Higher losses from energy loans and restructuring charges to pave the way for digital banking saw the Bank of Nova Scotia’s fiscal second quarter profit fall by 12 percent, however the bank’s earnings per share still beat Wall Street expectations by $0.4.
The company said in a statement on Tuesday that their quarterly profit was at C$1.23 earnings per share with adjusted earnings per share at C$1.46. Net income for the period ending April 30 at C$1.58 billion ($1.21 billion) was down from C$1.8 billion or C$1.42 from the previous year with total revenue up $6.59 billion, up from $5.94 billion in the previous year.
The company saw year-on-year profit gains in Canadian and international banking, but improvements were offset by a slide in the bank’s capital markets division, higher provisions and restructuring costs amounting to C$278 million. Chief Executive Officer Brian Porter reported that bad loans from the energy sector will be easing in the next quarter as he realigns the bank’s operations shifting to online as consumers shift their banking activities.
Toronto-based Barclay’s Plc analyst John Aiken said that the provisions for bad loans were “well above consensus expectations.” In an e-mail, he said that “While some of it related to energy exposures, the incremental deterioration in international credit will not likely be well received.”
The bank’s shares increased 16 percent this year contributing to an overall good performance in the eight-company S&P/TSX Composite Commercial Banks Index, which increased 9.3 percent.
Scotiabank increased their provisions for bad loans from C$448 million in the previous year to C$752 million this year. By the end of April, bad loans from oil and gas were C$351 million compared to C$336 million in the last quarter and last year’s C$92 million.
The company’s Canadian banking profits rose 18 percent to C$977 million including gains from the sale of its lease financing business. The profits included domestic wealth management and insurance. Banking profits without gains from the sale increased by 6 percent according to the bank.
“The strength of our results this quarter underscores the continued strong performance of both our Canadian banking and international banking businesses,” Porter, 58, said in a statement. “Partly offsetting our earnings growth were elevated loan losses in the energy sector, which are expected to decline beginning next quarter.”
Earnings derived from international banking, including overseas wealth management and insurance businesses, increased to 15 percent at C$561 million due to an increase in loans, deposits and fees. The bank operates in more than 55 countries.
The company’s global banking and markets unit gained profits amounting to C$323 million down by 28 percent from the year previous. The decline comes in the wake of bad corporate loans and lower contributions from trading equities.
Of the six of Canada’s largest lenders, the Bank of Nova Scotia is the fifth to report its second quarter earnings. So far, the Bank of Montreal is the only institutions to miss analyst expectations. The National Bank of Canada based in Montreal is expected to post its earnings report on Wednesday.