Scotiabank Misses on Expenses, Takes Charge for Chinese Bank

(Bloomberg) — Bank of Nova Scotia missed estimates as expenses came in higher than analysts expected and the company grappled with higher taxes as well as lower profits in its capital-markets business.

Most Read from Bloomberg

The Toronto-based lender earned C$1.57 per share on an adjusted basis in its fiscal fourth quarter, according to a statement Tuesday, less than the C$1.60 average estimate of analysts in a Bloomberg survey. Scotiabank’s results also included a one-time impairment charge of C$379 million ($270 million) related to its investment in Bank of Xi’an Co. in China.

Non-interest expenses totaled C$5.3 billion for the three months through October, more than the C$4.85 billion average estimate of four analysts in a Bloomberg survey. The bank cited higher performance-based compensation, technology and advertising costs as well as taxes.

Scotiabank has worked to slash costs in its international division over the past year as it looks to improve productivity in the region, which includes operations in Mexico, Peru, Chile, Colombia and the Caribbean. The bank is also trying to rein in expenses in its domestic business.

The lender’s shares were down 4.5% to C$76.22 at 9:39 a.m. in Toronto.

“We anticipate that the headline miss will garner some concern in the market today,” Jefferies Financial Group Inc. analyst John Aiken wrote in a note to clients before the start of trading. “However, 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.”

The bank’s effective tax rate in the quarter was 23.2%, higher than analysts had forecast.

Net income at Scotiabank’s capital-markets unit dropped 2.7% from a year earlier to C$403 million, and fee income declined from the previous quarter.

Provisions for credit losses totaled C$1.03 billion, less than the C$1.06 billion analysts had forecast. Credit conditions are continuing to deteriorate as some consumers and businesses struggle to pay down debt, but a series of central-bank interest-rate cuts has helped ease some investor concern about bad loans.

The Canadian lender announced a deal in August to acquire almost 15% of Cleveland-based KeyCorp for $2.8 billion, saying the investment is part of a move to shift more of its capital from Latin America to the US. It completed the purchase of the first 4.9% of KeyCorp shares at the end of August and plans to close the remainder of the acquisition in the 2025 fiscal year.

That deal is part of Chief Executive Officer Scott Thomson’s strategy to lift shareholder returns, which underperformed those for most Scotiabank peers over the past five years but started to gain momentum this year.

The past 12 months marked “a foundational year for Scotiabank as we launched and made early progress against our new strategy,” Thomson said in Tuesday’s statement, citing “solid revenue growth and positive full-year operating leverage.”

Adjusted net income at Scotiabank’s Canadian banking unit increased 34% to C$1.06 billion in the quarter, while the international business grew 14% to C$634 million.

The bank’s wealth-management division posted 28% growth in adjusted earnings, to C$426 million.

(Updates with shares in fifth paragraph.)