While results outside of loan provisions looked higher than expected, they weren’t enough to offset concerns in regards to the bank’s loan portfolio, Scotiabank analyst Meny Grauman said in a note. “After a big loan-related miss in the second quarter, the market was all about loans heading into third-quarter reporting, and it’s unfortunate that this is where the problems lie again,” he said. “The bottom line is that fears that BMO is actually the outlier of this credit cycle will continue to weigh on shares.”
Rising provisions are weighing on Scotiabank’s results, however the bank sees a flattening of the pressure
The Bank of Nova Scotia posted a year-on-year decline in profits within the third quarter because it increased its provisions for bad loans, whilst the bank itself says it’s noticing some easing within the financial burden on Canadian consumers. The bank said Tuesday it put aside $1.05 billion for bad loans within the quarter, up from $819 million a yr earlier but only a slight increase from $1.01 billion last quarter. The level of bad loans, which the bank doesn’t reasonably expect to be fully repaid, actually fell within the Canadian banking sector within the third quarter compared with the second quarter, from $399 million to $338 million.
“I continue to be impressed by how resilient the Canadian consumer has been during this time and the trade-offs they continue to make,” said Phil Thomas, chief risk officer at Scotiabank. The trend is clearly evident in adjustable-rate mortgages, he said, which have also benefited from the Bank of Canada’s rate cuts. Scotia can be seeing a stabilization in auto loans, an area that has been considered stressed for a couple of yr, Thomas said.
“I was really encouraged that we finally got some stability this quarter in terms of net charge-offs in this portfolio,” he said. “One quarter is not a trend, but what I see this quarter is encouraging. And even as I look to next quarter, I see these portfolios remaining stable going forward.”
Scotiabank has a much smaller bank card portfolio than another Canadian banks, however the trend toward unsecured lines of credit now not appears to be worsening, Thomas said. “I’m very encouraged by the fact that delinquencies or any stress appear to be stabilizing this quarter.”
Although the situation stabilized, higher provisions for loan losses weighed on earnings, which totaled $1.91 billion, or $1.41 per diluted share, for the quarter ended July 31, compared with earnings of $2.19 billion, or $1.70 per diluted share, a yr earlier. On an adjusted basis, Scotiabank said it earned $1.63 per diluted share, down from adjusted earnings of $1.72 per diluted share in the identical quarter a yr earlier. Analysts on average had expected Scotiabank to earn adjusted earnings of $1.62 per share for the quarter, in line with LSEG Data & Analytics. Revenue was $8.36 billion, up from $8.07 billion in the identical quarter a yr earlier.
In early August, Scotiabank announced it will pay about $2.8 billion in two steps for a 14.9 percent stake in U.S. bank KeyCorp. Some analysts feared the bank might spend plenty of money to purchase much more of the bank, but CEO Scott Thomson said Tuesday that the deal was about gaining more presence within the U.S. at price. “Our investment in KeyCorp represents a low-cost, low-risk approach to deploying capital into the U.S. banking market at a time when valuations are favorable and the regulatory and competitive environment is evolving.”
TD Bank Group reports 22% drop in profits as a result of anti-money laundering measures.
TD Bank Group’s profit fell 22% yr over yr within the second quarter because it booked costs related to a widely publicized failure of its U.S. anti-money laundering program. The bank had warned of an initial $615 million charge in reference to its talks with U.S. regulators, allowing analysts to regulate their forecasts, which the bank then easily beat. “It was a strong quarter for TD, with all of our businesses beating expectations,” Chief Executive Bharat Masrani said on a quarterly earnings call on Thursday, after reiterating the bank’s admission about its anti-money laundering controls.)
Read the complete article on TD’s earnings report: Why is TD’s earnings declining?
