Scotiabank Shares Fall on Earnings Miss, Charge on Chinese Bank

(Bloomberg) — Bank of Nova Scotia’s shares had their biggest drop in more than a year after the lender missed earnings estimates on higher-than-expected expenses and taxes.

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The Toronto-based lender, which also reported lower profits in its capital-markets business, pared some of its decline by late morning but remained the worst performer on the S&P/TSX Composite Index on Tuesday. Its shares were down 3% to C$77.40 at 11:35 a.m., and earlier fell as much as 4.9%, their biggest drop in intraday trading since November 2023.

Scotiabank 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.

It’s been almost one year since Chief Executive Officer Scott Thomson announced a new strategy, which has seen the bank prioritize investments in Canada, the US and Mexico over its Latin American operations and try to win more customers with multiple products.

“Our results demonstrate both early progress and areas where more work needs to be done,” Thomson said on a conference call with analysts. “Overall, earnings grew marginally in 2024, consistent with our expectations.”

He reiterated the bank’s guidance for between 5% and 7% earnings growth in fiscal 2025 and said he expects Scotiabank will resume dividend increases “over multiple years” as earnings grow.

Scotiabank’s 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.

The firm 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. It’s also trying to rein in expenses in its domestic business.

Jefferies Financial Group Inc. analyst John Aiken said in a note to clients that the share-price decline on the earnings miss was to be expected, but “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.

Results at its other business lines were stronger, with adjusted net income at the Canadian banking unit up 34% to C$1.06 billion and the international business growing 14% to C$634 million. The bank’s wealth-management division posted 28% growth in adjusted earnings, to C$426 million.

Credit Conditions

Provisions for potential loan 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.

Scotiabank Chief Risk Officer Phil Thomas said on the conference call that he expects credit-loss provisions to remain “elevated in the first half of the year, with a more positive trend towards the end of 2025.”

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 Thomson said Tuesday the bank hopes to close the remainder of the acquisition in the first calendar quarter of next year.

That deal is part of 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.