Scotiabank’s profit slumps as consumer stress builds in Canada, Latin America

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Bank of Nova Scotia saw its profits in the third quarter slide as the Canadian lender's expenses rose and it set aside more money to cover loans potentially going sour.

Toronto-based Scotiabank, which recently announced an expansion in the U.S., reported Tuesday its net income fell to 1.88 billion Canadian dollars in the quarter ended July 31, down from CA$2.17 billion a year earlier.

The decline came after two interest-rate cuts from the Bank of Canada, which has tried to ward off sluggish economic growth as inflation continues to moderate.

Scotiabank also stashed away more funds to guard against potential credit losses, with provisions rising 28% to CA$1.05 billion. Scotiabank increased its cushion for impaired loans due to more stress in International Banking retail portfolios, mostly in Colombia, Chile and Peru, and in Canadian auto loans and credit cards.

The Canadian bank division brought in CA$1.1 billion in profits, up 6% from the same quarter a year earlier. Its international banking division saw its profits improve 7.7% to CA$660 million.

Scotiabank executives have eyed the U.S. market as an opportunity for more profits. After the quarter ended, Scotiabank said it would buy an almost 15% stake in KeyCorp for about $2.8 billion in a step into the U.S. consumer banking market.

The deal with KeyCorp was seen as a cautious way of bolstering its U.S. presence, in contrast with other Canadian banks that have acquired U.S. branch networks through purchasing banks.

Scott Thomson, Scotiabank's president and CEO, said Tuesday the KeyCorp deal was "an important early step towards our long-term vision of delivering sustainable, profitable growth" in a key market.

"We expect that this transaction will enhance near-term profitability, grow and diversify our well-established U.S. business, and create future strategic optionality for Scotiabank as we expand our presence in the North American corridor," Thomson said in a news release.

Adjusting for the divestiture of CrediScotia Financiera, amortization of acquisition-related intangible assets and a CA$176 million legal provision in Peru, third-quarter earnings were CA$1.63 a share. Analysts polled by S&P Capital IQ had expected CA$1.62 a share.

Scotiabank agreed to sell CrediScotia Financiera, a wholly owned consumer finance subsidiary in Peru, to Banco Santander during the third quarter. The Canadian bank said it recognized an impairment loss of CA$143 million in non-interest income and a credit of CA$7 million in non-interest expenses.

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