Scotiabank profits fall 41%, more bad loans are observed but stocks continue to climb
(Reuters) – The Bank of Nova Scotia said on Tuesday that loan loss provisions will remain high after a second-quarter increase caused profits to drop 41%, but stocks still jumped 5% %, with profits still exceeding analysts’ estimates.
The stock rose 5.1% to C $ 54.69 around noon in Toronto, beating a 0.3% gain in the benchmark Toronto equities.
Launching bank results for the first period to reveal the blow from the coronavirus pandemic, Canada’s third-largest lender said credit provisions jumped to C $ 1.85 billion ($ 1.33 billion) .
“I would expect (provisions) for the third quarter to be very similar to what we’ve experienced this quarter,” CEO Brian Porter said on a conference call with an analyst. “The banking industry will be picking up broken eggshells for several quarters.”
Canadian banks are bracing for higher loan losses this year and next due to the recession caused by the pandemic. While loan deferrals and government assistance have limited some damage in the short term, borrowers are expected to have difficulty maturing.
Scotiabank is also forecasting lower profits from its personal and business activities in the third quarter.
In addition to a 42% drop in nationally adjusted profits, Scotiabank also posted a 73% drop in international profits.
Costs of C $ 232 million related to U.S. investigations into its metals trading practices and the shutdown of that company also weighed on profits, Scotiabank said. Reuters announced the closure of this unit last month.
Revenues from banking and global markets jumped 25% as market volatility boosted trade and profits from global wealth management rose 3%.
Scotiabank said adjusted earnings were C $ 1.04 per share, compared to analysts’ estimates of C $ 0.98 per share based on Refinitiv data, but down from 1.70 $ CA a year ago.
($ 1 = 1.3874 Canadian dollars)
Reporting by Nichola Saminather in Toronto and Abhishek Manikandan in Bengaluru; Editing by Devika Syamnath, Bernadette Baum, Marguerita Choy and David Gregorio