BMONovember 29, 2022 | 08:02 ET
~ Scotiabank BNS-TSX Rating Market Perform Price: Nov-28 $71.46 Target $86.00 Total Rtn 26%
First Look at Q4/22 Results Bottom Line: Beat. BNS's adjusted cash EPS of $2.06 came in above our/consensus estimates of $1.92/$2.00. The beat to us was largely due to better results at Int'l Banking (strong volume growth; lower taxes) and GBM (resilient trading and business lending volume), partly offset by weaker Canadian Banking (higher expenses).
Total bank PCL was 28bps, higher than our 26bps expectation.
Capital levels strong with CET1 ratio of 11.5%/LCR ratio of 119%.
Key Points • Most Operating Segments Exceeded Our Expectations with International Banking earnings of $650MM (up 21% y/y) primarily benefiting from loan volume growth (double-digit mortgage and commercial loan growth), higher risk-adjusted margins (faster asset re-pricing), and unusually lower effective tax rate (likely helped by ~ $50MM).
Canadian Banking earnings, however, came in a touch below expectations at $1,174MM, down 5% y/y — strong volume growth (business and mortgages) was offset by lower risk-adjusted margins and higher technology and personnel expenses.
GBM came in well above our expectations with earnings of $484MM (down 4% y/y), reflecting stronger business lending offsetting challenging market conditions (trading revenue was down 3% y/y to $547MM; prior 8-quarter average of $614 MM; propped up by FX trading).
Global Wealth came in a touch above expectations, showing betterthan-expected resiliency with its contribution of $368MM (down 6% y/y, lower AUA driven by market depreciation).
• PTPP Income up 2% y/y, with NIX of 53.4%, up 90bps y/y. Total bank revenue of ~$8.1 billion was up 4% y/y (net interest income up 11% y/y driven by strong loan growth); total bank non-trading NIM was 244bps (down 13bps q/q), reflecting lower contribution from asset/liability management activities and lower Canadian Banking margin.
• Moderate Build of Performing Allowances. The quarter included $529MM/28bps in PCLs (Stage 1&2: 2bps; Stage 3: 26bps), above our expectation; likely to drift higher next FY. Total allowances (specifics + collectives) now stand at ~$5.3B or ~133bps of credit RWA (vs. "through the cycle" average of 143bps).
• Strong Balance Sheet and Liquidity. CET1 ratio of 11.5% was up 10bps q/q, as internal capital generation was offset by valuation changes in investment securities (~14bps). LCR was 119% (5-year average of ~127%). Dividend was unchanged (likely returning to annual cycle). Estimated Canada Recovery Dividend CET1 impact of 15bps in Q1/23.