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Earnings season gains momentum with BMO, Scotiabank both beating expectations

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Earnings season gains momentum with BMO, Scotiabank both beating expectations

The latest earnings season for Canada’s big banks kept rolling Tuesday, with both the Bank of Nova Scotia and the Bank of Montreal posting better-than-expected financial results that were helped by solid performances from their trading and investment-banking operations.

Toronto-based Scotiabank reported net income of approximately $2.3 billion for the three months ended Jan. 31, an increase in profit of four per cent year-over-year and one per cent over the previous quarter.

When adjusted for several items, such as those related to its various acquisitions and divestitures of international businesses, Canada’s third-biggest bank reported adjusted earnings per share of $1.83 for its first quarter, up five per cent from a year ago and above the $1.75 consensus of analyst estimates.

“The repositioning of the Bank’s geographic footprint has simplified and focused the Bank and we are positioned to deliver consistent returns and growth to our shareholders,” said Brian Porter, president and chief executive officer of Scotiabank, in a press release.

BMO reported net income of almost $1.6 billion for its first quarter ended Jan. 31, an increase of five per cent from a year earlier. Adjusted earnings per share were $2.41 for the Toronto-based bank, up four per cent and better than the $2.37 analysts had been expecting.

“We have significant momentum, with businesses increasing market share,” said Darryl White, CEO of BMO, in a press release.

Including the earnings Royal Bank of Canada announced last week, the three Big Six lenders who have so far reported first-quarter results have managed to top analyst expectations. All three also got a lift from their trading operations and investment banks, which enjoyed more stable conditions for the three-month period compared to a year earlier, when markets were roiled by uncertainty around the global economy and the direction of interest rates.

Scotiabank’s global banking and markets unit posted net income of $372 million for the first quarter, up 11 per cent year-over-year, with the lender saying assets grew and that there was “strong performance across the trading businesses.”

BMO’s capital-markets business reported a profit of $356 million for the quarter, an increase of 39 per cent. The company said there was “strong revenue growth” in its trading, investment and corporate banking operations.

The bank also struck a deal during the quarter to buy Clearpool Group Inc., a New York-based provider of electronic-trading software. The purchase price was not disclosed, but the transaction is expected to close in the second quarter of this year.

“This acquisition delivers powerful new capabilities to BMO’s electronic trading platform and demonstrates our commitment to providing leading edge trading technology to our global client base,” the bank said in its latest results.

However, the first quarters for the banks ended Jan. 31, meaning they mostly avoided fallout from the ongoing coronavirus outbreak that has rattled markets of late.

Both Scotiabank and BMO also had to set aside more money for bad loans in the first quarter, which weighed on their results.

Scotiabank’s provisions for credit losses for the three months were $926 million, an increase of 35 per cent from a year earlier. The bank had previously announced the addition of a “more severe pessimistic scenario” in measuring loan-loss reserves, which caused a pre-tax provision of $155 million.

International results also faced a challenge for the first quarter, as results were affected by social unrest in Chile and a sluggish economy in Mexico, two of the bank’s key markets.

“International Banking came in below expectations; however, Canadian Banking was a slight beat and the capital markets operations had a blowout quarter” on an adjusted basis, excluding an adjustment to valuing some derivatives that cost it $116 million, wrote Eight Capital analyst Steve Theriault in a note.

BMO’s total provisions for credit losses (PCLs) were $349 million, up $212 million from the prior year, when the bank’s results included a recovery on U.S. consumer loans. The lender’s retail and capital-markets arms saw higher provisions on impaired loans, with the investment bank also reporting increased loan-loss costs tied to the oil and gas sector.

“The beat was achieved despite higher than forecast PCLs … and was driven by top-line performance, especially in Capital Markets,” wrote National Bank Financial analyst Gabriel Dechaine in a note.

Financial Post

• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

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