Scotiabank, BMO beat estimates as soured-loan concerns ebb
|Toronto Star Yesterday 23 Feb 2021 at 12:59|
Bank of Montreal set aside $156 million in provisions for credit losses in the fiscal first quarter, down 64 per cent from the previous three months and about a third of what analysts expected. The bank even had a $59 million recovery of provisions on performing loans, citing “an improving economic outlook” and positive credit trends. Scotiabank on Tuesday reported provisions of $764 million, down 32 per cent from the fourth quarter and 20 per cent less than analysts projected.
Government programs that supported consumers and businesses over the past year have helped prevent the surge in defaults that Canada’s banks prepared for by recording massive provisions for loan losses early in the coronavirus pandemic. The banks also are benefiting from an increased focus on costs that has helped blunt the impact of a more challenging revenue environment.
“Credit trends are better than what we expected last April or May or June — and that’s a good thing,” Scotiabank chief executive officer Brian Porter said in an interview on BNN Bloomberg Television. “That speaks to the strength of the underlying economy, the strength of the Canadian household.”
Shrinking loan-loss reserves helped overall earnings at both banks top analysts’ estimates. Bank of Montreal, Canada’s fourth-largest lender by assets, posted earnings of $3.06 a share, excluding some items, compared with the $2.15 average estimate of analysts in a Bloomberg survey. Scotiabank’s adjusted profit of $1.88 a share exceeded the $1.57 average estimate.
Scotiabank shares rose 1.8 per cent to $73.40 at 9:53 a.m. in Toronto, while Bank of Montreal climbed 1.9 per cent to $103.79. Scotiabank shares have advanced 6.8 per cent this year, compared with a 7.2 per cent increase for Bank of Montreal and a 6.6 per cent gain for the S&P/TSX Commercial Banks Index.
Both lenders also benefited from cost cuts that helped make up for the drag the pandemic has put on revenue. Scotiabank, Canada’s third-largest lender, cut noninterest expenses by 4.8 per cent from a year earlier, while Bank of Montreal reduced those costs by 1.5 per cent.
Recovering economies in Canada and the U.S. lifted results as well. Bank of Montreal’s personal and commercial banking operation, which spans the U.S. and Canada, increased earnings by 26 per cent amid gains in residential mortgages in Canada and commercial loans in the U.S. At Scotiabank’s Canadian banking unit, profit increased 6.9 per cent, helped by mortgages and business loans.
Bank of Montreal CEO Darryl White said he expects that strength to continue as COVID-19 vaccines are administered and governments introduce more support programs.
“We’re looking at an increase in our view in the U.S., given the pace of the vaccine rollout as well as the higher probability of the stimulus package going through,” White said on a conference call with analysts. “In Canada, there is a slower pace of vaccine rollout, but we are equally positive in time.”
The banks’ capital-markets units continued to benefit from the increased volatility and rising equity markets of the past year. Profit at Bank of Montreal’s capital-markets division rose 36 per cent from a year earlier, driven by higher trading revenue, while earnings at Scotiabank’s global banking and markets operations increased 46 per cent amid strength in fixed-income trading, equity underwriting and mergers and acquisitions.
“Scotia’s strong results were on the back of higher revenues, as both wealth management and capital markets reported impressive growth,” John Aiken, an analyst at Barclays Plc, wrote in a note to clients.