Scotiabank Sets Aside $1.33 Billion for Soured Loans in Pandemic

(Bloomberg) -- Bank of Nova Scotia saw quarterly earnings plunge 41% after setting aside a record amount for loan losses, giving investors the first indication of how the coronavirus pandemic will affect fiscal second-quarter earnings at Canadian banks.

• Scotiabank set aside C$1.85 billion ($1.33 billion) for soured loans, less than analysts expected. Canada’s six biggest banks are expected to set aside C$8.9 billion for loan losses in the three months through April 30, triple the first-quarter total. At Scotiabank, net income beat analysts’ estimates.

Key Insights

• Scotiabank is the first large Canadian lender to report second-quarter results. The country’s six biggest banks are expected to post a 44% profit decline in the quarter, the median of estimates compiled by Bloomberg Intelligence. That would be the biggest drop since 2009, amid the global financial crisis.
• Canadian banking is Scotiabank’s largest division, typically accounting for more than a third of overall profit. The domestic-banking division had earnings of C$477 million in the first quarter, down 42% from a year earlier as loan-loss provisions more than doubled.
• Wall Street trading desks had their best quarter in eight years thanks to surging client activity during the most volatile period on record, helping U.S. banks remain profitable during the first quarter despite a surge in provisions. That trend was followed at Scotiabank, where the capital-markets division saw a 25% increase in earnings to C$523 million as trading surged.
• Scotiabank now operates in about 30 countries after spending the last six years scaling back its international reach to focus on the Americas, with an emphasis on Mexico, Peru, Chile and Colombia. The international-banking division earned C$185 million, down 74% from C$701 million a year earlier, on higher provisions and lower contributions as a result after selling some international operations.

Market Reaction

• Scotiabank has fallen 29% this year through Monday, compared with a 25% decline for Canada’s eight-company S&P/TSX Commercial Banks Index.

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• Net income for the three months ended April 30 fell to C$1.32 billion, or C$1 a share, from C$2.26 billion, or C$1.73, a year earlier.
• Adjusted earnings totaled C$1.04 a share, beating the 96-cent average estimate of 13 analysts in a Bloomberg survey.
• Read more about Scotiabank’s quarterly results here.

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