TORONTO • The chief executive of the

said Tuesday that a deal cut by Mexico and the United States in the NNFTA talks is a positive development that comes as the lender is eyeing further growth in the so-called Pacific Alliance countries.

Scotiabank president and CEO Brian Porter told reporters on a conference call that the preliminary “United States–Mexico Trade Agreement” announced Monday — not including Canada — was “a solid step in the right direction.”

“(The deal) alleviates a bit of ambiguity in the market’s mind,” Porter said. “We view yesterday’s development as very positive.”

Canada’s big banks have been keeping a close watch on the NAFTA talks. While they still make the bulk of their money at home, their businesses have also spread across the continent, leaving them exposed to trade uncertainty on a number of fronts.

Scotiabank is also the fifth-largest lender in Mexico, according to its CEO.

“We look forward to the next piece of NAFTA being solved, hopefully in a number of weeks,” Porter said. "That’s with Canada’s inclusion, and that would be positive.

“As an organization, we’re a believer in the free movement of people and goods across markets, and we’re looking forward to the next stage in the negotiations," he added.

Porter’s comments came after Scotiabank reported third-quarter profit of approximately $1.94 billion for the three months ended July 31, down from $2.1 billion a year ago.

The results were held back by around $320 million in after-tax costs related to recent acquisitions. Scotiabank completed its approximately $950-million purchase of investment firm Jarislowsky Fraser during the quarter, in addition to acquisitions of BBVA Chile and the operations of Citibank Colombia.

Yet even after the recent shopping spree in Canada and Latin America, Porter said the bank would still look at increasing its presence in Mexico.

“If there was something additive to do in Mexico, at the right time, at the right price, we’d certainly look at doing something,” he told reporters.

The bank’s income from Mexico — where a new president, Andrés Manuel López Obrador, is set to take power later this year — was roughly $169 million for the period. This was up $48 million from a year ago, while average assets in Mexico for the quarter were around $32 billion.

“The AMLO administration will likely maintain the general thrust of economic policies of the previous government, but there are risks of a more dramatic shift in orientation,” noted the bank’s economic outlook.

Ignacio Deschamps, Scotiabank’s head of international banking, said the lender’s Mexico business delivered a “very strong quarter.”

“We see both the … geopolitical risk reducing, the NAFTA risk reducing for Mexico,” Deschamps added during a conference call with analysts.

Scotiabank boosted its quarterly dividend as well, increasing it three cents to 85 cents per share.

“This was always going to be a bit of a bumpy quarter on a reported basis with Q3 results including a full quarter of the Jarislowsky Fraser acquisition and just under a month of the recently completed Chilean deal; however, for the most part the underlying businesses performed quite well this quarter versus street expectations,” wrote Eight Capital analyst Steve Theriault.

Bank of Montreal reported third-quarter results on Tuesday as well, with growth in the U.S. playing a big role. The bank’s U.S. personal and commercial banking unit reported a 36-per-cent jump in profit for the three months ended July 31, pushing it up to $364 million.

BMO chief executive Darryl White said in a press release that the bank received “a particularly good contribution from our U.S. segment and from our competitively advantaged commercial businesses on both sides of the border.”

Overall, the lender recorded net income of approximately $1.54 billion for the three-month period, up 11 per cent from a year ago, as the bank enjoyed the lower corporate tax rate in the U.S.

“This was another strong result led by continued momentum within the U.S. business,” noted Canaccord Genuity analyst Scott Chan. “The U.S. operations now represent 28 per cent of group net income (year-to-date).”

But BMO’s results also included a small point of caution on trade. The bank said there was a provision for credit losses on performing loans of $9 million, “with the largest driver being an increased weighting of the downside economic scenario due to trade concerns.”

“We think there is more runway in terms of expense beats and U.S. improvement as we look towards Q4 and into 2019,” wrote Theriault.