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Scotiabank’s diversity sparks profit gain

File photo of a Scotiabank branch in Toronto.

Deborah Baic/The Globe and Mail

Bank of Nova Scotia's international division is offering investors hope amid fears of a cooling Canadian market.

Profit from Scotiabank's core domestic retail and commercial unit jumped in the second quarter from a year earlier, but the division's bottom line fell from the hot first quarter. Profit at the international operations, however, climbed even higher, marking the third consecutive quarterly gain, and the sixth gain in eight quarters.

Bank of Nova Scotia posted a second-quarter profit Tuesday of $1.6-billion or $1.24 a share on the back of the bank's diversified business model. The earnings were in line with analysts' estimates. After stripping out one-time items, the bank made $1.23 a share.

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Latin America is leading the way in the international unit. The division's loan volumes are growing and that's persuaded Scotiabank to add more assets in the region, such as buying a majority stake in Colombia's Banco Colpatria.

Latin America has also boosted the fortunes of Scotiabank's global wealth management unit, which was another bright spot for the bank in the second quarter. Recent deals include acquiring a 50-per-cent stake of AFT in Peru.

"Investors should not let domestic headwinds distract them from the momentum demonstrated by [Scotiabank's] international growth platforms," National Bank Financial analyst Peter Routledge wrote in a note to clients.

Over all, profit was up 10 per cent year over year, but comparing the latest results to the second quarter of 2012 can be tricky because Scotiabank has made some big acquisitions since, namely the purchase of ING Direct Canada.

Canadian banking still accounts for the lion's share of the bank's profit, adding $547-million to the bottom line last quarter. But international banking is a close second, with a profit of $471-million. And after stripping out expenses – Scotiabank is spending a lot of money outside of Canada to beef up its operations – the profits are roughly on par.

Within international, Latin America stands out. For retail loans, the region's organic growth was 14 per cent year over year while the Caribbean and Central America's was only 5 per cent. (Scotiabank doesn't count its Asian personal loans because they aren't consolidated.)

The disparity is even more stark for commercial loans. Latin America's organic growth rate was 15 per cent over 2012, but the Caribbean and Central America was flat, and Asia's commercial loans are actually down 4 per cent.

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Still, the Canadian banking unit posted a strong profit, and Scotiabank doesn't expect a slowdown the way other banks have. Excluding ING, revenue growth was 6 per cent for the unit last quarter and president Brian Porter, who will become chief executive officer when Rick Waugh retires, said on a conference call that the bank sees bright prospects for auto financing and mortgages – even though the Canadian housing market is cooling.

"We expect to see asset growth in line with what we've experienced so far this year," he said.

Wealth management was another bright spot for the bank. The division's $335-million profit in the second quarter is its largest in two years, buoyed by swelling assets under management. Stronger markets have boosted the value of these assets, and the wealth management arm earns fees as a percentage of this value.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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