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Scotiabank posts growth in fixed-income trading revenue

Scotiabank benefited from clients repositioning their portfolios in anticipation of what many investors expect will be an interest-rate hike by the U.S. Federal Reserve in December.

Fred Lum/The Globe and Mail

Strong fixed-income trading revenues were a boon to Bank of Nova Scotia during fiscal 2016.

Scotiabank, which reported earnings Tuesday, posted revenue from interest rate and credit trading that surged to $613-million in the 12 months ended Oct. 31. That compared to the $400-million it generated in 2015.

Canada's third-largest bank by assets finished 2016 on a high note, recording fixed-income trading revenue of $186-million in its fourth quarter, up from $121-million during the same period last year.

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"On the fixed-income side, this was a very good year for us," Sean McGuckin, chief financial officer, said on a conference call with journalists.

The growth in trading revenue is magnified because the prior year was "a bit softer" for the bank, he added.

Even though the $613-million in sales from interest rate and credit trading accounted for a sliver of Scotiabank's $26.3-billion in annual revenue, these results come at an uncertain time for the future of buying and selling bonds on behalf of clients.

Many of the world's largest banks have decreased their fixed-income trading units in recent years as regulatory costs rise, slashing their head counts and keeping fewer assets on their books.

In the three months ended Oct. 31, Scotiabank benefited from clients repositioning their portfolios in anticipation of what many investors expect will be an interest-rate hike by the U.S. Federal Reserve in December.

Scotiabank handled more trading activity from its clients in the last six months of the bank's fiscal year than the first six months, Mr. McGuckin added.

Events such as the Brexit vote in the Britain and the United States election kept investors and their brokers busy, as volatility in the markets soared.

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This bodes well for other Canadian banks, too. Scotiabank's rivals are slated to report their fourth-quarter earnings this and next week, continuing with Royal Bank of Canada on Wednesday.

The banks generate commissions by executing trades on behalf of their institutional and retail clients, competing with one another to attract the most order flow.

"We continue to focus on growing deeper relationships with our fixed-income customers to get more of their trade flow," Mr. McGuckin said. "We still see growth in this business going forward."

Scotiabank's strong performance in fixed income fuelled revenue growth in its global banking and markets, with the division growing its sales to $4.4-billion in 2016 from $4-billion in 2015.

The only downside for the bank this quarter: Higher costs. Expenses in its global banking and markets segment grew 18 per cent, driven by higher compensation, technology and compliance costs.

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About the Author
Capital Markets Reporter

Christina Pellegrini is a reporter at The Globe and Mail and a regular contributor to Streetwise, covering capital markets, the exchange business and market structure.She writes about the capital markets divisions of BMO, CIBC and National Bank; independent brokerages such as Canaccord Genuity; and the Canadian operations of foreign dealers including JP Morgan, Goldman Sachs, Credit Suisse and Citigroup. More


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