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Nov 26, 2019

Scotiabank's wealth management drive pays off with earnings lift

Banks could follow Scotia's 'exceptionally strong growth' in Canadian residential mortgages: Analyst

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Bank of Nova Scotia is putting the spotlight on its global wealth-management business for good reason.

The takeovers of Canadian money managers Jarislowsky Fraser Ltd. and MD Financial Management last year contributed to the second-highest quarterly profit from wealth management in five years and the biggest profit growth among the company’s main businesses.

Chief Executive Officer Brian Porter sees so much promise from wealth management that the Toronto-based lender is starting to break out earnings from the business as a separate division this fiscal year.

Key Insights

-The executive heading the business, Glen Gowland, has a target of reaching 15 per cent of overall bank earnings for the division, compared with the 13% achieved in the fourth quarter. Earnings in the wealth business rose 16 per cent to $303 million.

-Scotiabank’s global banking and markets unit had seen year-over-year revenue declines for 10 straight quarters, and had profit growth only once in the past two years before the fourth quarter. The division posted profit of $405 million, down 2.6 per cent from a year ago while revenue rose nine per cent to $1.17 billion.

-Scotiabank has scaled back in the Caribbean and Asia in favor of four Latin American countries, a move not without risks. National Bank Financial analyst Gabriel Dechaine said in an earnings-preview report that issues facing the bank include “civil unrest in Chile, Mexico’s business climate and a political leadership vacuum in Peru.” The international banking division earned $823 million, up 2.4 per cent from a year earlier.

-While Scotiabank has significant operations overseas in Latin America and the Caribbean, most of its profit still comes from its Canadian businesses. Earnings from Canadian banking rose 2.5 per cent to $1.14 billion.

Market Reaction

Scotiabank shares climbed 11 per cent this year through Monday, making it the worst performer among Canada’s large lenders and lagging Canada’s eight-company S&P/TSX Commercial Banks Index, which has gained 15 per cent.

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-Net income for the three months ended Oct. 31 rose 1.6 per cent to $2.31 billion, or $1.73 a share. Adjusted earnings totalled $1.82 a share, matching the average estimate of 13 analysts in a Bloomberg survey.

-Scotiabank is the first major Canadian bank to report fourth-quarter results. The country’s Big Six lenders are expected to post adjusted earnings growth of four per cent for the period, the median of estimates compiled by Bloomberg Intelligence.