Scotiabank Q1 earnings jump 17%

Bank of Nova Scotia wrapped up first-quarter earnings season with a 17% jump in profit and the highest revenue in its history, amid surging demand for home loans and personal lines of credit.

For the three months ending on Jan. 31, Canada's third-biggest bank posted net income of $988-million, or 91¢ a share, compared with $842-million (80¢) last year.

The results come on the anniversary of the low point of last year's stock-market meltdown, when the global banking system was on the brink of collapse.

Like nearly all its domestic peers, Scotiabank exceeded analysts' expectations for the quarter against the backdrop of a resurgent economy, one of the biggest equity rallies in a generation and rock-bottom interest rates put in place by the Bank of Canada as a way to put liquidity back into the system.

"We are achieving our targets, and while we cannot remain complacent about potential overregulation and lower growth rates in developed markets, we believe we have the ability now to capitalize on many opportunities we see before us," said Rick Waugh, the chief executive.

"We entered the downturn stronger than many of our competitors and we are emerging in a stronger position than when we went in," Mr. Waugh said.

But he said he remains cautious about the bank's outlook, warning that the economy is "still in the early days of recovery."

The main driver of the results was the domestic banking operation, with a record net profit of $560-million, up 28% from the previous year as customers stashed more money in savings accounts and borrowed more to buy homes.

Domestic banking proved the bread and butter for all big five banks, which collectively reported nearly $3-billion of net profit from lending in their home market.

Scotiabank's capital-markets business reported a profit of $381-million, up from $300-million, as corporate clients joined the line to issue new debt and equity.

The bank had total revenue of nearly $4-billion, its highest ever, compared with $3.4-billion a year ago.

"It was a positive quarter, just like all the other banks that reported," said Tony Demarin, president and chief investment officer of BCV Asset Management in Winnipeg, who pointed to the strong results in Canadian banking, strong trading revenue and moderating provisions for bad loans.

Unlike in the United States and Europe, the housing market in Canada is on fire, which is a huge benefit for Scotia and other banks because a steep yield curve lets them pay very little for deposits but charge heavily for mortgages and other loans.

"We remain supporters of Scotiabank's consistent strategy and execution, and believe that its international banking arm offers greater growth potential than a purely North American banking franchise," said Andre Hardy, an analyst at RBC Capital Markets.

Shares in Scotia declined 68¢ to close at $49.42.

Mr. Demarin said high consumer debt levels in Canada are a concern and could prove a headwind for the banks if economic growth starts to falter, though so far that appears unlikely.

Net income from international banking was $294-million, compared with $388-million last year, as higher provisions for bad loans and taxes more than offset stronger revenue growth.

Return on equity was 17.4%, compared with 16.2%.

Provision for credit losses was $371-million, down $49-million from the previous quarter.

"Our preliminary assessment was that Q1 was a very solid quarter for the bank, characterized by an improved underlying credit trend, improved efficiency and continuing strong trading results," said Brad Smith, an analyst at CI Capital Markets.

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