Summary

  • Scotiabank (NYSE:BNS, TSC:BNS) is Canadian-headquartered bank with focus on high-quality growth markets in the Americas.
  • Scotiabank is a top-five universal bank in each of its core markets, and a top-15 wholesale bank in the U.S.
  • The bank has a team of approximately 90,000 employees and assets of approximately $1.1 trillion (as at April 30, 2021)

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Company Overview

Scotiabank (NYSE:BNS, TSC:BNS) is Canadian-headquartered bank with focus on high-quality growth markets in the Americas. Scotiabank is a top-five universal bank in each of its core markets, and a top-15 wholesale bank in the U.S., delivering superior advice and services to help its customers get ahead. 1

Scotiabank is a leading bank in the Americas. Guided by its purpose: "for every future", the company help its customers, their families and their communities achieve success through a broad range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. With a team of approximately 90,000 employees and assets of approximately $1.1 trillion (as at April 30, 2021),

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Business Segments

Canadian Banking

Canadian Banking provides a full suite of financial advice and banking solutions, supported by an excellent customer experience, to over 10 million Retail, Small Business and Commercial Banking customers. It serves these customers through its network of over 900 branches and more than 3,500 automated banking machines (ABMs), as well as internet, mobile and telephone banking and specialized sales teams. Canadian Banking also provides an alternative self-directed banking solution to over two million Tangerine Bank customers.2

Canadian Banking is comprised of the following areas:

  • Retail and Small Business Banking provides financial advice and solutions and day-to-day banking products, including debit cards, chequing accounts, credit cards, investments, mortgages, loans and related creditor insurance products, to individuals and small businesses. Tangerine Bank provides day-to-day banking products, including chequing and saving accounts, credit cards, and investments to self-directed customers.
  • Commercial Banking delivers advice and a full suite of lending, deposit, cash management and trade finance solutions to medium and large businesses, including automotive dealers and their customers to whom the company provide retail automotive financing solutions.

Global Banking and Markets

Global Banking and Markets (GBM) conducts the Bank’s wholesale banking and capital markets business with corporate, government and institutional investor clients. GBM is a full-service wholesale bank and investment dealer in Canada and Mexico, and offers a range of products and services in the U.S., Latin America (excluding Mexico), and in select markets in Europe, Asia and Australia.

More specifically, GBM provides clients with: corporate lending; transaction banking (including trade finance and cash management); investment banking (including corporate finance and mergers & acquisitions); fixed income and equity underwriting, sales, trading and research; prime services (prime brokerage and stock lending); foreign exchange sales and trading; commodity derivatives; precious and base metals sales, trading, financing and physical services; and collateral management.

Global Wealth Management

Global Wealth Management delivers comprehensive wealth management solutions with a view to achieving strong long-term investment results through a personalized approach to enrich the lives of its clients.

Global Wealth Management’s solutions and services are available across 13 countries worldwide. A full range of wealth management advice and solutions are available to help address clients’ financial needs – no matter how complex or simple. This advice is paired with industry-leading investment expertise that delivers risk-adjusted, long-term results to investors.

International Banking

International Banking has a well-established, diversified franchise that serves more than 15 million Retail, Corporate, and Commercial customers across its footprint. These customers are supported by approximately 45,000 employees, more than 1,300 branches and a network of contact and business support centers.

International Banking (IB) provides a full range of financial products, solutions and advice to retail and commercial customers and is focused on Latin America, including the Pacific Alliance countries of Mexico, Peru, Chile and Colombia, and the Caribbean and Central America.

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Business Overview

Canadian Banking

Canadian Banking reported net income attributable to equity holders of $2,536 million in 2020, a decrease of $952 million or 27% compared to prior year. Adjusted net income was $2,604 million, a decrease of $900 million or 26%. The decline was due primarily to higher provision for credit losses on performing loans, lower non-interest income, and higher non-interest expenses. Return on equity was 15.1% compared to 23.2% in the prior year. The adjusted return on equity was 15.5% compared to 23.3% in the prior year.3

International Banking

Net income attributable to equity holders was $980 million, a decrease of $1,785 million or 65%. Adjusted net income attributable to equity holders was $1,148 million, down $1,805 million or 61%. The decline was due largely to higher provision for credit losses on performing loans and the impact of divested operations. The remaining decline was due primarily to lower net interest income and non-interest income, partly offset by lower non-interest expenses and income tax expense. Return on equity was 5.0% compared to 13.2% last year. Adjusting return on equity was 5.8% compared to 14.1% last year.

Global Wealth Management

Net income attributable to equity holders was $1,252 million, an increase of $86 million or 7%. Adjusted net income attributable to equity holders increased $82 million, also up 7%. The negative impact of divested operations was 1%. The remaining 8% growth was driven by solid AUM growth across its businesses partly offset by higher non-interest expenses, margin compression, and customer relief programs largely impacting its international pensions business. Return on equity was 13.5% compared to 12.7% in the prior year. The adjusted return on equity was 14.0% compared to 13.2% in the prior year.

Global Banking and Markets

Global Banking and Markets reported net income attributable to equity holders of $1,955 million, an increase of $421 million or 27% from last year. Adjusted net income was $2,034 million, an increase of $500 million or 33%. Strong performance in capital markets businesses, higher revenue in business banking, and relatively flat expenses, were partly offset by higher provision for credit losses. Return on equity was 14.8% compared to 13.3% last year. The adjusted return on equity was 15.4% compared to 13.3% last year.

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Financial Highlights

Net income

Canadian Banking reported net income to equity holders of $2,536 million in 2020, a decrease of $952 million or 27% compared to prior year. Adjusted net income was $2,604, a decrease of $900 million or 26%. The decline was due primarily to higher provision for credit losses on performing loans, lower non-interest income, and higher non-interest expenses.

Average assets and liabilities

Average assets grew $19 billion or 5% to $359 billion. The growth included $13 billion or 6% in residential mortgages and $5 billion or 10% in business loans and acceptances, partially offset by declines in credit cards.

Average liabilities increased $22 billion or 8%, including solid growth of $11 billion or 7% in personal deposits and $8 billion or 10% in non-personal deposits.

Revenues

Revenues were $10,299 million, a decrease of $165 million or 2%. The decline was due primarily to lower non-interest income.

Net interest income

Net interest income of $7,838 million was in line with the prior year as strong volume growth was offset by a margin decline of 11 basis points to 2.30%. The margin decline was primarily driven by the rate environment, including interest rate decreases by the Bank of Canada and changes to business mix.

Non-interest income

Non-interest income of $2,461 million decreased $155 million or 6%. The decline was due primarily to lower insurance, banking and foreign exchange fees.

Retail Banking

Total retail banking revenues were $6,971 million, a decrease of $221 million or 3%. Net interest income decreased $64 million or 1%, primarily driven by the rate environment, including interest rate decreases by the Bank of Canada, partially offset by solid volume growth. Non-interest income decreased $157 million or 9%, due primarily to lower insurance and banking fees mainly as a result of a decline in economic activity and transaction volumes and a decrease in foreign exchange fees.

Business Banking

Total business banking revenues increased $56 million or 2% to $3,328 million. Net interest income increased $54 million or 2% due primarily to growth in loans and business operating accounts. This was partially offset by a margin decline mainly driven by the rate environment, including interest rate decreases by the Bank of Canada. Non-interest income of $772 million was in line with the prior year.

Non-interest expenses

Non-interest expenses were $4,811 million, an increase of $39 million or 1%, largely driven by higher personnel and technology costs to support business development, partially offset by lower marketing-related costs.

Provision for credit losses

Provision for credit losses was $2,073 million, compared to $972 million last year, an increase of $1,101 million. Adjusted provision for credit losses increased by $1,030 million to $2,002 million. The provision for credit losses ratio was 59 basis points, an increase of 30 basis points. Adjusted provision for credit losses ratio increased by 28 basis points to 57 basis points. Provision on impaired loans was $1,130 million, an increase of $156 million. Adjusted provision on impaired loans was up $152 million due primarily to higher commercial provisions. The provision for credit losses ratio on impaired loans was 32 basis points, an increase of three basis points.

Provision on performing loans was $943 million, an increase of $945 million. Adjusted provision on performing loans was up $878 million, mostly related to the unsecured retail and auto portfolio. This is due primarily to the unfavourable macroeconomic outlook in Canada driven by the COVID-19 pandemic and its estimated future impact on credit migration.

Provision for income taxes

The effective tax rate of 25.7% decreased from 26.1% in the prior year.

Scotiabank Third Quarter 2021 Result

August 24, 2021; – Scotiabank reported third quarter net income of $2,542 million compared to $1,304 million in the same period last year. Diluted earnings per share (EPS) were $1.99, up 91% from $1.04 in the previous year. Return on equity was 15.0%, up from 8.3% in the previous year.4

Adjusted net income increased 96% to $2,560 million and diluted EPS of $2.01, increased 93% compared to the prior year. Return on equity was 15.1% compared to 8.3% a year ago.

“The company delivered another quarter of strong results, with contributions from all its operating segments, reflecting the benefits of a well-diversified business model. While the economic recovery is unfolding at different rates across its footprint, I’m very proud of the Scotiabank team’s on-going resilience and continued commitment to its customers,” said Brian Porter, President and CEO of Scotiabank.

“During the quarter, the Bank was recognized as the Most Innovative in Data by The Banker’s Global Innovation in Digital Banking Awards 2021. This award recognizes its commitment to data and analytics and highlights its ability to identify and support its most vulnerable customers. Scotiabank is also proud to highlight the Bank’s recent closing of its inaugural USD $1 billion 3-year sustainability bond offering, the largest sustainability bond issued by a Canadian corporate to date. This offering is yet another example of its social responsibility initiatives in support of its commitment to making a positive impact and creating better communities for every future.”

Canadian Banking generated strong earnings of $1,083 million, driven by higher non-interest income, lower provision for credit losses, as well as strong asset and deposit growth.

Global Wealth Management’s earnings of $397 million were supported by strong revenue growth, positive operating leverage for the seventh consecutive quarter, and a 17% growth in AUM and AUA on higher net sales

Global Banking and Markets reported earnings of $513 million supported by strong performance in its advisory and capital markets businesses.

International Banking generated earnings of $493 million demonstrating continuing growth momentum across its key markets.

With a Common Equity Tier 1 capital ratio of 12.2% the Bank remains well capitalized to support its strategic growth plans.

Outlook

Economic activity in the major markets in which the company operate continues to be robust despite rising risks related to the COVID-19 Delta variant. Incoming data generally continues to meet or beat expectations as the removal of restrictions leads to surges in economic activity that are compounded by high commodity prices. In some Pacific Alliance countries, this is occurring despite an increase in political uncertainty which has led to sharp moves in some foreign exchange rates. It is clear, however, that market participants are concerned about the evolution of the Delta variant and its impact on economies and policy settings as demonstrated in part by the decline in long-term government bond yields.

Looking through to 2023, the outlook in Canada and the United States has improved even as a potential fourth wave seems likely. Fundamentals remain solid, with high household wealth, pent-up demand for a range of goods and services, low interest rates, and a still highly stimulative fiscal stance in the United States and to a lesser extent Canada. It also seems clear that the fourth wave will not trigger the type of mobility restrictions associated with earlier phases given the world-leading vaccination rates in Canada, and the rejection of such restrictions in some U.S. states. The company continue to anticipate that policy rates will begin to rise in mid-2022 in Canada and early 2023 in the U.S. There remains a risk that supply chain challenges put more persistent upward pressure on inflation. If this were to happen, policy rates would likely rise more rapidly. The company also expect that the decline in government bond yields seen thus far will reverse as concerns about the U.S. debt ceiling fade, the U.S. Treasury returns more aggressively to debt markets, and worries about the economic impacts of the Delta variant fade.

The global backdrop remains very favourable to the Pacific Alliance countries in spite of the uncertainty created by political developments. That uncertainty is generally abating although questions remain about the direction of the new government in Peru as well as the ongoing Constitutional reform process in Chile. As is the case elsewhere in the world, the Delta variant poses risks to Pacific Alliance countries. Scotiabank has nevertheless raised its forecasts for the region given the resilience of incoming data, the continued strength of commodity prices, and the generally robust recovery underway in advanced economies. Owing in part to this strength, but also to the impact of weaker currencies, central banks in Chile and Mexico have already moved to contain inflationary pressures by raising interest rates well ahead of the timelines expected in Canada and the U.S.

References

  1. ^ https://www.scotiabank.com/ca/en/about.html
  2. ^ https://www.scotiabank.com/ca/en/about/our-company/corporate-profile.html
  3. ^ https://www.scotiabank.com/content/dam/scotiabank/corporate/quarterly-reports/2020/q4/BNS_Annual_Report_2020.pdf
  4. ^ https://www.scotiabank.com/content/dam/scotiabank/corporate/quarterly-reports/2021/q3/Q321-Shareholders-Report_EN.pdf
Tags: US:BNS CA:BNS
Created by Asif Farooqui on 2021/10/18 07:03
     

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