Bank of Nova Scotia Quarterly Profit Report

(Reuters) – Bank of Nova Scotia (NYSE:BNS) missed analysts' estimates for quarterly profit on Tuesday, impacted by higher taxes and increased expenses related to compensation and technology.

Adjusted profit rose 29% to C$2.12 billion ($1.51 billion). On a per share basis, the lender earned C$1.57, compared to analysts' expectations of C$1.60 per share, according to LSEG data.

The quarter included impairment charges of C$379 million related to the lender's investment in China's Bank of X'ian and severance provisions, as stated by Canada's third largest bank.

> “As the market parses through the numbers, the fact that the bulk of the disappointment centers around a higher-than-expected tax rate should garner some relief,” Jefferies analyst John Aiken said.

Under CEO Scott Thomson, who took the helm in early 2023, Scotiabank (TSX:BNS) has shifted funding towards stable, lower-risk countries, betting on the North American trade corridor while limiting spending in Latin American markets. The plan emphasizes growth closer to home, covering areas from Quebec to the United States and Mexico, potentially exiting some foreign markets, including Colombia.

In the fourth quarter, earnings at Scotiabank’s Canadian banking business rose 34%, while international banking saw a 14% increase. However, income at global banking and markets fell 3%, with expenses up by 6%.

In an unexpected move, the lender announced it would acquire 14.9% of Cleveland-based KeyCorp (NYSE:KEY) to enhance its presence in the U.S. market, a space where Canadian rivals such as Bank of Montreal, Royal Bank of Canada, and Toronto-Dominion Bank (TSX:TD) have also invested.

Scotiabank's provision for credit losses decreased to C$1.03 billion in the reported quarter, down from C$1.26 billion last year.

> “An improving credit environment in International is a standout positive for the quarter, but it is juxtaposed against ongoing revenue headwinds and mixed performance on efficiency,” Aiken noted.

Net interest income, which represents the difference between what a bank earns on loans and pays out for deposits, increased by 5.5% to C$4.92 billion.

Scotiabank initiates the Canadian banks’ quarterly reporting season as they conclude a recovery year amid high expenses, rising interest rates, and pressure on certain loan books.

> ($1 = 1.4039 Canadian dollars)