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Scotia tops estimates on lending growth

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Bank of Nova Scotia's (BNS-T) operating profit rose 16 percent in the second quarter, topping estimates on strong growth in international banking profits and domestic loans, Canada's No. 3 bank said on Tuesday.

Shares of Scotiabank, the fourth Canadian bank to report in what has been a mixed earnings season so far, were up 1.9 percent on the results, which analysts said were strong across all the bank's business lines.

"A great core business performance justifies the premium valuation for the bank," said Peter Routledge, an analyst at National Bank Financial.

Net income fell ten percent as the year-before results were boosted by non-recurring foreign currency and acquisition-related gains of $363 million.

But operating profit rose 16 percent to $1.46 billion or $1.15 a share, the bank said, while adjusted profit was $1.18 a share, topping analysts' expectations of $1.15.

"While we do not characterize it as a blow-out quarter, based on what we have seen to date from its peers, it is positive," Barclays Capital analyst John Aiken said in a note.

MIXED RESULTS

Canadian banks have mostly struggled with slowing domestic loan growth this quarter, leading to mixed results.

But Scotiabank's profit from its Canadian consumer banking unit jumped by 23 percent from the previous year to $461 million, as expenses were flat while residential mortgages grew by seven percent.

Mortgage growth has become a point of concern for the domestic banking sector, as Canadians struggle under record high debt loads, while government-led moves to tighten mortgage rules is seen letting some of the air out of the housing market.

The bank also got a boost from its international operations, which are spread through Latin America and parts of Asia.

The international banking division's profit rose 14 percent to $448 million, driven by asset and deposits growth, and by contributions from Scotiabank's acquisition of a majority stake in Colombia's Bank of Colpatria, which closed in January.

Scotiabank paid about $1 billion US for a 51-percent stake in Colpatria, one of a series of acquisitions it has made since the 2008 financial crisis.

The bank is currently working to close a $719 million Cdn purchase of a 20-percent stake in China's Bank of Guangzhou. It March it agreed to buy privately-held U.S. energy investment bank Howard Weil, which will boost its oil and gas equity presence.

Scotiabank has continued to expand its operations despite strict new "Basel III" capital standards that banks are expected to begin phasing in next year.

The bank has been seen as lagging its rivals in the rush to post a Tier 1 common equity ratio of seven percent under Basel III by early 2013.

Scotiabank agreed last week to sell its main Toronto office tower for $1.27 billion, which should give it some breathing space on capital levels. It said it expects the ratio to be in the range of 7-7.5 percent by the first quarter next year.

Routledge said the sale of the building should resolve any concerns the market may have about the bank's equity levels.

"Once they close the sale of the head office, they're not a laggard," he said.

ACQUISITION

Global wealth management profit fell by 40 percent to $298 million as the year-before result was boosted by a $260 million gain related to its acquisition of the 82-percent of Dundeewealth Scotiabank did not already own.

Scotia said the price paid for the stake forced it to revalue its original 18 percent investment upward.

Global banking and markets income rose three percent to $387 million.

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