TORONTO - Scotiabank is hiking its dividend by six per cent, signalling confidence that its global diversification strategy will help it weather some of the headwinds the industry is facing.
Canada's most international bank became the third among its peers to raise its payout to shareholders this earnings season, following moves by TD (TSX:TD) and Royal Bank (TSX: RY), despite the tougher times some analysts say are in store for the banks.
Like its rivals, Scotia (TSX:BNS) is contending with investor insecurity, low interest rates and a slowing housing market in Canada. However, the heads of its various segments, speaking to analysts on a conference call Tuesday, seemed mostly upbeat about the year to come.
Scotiabank raised its quarterly dividend by three cents per share to 55 cents Tuesday after delivering improved results, particularly in its Canadian and international businesses, where consumer and business loans remain strong.
Scotiabank president and CEO Rick Waugh said the bank's focus on high-growth emerging economies, like those in Asia and Latin America, has helped it perform strongly and he expects that to continue to drive results.
"Our performance this quarter shows the success of our diversified business model," he said on a conference call Tuesday.
Scotiabank has operations across Latin America, the Caribbean and Asia, with more than 75,000 employees in 55 countries.
The bank's quarterly profits rose to $1.44 billion, or $1.20 per share, marking an increase from $1.25 billion, or $1.08 per share, a year earlier. Revenue grew 11 per cent to $4.64 billion from $4.19 billion.
Analysts, on average, had predicted earnings per share of $1.15 on $4.5 billion in revenue, according to Thomson Reuters.
The improvement was due largely to stronger trading revenues, a gain on the sale of its Calgary office, growth in net interest income, higher transaction-based banking fees and lower provisions for credit losses. It was partially offset by a slight increase in operating expenses and the impact of a higher income tax rate.
Scotiabank noted its results included an after-tax gain of $94 million from the sale of its office in Calgary. The bank has also been reportedly shopping around its Toronto headquarters to potential buyers.
Excluding the real estate gain, however, adjusted earnings were closer to $1.12, actually below the expectations of most analysts, noted Barclays analyst John Aiken.
"Scotia is the first bank to not exceed consensus expectations, with its peers reporting to date all coming in well above forecasts," said Aiken.
"Admittedly, the Canadian banks have all benefited from significant gains in trading revenues and largely lower-than-anticipated provisions. The issue remains that Scotia also benefited from these factors and did not generate a substantial beat."
Shares in the company fell 77 cents to close at $52.94 Tuesday on the Toronto Stock Exchange.
Breaking down the divisions, Canadian banking operations posted net income of $475 million, an increase of five per cent from $451 million a year ago, aided by stronger residential mortgages and other loans.
"We're pretty optimistic on the near-term outlook," said head of Canadian banking Anatol von Hahn.
"However, given the uncertain economic environment we'll continue on our smart spending program."
Provision for credit losses or the money set aside to cover bad loans was $265 million, down $10 million from the same period a year earlier, due largely to lower provisions in retail and commercial banking in Canada, but offset by higher provisions in international banking and global markets.
"Provisions have declined meaningfully in the Canadian bank portfolio year-over-year and were stable over the quarter," von Hahn said.
"Our Canadian retail portfolio remains extremely high quality with 93 per cent of assets secured and relatively low exposure to unsecured loans and credit cards."
The bank's $146 billion mortgage portfolio is expected to remain strong, but growth may drop off a bit this year as the housing market slows.
"We believe that solid economic fundamentals will enable the Canadian market to remain healthy and adjust without the bubble bust scenario that we've seen in the United States," von Hahn said.
"The continued low interest rate environment and reasonable economic performance will enable consumers to manage debt levels well."
Meanwhile, international banking profits rose to $391 million from $359 million with growth driven by both consumer and commercial loans. Scotiabank has recently acquired new banks in Uruguay and Columbia, which add to its strong footprint in Latin America.
"Though we continue to monitor uncertainty we remain positive on our regional diversified growth prospects for the year," said Brian Porter, group head for international banking.
"From a regional perspective we expect positive performance from each of our divisions," he said.
However, the bank's Global Banking and Markets division, the trading operations formerly known as Scotia Capital, posted lower profits of $311 million from $335 million. Total revenues from the operations slipped $11 million to $846 million from a year earlier.
Rival banks that have reported so far this year also reported struggling with lower profits in their capital markets segments as trade volumes declined amid economic uncertainty.
Global Wealth Management net income was $288 million, up from $239 million.
The bank completed its acquisition of DundeeWealth Inc. last year by spending $2.3 billion to buy the stake in the investment manager that it did not already hold. DundeeWealth runs the Dynamic family of mutual funds in Canada.
Scotiabank had initially bought an 18 per cent minority stake in DundeeWealth in 2007 for $348 million, along with Dundee Bank for $260 million.