Bank of Nova Scotia ’s decision to sell several high-profile office buildings gave it a boost at a time when shrinking profit margins and higher capital requirements are taking a toll on its financial numbers.
Scotiabank reported a 15-per-cent boost in first-quarter profit on Tuesday, but the increase was helped significantly by the recent sale of its offices in Calgary. Without the gain from that real-estate deal, Canada’s third-largest bank would not have met analysts’ expectations for the quarter.
The bank made $1.44-billion in the quarter, or $1.23 per share, compared with profit of $1.25-billion, or $1.11 per share during the same period in 2011.
Revenue rose 11 per cent to $4.65-billion.
Factoring out the Calgary office towers (equal to 8 cents a share) along with other one-time items, the bank made $1.12 a share. On average, analysts were expecting first-quarter profit of $1.15 a share.
“Scotia is the first bank to not exceed consensus expectations, with its peers reporting to date all coming in well above forecasts,” analyst John Aiken at Barclays Capital wrote in a research note to clients. Five of Canada’s Big Six banks have reported earnings, with Canadian Imperial Bank of Commerce expected on Thursday.
At a time when Scotiabank has placed its marquee Toronto headquarters for sale and is expected to fetch more than $1-billion, such real-estate deals are playing a key role in the bank’s financial performance.
The sale of Scotia Plaza in Toronto is being explored so the bank can boost its capital levels in advance of new global regulations. Banks are expected to hold more capital against their lending operations in the next few years, and funds from a sale will help Scotiabank comfortably exceed those requirements.
The bank increased its quarterly dividend 3 cents, or 6 per cent, to 55 cents, making it the third bank to increase its payout this quarter. Royal Bank of Canada and Toronto-Dominion Bank made the same move last week.
Scotiabank’s Canadian branch operations made $475-million, up $24-million from a year ago. Though Scotiabank saw margins shrink slightly, higher volumes of commercial loans and mortgages helped boost net income. Across the sector, banks have seen strong performances from their Canadian banking operations this quarter, as higher lending made up for weaknesses in other divisions.
On a conference call with analysts, Scotiabank chief executive officer Rick Waugh called it “a very strong quarter, notwithstanding the continuing macroeconomic challenges we all face.”
Amid low interest rates and higher competition for qualified borrowers, banks have been trying to undercut each other on mortgage rates, which has hurt their margins. Lending profits in Canadian banking have been particularly resilient, bucking a slowdown analysts expected to hit in early 2012.
Profit at Scotia’s international banking division also rose, climbing 9 per cent to $391-million on higher lending revenue. Scotiabank is the most international of Canada’s banks, with branches in Canada, Mexico, South America and Asia.
Profit fell at its global banking and markets division, which includes its capital markets operations. The bank made $311-million, down 11 per cent from the same quarter a year ago.
Although trading income rebounded since slumping in the fourth quarter, it was still below the lofty levels seen a year ago when uncertainty in Europe pushed revenue from bond trading to record levels. Meanwhile, Scotiabank’s global wealth management division made $288-million, up 28 per cent in the quarter.