Trading and investment banking are showing strength at Bank of Nova Scotia and Bank of Montreal, propping up profits as the lenders’ retail franchises continue on the long road to recovery from the COVID-19 crisis.

Earnings surged 40 per cent at Bank of Montreal’s capital-markets business while gaining 14 per cent in Scotiabank’s global banking and markets division in the fiscal fourth quarter. Those increases helped both companies’ overall results top analysts’ estimates, taking pressure off personal and commercial banking units that are on the mend from the worst of the pandemic.

“When one of our business lines encountered difficult business conditions, another was there to offset that weakness,” Scotiabank Chief Executive Officer Brian Porter said Tuesday on a call with analysts and investors.

Bruce Murray discusses buying Canadian banks over American

Bruce Murray, CEO and CIO of The Murray Wealth Group, discusses buying Canadian banks over American.

The results from Canada’s third- and fourth-largest lenders by assets mark a strong start to a week of earnings from the country’s top six banks. Both Scotiabank and Bank of Montreal also reported significantly lower provisions for credit losses, signaling that fears of the recession turning into a full-blown financial crisis are subsiding.

Scotiabank shares rose 2.5 per cent to $64.90 at 12:23 p.m. in Toronto. Bank of Montreal gained 3.2 per cent to $96.33.

“Credit is probably in the rear-view mirror starting this quarter,” Scotiabank Chief Financial Officer Raj Viswanathan said in an interview. His bank’s international business is centered on Pacific Alliance countries including Mexico, Peru and Chile, where results have been hurt by COVID-19. “Even if you have second waves in the Pacific Alliance, we are appropriately provided for every scenario that we can think of.”

Return to Normal

Viswanathan said he expects earnings from Scotiabank’s Canadian banking business to return to normal in the second quarter, with the international business following in the fourth quarter. The company’s capital-markets business is close to a normal level now, he said.

Earnings at the bank’s international business fell 56 per cent from a year earlier to $333 million, but the unit bounced back from a loss in the third quarter. Overall, Scotiabank had earnings of $1.45 a share, excluding some items, beating the $1.22 average estimate of analysts.

Scotiabank set aside $1.13 billion for credit losses in the three months through October. That was a 50 per cent increase from a year earlier, but is down from a tripling in such provisions in the previous quarter and a more than doubling in the second quarter.

“We’re seeing fairly positive signs from a credit standpoint that the banks are avoiding a worst-case scenario,” James Shanahan, an analyst at Edward Jones, said in an interview.

At Bank of Montreal, net income in the Canadian personal and commercial banking division was down from a year earlier, but more than doubled from the third quarter to $647 million. The bank’s provisions for credit losses totaled $432 million, up 71 per cent from a year earlier but less than half of the amount set aside in the third quarter.

“BMO’s deferred-loan balances were down in every category relative to the prior quarter, a positive on the outlook for the bank’s PCL trajectory going forward,” Credit Suisse Group AG analyst Mike Rizvanovic said in a note to clients Tuesday.

Bank of Montreal posted profit of $2.41 a share, excluding some items, in the fourth quarter, better than analysts’ $1.91 average estimate. Executives credited the beat in part to the bank’s ability to keep costs under control. Non-interest expenses fell 11 per cent from a year earlier to $3.55 billion.