Bank of Nova Scotia T.BNS

BMO, First Look

[Dibah420]

BNS-TSX Rating Market Perform Price: Feb-27 $71.53 Target $85.00 Total Rtn 25%

First Look at Q1/23 Results Bottom Line: Miss. Adjusted cash EPS of $1.85 came in below our/consensus estimates of $2.00/ $2.02. The miss was primarily in the Corporate/Other segment, reflecting the impact of rising rates and higher funding costs.
By segment, softer-than-expected results in Canadian Banking was partly offset by better results in International Banking (including GBM LATAM) and GBM (trading revenue beat). PCL was 32bps (vs. 28bps expectation). Comfortable CET1 ratio of 11.5%; introduced 2% DRIP discount "out of prudence".
Key Points • Miss Driven by Corporate/Other with a loss of -$334MM vs. our expectation of - $35MM, primarily reflecting higher funding costs and lower hedging benefits. Canadian Banking earnings also came in a touch below expectations at $1,088MM (down 10% y/y), reflecting lower risk-adjusted margins and higher technology and personnel expenses. International Banking earnings of $661MM was ahead of our expectations (up 20% y/y), primarily benefiting from stronger-than-expected loan volume growth (double-digit retail and commercial loan growth) and strong performance in GBM LATAM. GBM came in above our expectations with earnings of $519MM (down 7% y/ y), reflecting much stronger-than-expected trading revenue (trading revenue was down 2% y/y to $722MM; prior eight quarter average of $602MM). Global Wealth came in a touch above expectations, showing better-than-expected resiliency with its contribution of $392MM (down 6% y/y, primarily due to lower fee income).
• PTPP Income Down 7% y/y, with NIX of 55.2%, up 330bps y/y. Total bank revenue of ~$8.1B was down 1% y/y; total bank non-trading NIM was 235bps (down 10bps q/q), reflecting higher funding costs and lower contribution from asset/liability management activities. • Moderate Build of Performing Allowances. The quarter included $638MM/32bps in PCLs (Stage 1&2: 4bps; Stage 3: 28bps), above our expectation of 28bps and closer to guidance of mid-30bps for F2023. Total allowances (specifics + collectives) now stand at ~$5.5B or ~134bps of credit RWA (vs. through the cycle average of 144bps). • Comfortable Capital Levels and Liquidity. CET1 ratio of 11.5%, unchanged q/q, as internal capital generation (21bps) and revaluation of FVOCI securities (9bps) was offset by RWA growth (16bps), and the Canada Recovery Dividend (12bps). Basel III reform expected to benefit capital by 20-30bps in Q2/23. 2% DRIP discount introduced. LCR was 122% (five-year average of ~127%). Canadian Banks Sohrab Movahedi Analyst [e-mail] [phone] Ally Zhou, CFA Associate [e-mail] [phone] Shoban Anandarajah Associate [e-mail] [phone] Legal Entity: BMO Nesbitt Burns Inc. 100 95 90 85 80 75 70 65 60 Aug Feb Aug Feb 30 20 10 0 LHS: Price (C$) / RHS: Volume (mm) Source: FactSet 2YR Price Volume Chart Company Description Scotiabank is Canada’s most international bank, with retail, commercial, wealth, and investment banking operations primarily in Canada, Chile, Colombia, Mexico, Peru, the Caribbean, and Central America. BNS-TSX Research Glossary Company Models This report was prepared by an analyst(s) employed by