Scotiabank profit lifted by ING Direct, but lower than expected

TORONTO Tue May 28, 2013 11:50am EDT

TORONTO (Reuters) - Bank of Nova Scotia (BNS.TO) said on Tuesday that quarterly profit rose 9.6 percent due largely to an acquisition, but missed estimates due to weaker commodities-related revenue and higher loan-loss provisions.

At mid-morning, the bank's shares were down 0.8 percent at C$59.11 in Toronto, making it the weakest performer among Canada's six biggest lenders, which were otherwise higher.

The result, the third earnings report from a Canadian bank this quarter, was padded by last year's C$3.1 billion ($2.98 billion) acquisition of the Canadian online lender ING Direct.

That deal contributed to a 19 percent jump in profit at Scotiabank's Canadian banking unit, which earned C$547 million.

But gains were more muted in the bank's other businesses, particularly global banking and markets, which saw income slide 6.7 percent to C$361 million due to declines in the bank's commodities and precious metals business.

Provisions for bad loans also weighed on the overall result, rising 30 percent to C$343 million, with most of the gains coming from the bank's international banking division.

"That goes to their exposure geographically. It's hard to get a handle on credit exposure there. It's just higher risk," said Tom Lewandowski, an analyst at Edward Jones in St. Louis.

Toronto-based Scotiabank operates in more than 50 countries, with the heaviest weighting in Latin America and a growing presence in Asia.

The bank, Canada's third-largest lender, earned C$1.60 billion ($1.55 billion), or C$1.23 a share, in the second quarter. That was up from a year-before profit of C$1.46 billion, or C$1.15 a share.

Excluding an amortization charge, the bank earned C$1.24 a share, falling just short of analysts' expectations of C$1.26 a share, according to Thomson Reuters I/B/E/S.

"Overall, it is a miss and so we expect some weakness relative to peers today," CIBC World Markets analyst Robert Sedran said in a note.

International lending profit climbed 5.1 percent to C$471 million, while wealth management income gained 12.4 percent to C$335 million.

The Canadian banking was strong even excluding the impact of the ING Direct acquisition, boasting residential mortgage growth of 7 percent despite signs that Canada's housing market is beginning to cool.

Weak mortgage growth led to disappointing second-quarter results at rival Toronto-Dominion Bank (TD.TO) last Thursday. Smaller National Bank of Canada (NA.TO) reported a stronger-than-expected profit on Friday due to robust trading results.

Bank of Montreal (BMO.TO) will report on Wednesday, while Royal Bank of Canada (RY.TO) and Canadian Imperial Bank of Commerce (CM.TO) are expected to release results on Thursday.

($1 = $1.0387 Canadian)

(Editing by Jeffrey Hodgson and Matthew Lewis)

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