Scotiabank international unit's earnings miss overshadows broader profit beat

(Reuters) - Bank of Nova Scotia BNS.TO, Canada's third-biggest lender, kicked off banks' fourth-quarter earnings on Tuesday with disappointing profit growth in its international banking segment, which overshadowed a slight overall earnings beat.

FILE PHOTO: The Bank of Nova Scotia (Scotiabank) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie

Analysts expressed concerns about the bank’s international business, whose adjusted earnings growth of 4.3% missed expectations amid geopolitical concerns in some markets, despite outpacing Canada’s more staid 1.2% increase.

The international unit, which accounts for a little over a third of Scotiabank’s adjusted earnings, also posted a 9 basis-point drop in net interest margins, compared with a 2 basis-point rise in Canada.

Scotiabank shares fell 1% to C$75.06 in afternoon trading in Toronto on Tuesday, after earlier climbing as much as 0.5%.

Scotiabank’s focus on international markets - particularly the Pacific Alliance trading bloc of Peru, Mexico, Chile and Colombia - has helped it in the past, but Credit Suisse analysts have identified higher expenses in Mexico and ongoing public unrest in Chile as concerns.

“At first look, we view Q4 as a decent result for BNS overall, although we are concerned about the relatively weak growth in the bank’s international segment, which underpins our outperform rating on the stock,” Credit Suisse analyst Mike Rizvanovic wrote in a note on Tuesday, flagging “developing headwinds within most of the bank’s key Pacific Alliance footprint.”

Scotiabank expects organic growth in the mid-single-digits in fiscal 2020, executives said on an analyst call on Tuesday. Analysts expect the lender to post adjusted earnings-per-share growth slightly below 6% in 2020.

That anticipated growth is set to follow growth of about 4% expected this fiscal year, the worst expansion rate for Canadian banks since the global financial crisis. Economic uncertainties that have raised the prospect of interest rate cuts at home, higher provisions for loan losses and sluggish deal-making have weighed on Canadian banks in recent quarters.

Provisions for credit losses during the quarter jumped 28% to C$753 million.

Adjusted earnings from wealth management rose 10%, thanks to growth in Canada and contributions from acquisitions.

Scotiabank reported adjusted earnings attributable to common shareholders of C$2.23 billion ($1.68 billion), or C$1.82 a share, compared with estimates of C$1.81. That compared with C$2.17 million, or C$1.77 a share, a year ago.

For fiscal 2019, the bank posted a 2.9% increase in profit to C$9.4 billion.

The bank also announced a quarterly dividend of 90 Canadian cents a share.

Reporting by Nichola Saminather in Toronto; Additional reporting by Bharath Manjesh in Bengaluru; Editing by Chizu Nomiyama and Nick Zieminski