Scotiabank misses profit estimates, projects modest economic growth in key markets

(Reuters) - Bank of Nova Scotia missed analysts' estimates for quarterly profit on Tuesday, hurt by higher taxes and elevated expenses related to compensation and technology.

Adjusted profit rose 29% to C$2.12 billion ($1.51 billion). On a per share basis, the lender earned C$1.57, compared with analysts' expectations of C$1.60 per share, according to LSEG data.

The quarter included impairment charges of C$379 million related to the lender's investment in China's Bank of X'ian and severance provisions, Canada's third largest bank said.

"As the market parses through the numbers, the fact that the bulk of the disappointment centers around a higher-than-expected tax rate should garner some relief," Jefferies analyst John Aiken said.

Under CEO Scott Thomson, who took the helm in early 2023, Scotiabank has pushed funding to stable, lower-risk countries, making a bet on the North American trade corridor, while holding back on spending in its Latin American markets.

The plan focuses on growth closer to home, from Quebec to the United States and Mexico, and the potential exit from some foreign markets including Colombia.

For the fourth quarter, earnings at Scotiabank's Canadian banking business rose 34% while international banking saw a 14% increase. Income at global banking and markets, however, fell 3% while expenses rose 6%.

In a surprise move, the lender said it would acquire 14.9% of Cleveland-based KeyCorp to build its presence in the U.S., where Canadian rivals Bank of Montreal, Royal Bank of Canada and Toronto-Dominion Bank have been investing.

Scotiabank's provision for credit losses fell to C$1.03 billion in the reported quarter, from C$1.26 billion last year.

"An improving credit environment in International is a stand out positive for the quarter, but it is juxtaposed against ongoing revenue headwinds and mixed performance on efficiency," Aiken noted.

Net interest income, the difference between what a bank earns on loans and pays out for deposits, rose 5.5% to C$4.92 billion.

Scotiabank kicks off Canadian banks' quarterly reporting season as they wrap up a recovery year after facing high expenses, elevated interest rates and pressure on some loan books.

($1 = 1.4039 Canadian dollars)