Scotiabank kicked off fourth-quarter earnings with a strong beat, led by better than expected performances in capital markets and its international operations. The International segment in particular saw strong loan growth and net interest margin expansion. BNS did manage to earn through higher provisions, but Barclays' John Aikem notes that the acceleration in impaired loan formations may temper some of the enthusiasm in the quarter. BNS reported core cash earnings of $2.06 per share, above consensus of $2.00 and Barclays estimate of $2.10. Reported earnings included a $340 million loss on the sale of associates in Venezuela and Thailand as well as the wind-down of operations in India and Malaysia. Other charges included a restructuring charge in capital markets (Asia) and costs associated with expanding its loyalty program.
Impaired loans were up by more than $500 million in the quarter (13%), with both personal and commercial lending seeing upticks (fairly broadly-based in commercial). Provisions on performing loans (Stage 1&2) were up modestly (from $23 million to $35 million) but impaired loan provisions were up by over $100 million ($389 million to $494 million), reflecting the increase in impaired loans.
Trading revenues were up over 50% against the third quarter, while advisory fees were up almost 40%. Scotia's regulatory capital ratio increased by 10bps to 11.5%.
"Scotia starts the fourth-quarter earnings season with a strong beat, but concerns about looming credit deterioration could overshadow the positive results."
Barclays has an Equal Weight rating and $86 target on the stock.