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Noah Zivitz

Managing Editor, BNN Bloomberg

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Bank of Nova Scotia opened earnings season for the Big Six lenders on Tuesday with a profit beat despite weakness in its capital markets division.

Net income in the fiscal third quarter, which ended July 21, was $2.54 billion compared to $1.30 billion a year earlier, Scotia said in a release. On an adjusted basis, the bank earned $2.01 per share. Analysts, on average, were expecting $1.90 in adjusted per-share earnings.

Credit quality was a major driver in the period, much as it's been since the onset of the pandemic more than a year ago. In the fiscal third quarter, Scotia said it set aside $380 million for losses that could go bad. In its fiscal second quarter, Scotia booked $496 million in provisions for credit losses; and in the fiscal third quarter a year earlier, Scotia set aside $2.18 billion.

"We delivered another quarter of strong results, with contributions from all our operating segments, reflecting the benefits of a well-diversified business model. While the economic recovery is unfolding at different rates across our footprint, I'm very proud of the Scotiabank team's on-going resilience and continued commitment to our customers," said Scotia's president and chief executive officer, Brian Porter, in a release. 

Net income in the bank's core Canadian division more than doubled to $1.08 billion as revenue climbed and set-asides for potentially bad loans fell to just $69 million. Scotia also benefited from growth in its domestic residential mortgage book, which climbed to an average balance of $243.3 billion, compared to $234.8 billion in the fiscal second quarter. Other lending activity was more muted, however, amid flat balances for personal loans and credit cards. 

Scotia also enjoyed stronger performance in its sprawling international operations, as net income in that unit soared to $486 million compared to $26 million a year earlier. Provisions for credit losses in the international division fell sharply to $339 million, compared to $1.28 billion a year earlier. 

The bank's wealth management operations, which have expanded in recent years with the high-profile acquisitions of Jarislowsky Fraser and MD Financial Management, also delivered profit growth as earnings climbed 21 per cent year-over-year to $390 million.

The weak spot for Scotia in the latest quarter was its Global Banking and Markets unit. Net income fell 14 per cent to $513 million as revenue from capital markets sank 32 per cent to $604 million. 

“Overall, a less impressive start to kick off quarterly earnings for the large banks relative to the impressive results that have been posted the last couple of quarters,” said Credit Suisse Analyst Mike Rizvanovic in a note to clients Tuesday. Rizvanovic has a “neutral” rating on Bank of Nova Scotia, with a price target of $85.00 per share. 

Scotia said its Common Equity Tier 1 capital ratio was 12.2 per cent as of the end of the most recent quarter, compared to 12.3 per cent in the prior quarter. That ratio is being closely watched as investors eagerly await the end of a ban on share buybacks and dividend hikes that was instituted by the Office of the Superintendent of Financial Institutions more than a year ago to help shield the financial system from the impacts of COVID-19