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Scotia Bank's (BNS) Q1 Earnings Disappoint, Costs Flare Up

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The Bank of Nova Scotia (BNS - Free Report) reported first-quarter fiscal 2019 (ended Jan 31) results before the opening bell, following which shares were down 2.92% on the NYSE. Adjusted net income for the quarter came in at C$2.3 billion ($1.7 billion), down 3% year over year. Results exclude acquisition-related costs.

Elevated expenses and provisions were on the downside. However, rise in revenues along with strong capital and profitability ratios were tailwinds.

Elevated Expenses & Provisions Recorded, Revenues Up

Total revenues came in at C$7.6 billion ($5.7 billion) in the quarter, up 7% year over year. This upswing stemmed from rise in net interest as well as non-interest income.

Net interest income came in at C$4.3 billion ($3.2 billion), up 10.3% from the prior-year quarter. Non-interest income climbed 3.1% from the year-ago quarter to C$3.3 billion ($2.5 billion).

Adjusted non-interest expenses were C$4.1 billion ($3.1 billion), rising 17.1% year over year.

Adjusted provision for credit losses was C$688 million ($516.8 million), up 26.5% year over year. The rise mainly resulted from higher provisions in Canadian Banking and International Banking.

Improving Balance Sheet

As of Jan 31, 2019, Scotia Bank’s total assets were C$1.03 trillion ($0.78 trillion), up 12% from the prior-year quarter. Net Customer Loans and Acceptances were up 12.5% from the year-ago quarter to C$584.8 billion ($445.5 billion). Deposits came in at C$690.9 billion ($526.3 billion), increasing 8.7% year over year.

Healthy Capital and Profitability Ratios

As of Jan 31, 2019, Common Equity Tier 1 ratio came in at 11.1% compared with 11.2% as of Jan 31, 2018. Further, total capital ratio came in at 14.6%, in line with the prior-year tally.

Return on equity for the reported quarter came in at 13.7% compared with 16.3% in the year-earlier quarter.

Steady Capital Deployment

Concurrent with the earnings release, Scotia Bank announced a quarterly dividend of 87 cents per share, up 2 cents.

Our Viewpoint

A diversified product mix and strong capital position will help Scotia Bank grow organically, as well as through acquisitions. Though mounting expenses remain a concern, the export-driven economy of Canada is likely to benefit from gradual recovery of the U.S. economy, in turn aiding the company’s sustainable growth over the long run.
 
Scotia Bank currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Deutsche Bank (DB - Free Report) reported net loss of €409 million ($467.1 million) in fourth-quarter 2018 compared with a loss of €2.4 billion in the year-ago quarter. The bank incurred loss before taxes of €319 million ($364.3 million). Lower revenues and higher provisions were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower expenses were the main positives.

UBS Group AG (UBS - Free Report) reported fourth-quarter 2018 net profit attributable to shareholders of $696 million against loss of $2.4 billion in the prior-year quarter. Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income and lower net interest income.

Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring earnings of R$6.5 billion ($1.7 billion) in fourth-quarter 2018, up 3.2% year over year. Including non-recurring items, net income came in at R$6.2 billion ($1.6 billion), up 6.6%. The company’s results were aided by higher revenues, decline in provisions and improved managerial financial margin. Furthermore, a strong balance-sheet position came as a tailwind. However, slight rise in expenses was an undermining factor.

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