Scotiabank, Bank of Montreal capital markets strength drives earnings beat

(Reuters) - Bank of Montreal and Bank of Nova Scotia <BNS.TO, two of Canada’s biggest banks, beat analyst estimates for profit on Tuesday, as their capital markets businesses, laggards over the last few quarters, returned to growth.

A Bank of Montreal (BMO) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie

Even so, the earnings were marred by a decline in the international division earnings of Scotiabank, which has the biggest global business among Canadian banks, in a quarter hit by the impact of several divestitures, while Bank of Montreal recorded a decline in U.S. earnings as loan-loss provisions jumped.

Scotiabank shares fell 0.4% to C$72.75 in early trading in Toronto, while BMO stock lost 0.8% to C$98.57. The Toronto stock benchmark, was little changed.

Increases in trading and underwriting revenues drove growth in capital markets businesses across the sector, with Scotia reporting a 35% jump and BMO posting growth of 38% from a year ago.

Last week, rival Royal Bank of Canada profit beat expectations, thanks to a 35% jump in earnings from its capital markets business. [nL1N2AL0WD]

Scotia’s capital markets earnings “comfortably beat both our expectations and consensus estimates,” while its counterpart at BMO beat Credit Suisse’s estimate by a “sizeable” amount, Mike Rizvanovic, an analyst at Credit Suisse, wrote in client notes.

Still, earnings from Scotiabank’s international banking unit, even excluding the impact of divestitures, fell 4% from a year ago, analysts and the company said.

Scotiabank’s focus on international markets - particularly the Pacific Alliance trading bloc of Peru, Mexico, Chile and Colombia - but some macroeconomic headwinds and acquisitions and divestitures have contributed to lumpy results.

“We expect (international) earnings to grow starting in Q2, and continue to improve gradually to achieve our 2020 outlook of high-single-digit growth” on a constant-dollar basis, executives said on an analyst call on Tuesday.

Scotiabank’s adjusted net income was C$1.83 per share, compared with analysts’ estimate for profit of C$1.74 per share, according to IBES data from Refinitiv. [nL2N2AP07N]

At BMO, the U.S. business posted a 20% decline from a year ago.

“While we modeled higher loan losses for the quarter, they were significantly higher than expected as a series of issues in the United States (both in commercial banking and capital markets) held the result back this quarter,” Robert Sedran, an analyst at CIBC Capital Markest, wrote in a note.

BMO’s net income before one-off items was C$2.41 per share, versus analyst estimates of C$2.37 a share.

($1 = 1.3286 Canadian dollars)

Reporting by Nichola Saminather in Toronto; Additional reporting by Abhishek Manikandan and C. Nivedita in Bengaluru; Editing by Anil D’Silva and Alistair Bell