Scotiabank posts modest profit gain, capping year of change

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Bank of Nova Scotia closed its 2019 fiscal year with modestly higher profits in its core divisions, as wariness among business leaders over global trade tensions and economic prospects begins to weigh on banks.

Scotiabank is the first of Canada’s large banks to report fourth-quarter fiscal results, and the slow but steady earnings growth in its Canadian and international banking divisions sets the tone for a reporting season that already carried muted expectations.

The fiscal year that ended Oct. 31 was the first to include three significant acquisitions made in 2018: BBVA Chile and two Canadian wealth managers, MD Financial Management and Jarislowsky Fraser Ltd. Scotiabank also sold a number of international businesses in 2019 that no longer fit its strategy, reducing its footprint in the Caribbean and in Thailand.

Civil unrest in Chile has clouded the outlook for Scotiabank’s Latin American operations, which are concentrated in Chile, Mexico, Peru and Colombia, and which have been a vital source of profit growth in recent quarters. But the bank’s executives are only expecting a brief hiccup in Chile and painted a cautiously optimistic outlook for the year to come.

"We expect a modest improvement in global growth in 2020, despite the trade tensions between the U.S. and China, which have been weighing on business sentiment and activity," said Brian Porter, the bank's chief executive officer, on a conference call with analysts on Tuesday.

For the fourth quarter, Scotiabank reported profit of $2.3-billion, or $1.73 per share, compared with $2.27-billion, or $1.71 per share, a year earlier.

Adjusting for costs related to acquiring and selling businesses, however, Scotiabank said it earned $1.82 per share, matching analysts’ consensus estimate, according to data from Refinitiv.

For the 2019 fiscal year, profit increased 1 per cent to $8.8-billion, but earnings per share fell 2 per cent to $6.68, compared with 2018.

Scotiabank held its quarterly dividend steady at 90 cents a share. But from now on, the bank will update its dividend once a year, in the second quarter, rather than semi-annually.

Analysts and investors were watching closely to see how widespread protests that erupted in Chile last month would affect Scotiabank. About 5 to 6 per cent of the bank’s total profit comes from Chile, and even though the upheaval only began in the final weeks of Scotiabank’s fiscal quarter, fourth-quarter earnings from the country fell to $105-million from $118-million a year ago, according to Eight Capital analyst Steve Theriault. The turmoil also forced Scotiabank to postpone an October investor day in Chile’s capital of Santiago until January.

Scotiabank’s head of international banking, Nacho Deschamps, said that while “it’s early days in Chile,” he expects the impact to be limited to the first fiscal quarter of 2020, which ends Jan. 31; he expects profit will stay roughly the same as in the fourth quarter. After that, Chilean earnings should “gradually improve during the year,” he said.

Profit from Scotiabank’s international banking division was $733-million, up 3 per cent from a year earlier, driven by increases in loans across the bank’s Latin American footprint.

At the same time, Scotiabank’s big-ticket acquisitions in Canada are starting to pay off. The Canadian wealth-management business, bolstered by the MD and Jarislowsky deals, reported profit of $303-million, up 15 per cent from $262-million a year earlier. “We’ve really shifted gears over the last few years,” said Glen Gowland, head of global wealth management, placing greater emphasis on fee-based revenue and less focus on business based on commissions or transactions.

Profit from Scotiabank’s core Canadian banking division, including wealth management, was $1.14-billion, up 2.5 per cent from a year earlier, due partly to increased loans and deposits and better margins.

In global banking and markets, a division in the midst of a turnaround plan, profit fell 3 per cent to $405-million, as higher costs and loan-loss provisions outweighed better trading results. But group co-head Jake Lawrence expects its profit will grow again in 2020.

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