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Report on Business Scotiabank posts profit slightly below forecasts, but expects to beat growth targets in 2019

Analysts blame Scotiabank's earnings miss on costs related to recent acquisitions

Kevin Van Paassen/The Globe and Mail

Bank of Nova Scotia is optimistic of beating its growth targets next year, chief executive Brian Porter said after the bank posted fourth-quarter results which were marginally below forecasts on Tuesday.

Canada’s third-biggest lender reported adjusted earnings per share of $1.77 in the quarter ended Oct. 31, up 8 per cent but short of the average analyst forecast of $1.79 per share, according to IBES data from Refinitiv. Analysts blamed the miss on costs related to recent acquisitions.

Speaking to analysts on a conference call, Porter said he expected the bank to benefit from improved margins next year due to rising interest rates and a strong economic backdrop in its key markets.

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“We are optimistic that we will continue to perform strongly and, again, exceed our medium-term objectives,” he said.

Shares in Scotiabank were up 0.3 per cent in mid-morning trading, after initially dropping 0.5 per cent.

The bank has targeted annual earnings growth of 7 per cent or more in Canada next year and 9 per cent from its international operations, stripping out currency movements.

Excluding one-off costs, net income rose by 13 per cent to $2.35 billion in the latest quarter, compared with the average estimate by analysts of $2.24 billion, according to IBES data.

For the full year, Scotiabank reported a 7 per cent increase in earnings at its Canadian business to $4.4 billion, helped by improved margins as it benefited from five Bank of Canada interest rate hikes since last summer and growth in customer deposits.

However, Canadian banking head James O’Sullivan told analysts the market for deposits was “quite competitive.”

Competition for deposits among Canadian banks was heating up for the first time since the financial crisis and could crimp margin growth, analysts said.

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The bank also said on Tuesday it planned to exit nine countries in the Caribbean, including Antigua and Grenada, by selling its operations to Republic Financial Holdings.

It also plans to sell its insurance operations in Jamaica and Trinidad & Tobago to Sagicor Financial.

The bank has been selling non-core businesses and focusing its international operations on the Pacific Alliance trading bloc of Peru, Mexico, Chile and Columbia, which now accounts for around a quarter of its revenue.

The transactions are not material to Scotiabank, it said, but will result in its core tier 1 capital ratio, a key measure of its financial strength, increasing by 10 basis points.

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