File photo of a Scotiabank branch in Toronto.Deborah Baic/The Globe and Mail
Bank of Nova Scotia's profit stumbled in the fourth quarter after the bank reported a number of one-time charges.
Scotiabank made $1.4-billion to finish the fiscal year, down 14 per cent from the same period in 2013. After adjusting for one-time items, the bank's profit amounted to $1.32 per share, short of analyst expectations of $1.40 per share.
However, Scotiabank argues analysts did not fully account for all of the one-time charges, which stem from loan losses in the Caribbean and a bank restructuring, among other things. Incorporating everything, the bank said its earnings per share were just a penny shy of analyst estimates.
The charges, totalling $451-million, were preannounced in early November, right after the bank's fiscal year ended on October 31. They included: a $148-million restructuring charge as the bank cuts 1,500 jobs; $109-million worth of loan losses in the Caribbean; and a $129-million writedown on an investment in Venezuela.
On a conference call Friday, chief executive officer Brian Porter described the situation as a "perfect storm" of charges and losses, and said "in that regard, we're happy that 2014's over."
Over the full fiscal year, Scotiabank's profit totalled $7.3-billion, 10 per cent more than the year prior. However, one-time items also cloud the full year earnings, because the bank booked a significant $643-million gain during the third quarter on the sale of its stake in CI Financial Corp.
For much of the year there has been worry about Scotiabank's growth outside its home country. On a November conference call to discuss the latest one-time charges, Mr. Porter said the bank's revenue growth had been encouraging outside Canada, but profit had not jumped as much he would like.
"The frustration for us across the international footprint is we've had very solid asset growth over the last three or four years, and not all of that has dropped to the bottom line," he said, adding that the bank still has plans to grow in the region.
Over the past year, Scotiabank has closed 55 branches in Latin America, and has plans to shut 120 more.
Even after adjusting for restructuring charges in the fourth quarter, expenses in the international business grew by 6 per cent, eclipsing revenue growth of 5 per cent. "We expect some of the current headwinds to persist through the first half of the [2015] fiscal year," Mr. Porter said Friday.
The unit's profit totalled $344-million after factoring in one-time charges, down 16 per cent from the year prior. Much of the drop stems from higher provisions for credit losses.
Canadian banking reported a profit of $556-million, almost exactly even with the fourth quarter of 2013. Total loan growth amounted to 5 per cent, right in line with rival Canadian banks, all of whom are experiencing slower lending growth in their home market.
Scotiabank's total revenue jumped 7 per cent in the quarter to $5.8-billion, boosted by a much improved net interest margin that climbed to 2.39 per cent from 2.31 per cent a year ago. The net interest margin is the difference between the rates at which the bank borrows and lends money. Some of this rise stems from replacing higher-rate bonds and deposits with lower cost funding sources.
Wealth management reported another strong quarter, with net income rising 20 per cent after adjusting for the CI sale.
Capital markets saw its profit drop 3 per cent from the year prior to $327-million, largely because of a one-time $30-million charge to adjust the value of its derivatives portfolio in line with new global regulations. Rival banks incurred similar charges.
Interest rate trading took a major hit last quarter, with revenues falling 63 per cent from the year prior, and total trading revenue fell 32 per cent to $277-million. Underwriting and advisory fees nearly doubled to $212-million.
Tim Kiladze