Scotiabank profit rises; boosts dividend

TORONTO: Bank of Nova Scotia's first-quarter earnings rose due to higher profits from its international banking and wealth management operations, but were at best in line with expectation, making it the first big Canadian banks to not beat expectations this quarter.

However, Canada's third-largest bank unexpectedly hiked its dividend by 6 percent.

Net income was C$1.44 billion ($1.44 billion), or C$1.20 a share, up from C$1.25 billion, or C$1.08 a share, a year ago.

Stripping out a C$94 million gain from a real estate sale, core profit was C$1.12 a share

That missed consensus estimates of a profit of C$1.15 a share, as reported by Thomson Reuters I/B/E/S, but analysts largely characterized the results as in line with expectations.

However, Scotiabank's results followed stronger than expected profits from the other four Canadian banks to have reported so far this quarter.

Barclays Capital analyst John Aiken said the comparative weakness was due to "weaker than anticipated fee-based revenues and a slightly elevated effective tax rate."

Early on Tuesday, the Scotiabank shares were down 0.9 percent at C$53.23, the weakest of the big banks on the Toronto Stock Exchange.

INTERNATIONAL BOOST

Profit from its international banking, which includes operations in dozens of countries in Latin America and Asia, rose 8.9 percent to C$391 million, helped by higher assets and deposits.

Wealth management income climbed 20.5 percent to C$288 million, boosted by last year's acquisition of DundeeWealth.

Profit from domestic banking, Scotiabank's largest segment, rose 5.3 percent to C$475 million due to higher loan volumes. That followed the general trend in the financial sector, showing that Canadians are still borrowing despite warnings of high household debt levels.

Analysts have predicted a slowdown in retail banking growth due to more conservative borrowing from already heavily indebted consumers, combined with narrow interest margins, but they say the slower growth could be more of a factor later in the year.

Scotiabank's global banking and markets division, formerly known as Scotia Capital, saw its profit fall by 7.2 percent to C$311 million.

The bank said it remained confident it will achieve minimum regulatory expectations for new Basel III capital levels by the first quarter of 2013.

Canadian banks are expected to boast a Basel III Tier 1 common equity ratio of 7 percent by the beginning of next year. Scotiabank is the only domestic lender that has not yet released its pro forma ratio.

However, the fact that the bank raised its dividend suggests it is not concerned about meeting the standard, said National Bank Financial analyst Peter Routledge.

"I think if you came up a little short of that 7 percent target, you wouldn't want to have raised the dividend in the four quarters immediately preceding the measurement date. So that's a pretty good sign on capital for them," he said.

Scotiabank raised its payout by 3 Canadian cents to 55 Canadian cents a share.

The dividend hike follows increases from Royal Bank of Canada and Toronto-Dominion Bank. Coming into the quarter, some had expected a dividend hike from TD, but few others.