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Scotiabank stands out among peers: Desjardins

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Equity markets reached a crescendo in August, with both U.S. and Canadian indices posting multiple triple-digit moves amid growing concern the global economy was slipping back into a recession. And with that volatility, trading revenue -- according to the latest round of earnings reports -- at major U.S. banks plunged as investors opted to keep their money in safe, liquid assets.

Now, it’s Canadian banks’ turn to report lower trading revenue.

“Following the weak trading results for Canadian banks in their [third quarter], the continued decline in trading revenue from U.S. banks likely points to weaker sequential trading for the Canadian banks in their [fourth quarter],” Michael Goldberg, an analyst at Desjardins Capital Markets, said in a note to clients on Thursday.

Goldberg says Royal Bank continues to be the most sensitive to trading revenue, while earnings at Scotiabank are the least affected.

Scotiabank, in fact, is one of Goldberg’s top pick (the other is TD) for Canadian financials because of its international presence and low exposure to wholesale and capital market banking.

“Scotia remains diversified within its wholesale banking business, which has accounted for only 17 percent of its total operating profit over the past 15 quarters,” he says. “It has taken Scotia Capital many years to arrive at its current position, where it initially rebalanced its revenue stream away from less productive relationships in corporate banking, a capital-intensive business, and has worked to cross-sell and leverage its higher quality client relationships toward other higher growth products.”

Scotia has a large international presence, with retail and commercial operations in the Caribbean, Central America, Mexico, Latin America and a small presence in Asia. Desjardins says those markets will prove lucrative in the coming years, as they boast young populations and booming economies.

Goldberg has a $65 price target for Scotia.
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