International growth continues to be a boon for Canadian lenders as Bank of Nova Scotia and Bank of Montreal's first-quarter earnings beat expectations, helped by brisk business in Latin America and the United States, respectively.
Scotiabank on Tuesday reported better-than-expected adjusted profit of roughly $2.275 billion attributable to shareholders for the period ended Jan. 31, up 16.9 per cent from a year ago. The international banking division of Canada's third-largest lender also saw a 16 per cent increase in net income to $667 million as it continues to expand its presence in the Pacific Alliance countries of Peru, Colombia, Mexico and Chile.
"We continue to see great potential across the Pacific Alliance countries as we densify our presence in key markets and leverage our footprint to improve connectivity," said Brian Porter, Scotiabank's chief executive, on a conference call with analysts. "More specifically, we are seeing strong global growth that we anticipate will be a tailwind for our international businesses."
BMO's adjusted net income attributable to shareholders for the first quarter dropped by seven per cent to $1.422 billion – weighed down by a $425-million charge related to U.S. tax reform – but still beat analyst expectations. Its main U.S. banking operation had $321 million of adjusted net income, up $60 million from the same period a year earlier.
These two lenders' latest earnings come after both the Canadian Imperial Bank of Commerce and the Royal Bank of Canada reported results for the three-month period that topped market expectations, helped by a boost in earnings south of the border.
"You're seeing the growth in the U.S. businesses or the Pacific Alliance region for Scotiabank really be an important contributor to total results at all of these companies," said Shannon Stemm, an analyst with Edward Jones based in St. Louis.
Scotiabank raised its dividend by three cents to 82 cents per share as it reported $1.87 adjusted earnings per diluted share, up from $1.58 a year ago and higher than the $1.68 per share expected by analysts surveyed by Thomson Reuters.
BMO reported adjusted diluted earnings per share of $2.12, higher than the $2.06 per share expected by analysts but down from $2.28 a year ago. However, Canada's fourth-largest lender said the $425-million charge – related to the U.S. corporate tax rate cut from 35 per cent to 21 per cent that took effect on Jan. 1 – had an impact of roughly 65 cents on its earnings per share. After the one-time adjustment to deferred tax assets held on company balance sheets, BMO and other banks with large U.S. exposure are expecting President Donald Trump's tax overhaul to provide long-term benefits to the bottom line.
BMO chief executive Darryl White said a constructive economic environment in the United States played to the bank's strengths.
"Looking ahead, we see attractive opportunities to deliver organic growth and achieve our financial objectives," White said.
And despite concerns about a domestic slowdown and the impact of stricter mortgage underwriting rules on loan growth, both BMO and Scotiabank saw growth at home. BMO's Canadian banking division reported $647 million of adjusted net income, down $98 million from a year earlier. However, a year ago the lender saw a $39 million gain related to the restructuring of Interac Corporation and a roughly $168 million gain on the sale of Moneris's U.S. operations. Scotiabank's domestic banking arm reported a 12 per cent increase in net income attributable to shareholders of $1.1 billion.
Meanwhile, Scotiabank has been investing heavily in acquisitions both at home and abroad in a bid to diversify its income. Earlier this month, it announced it was buying investment manager Jarislowsky Fraser for $950 million, which would create the third-largest active money manager in Canada. In January, the lender announced a deal to buy Citibank's consumer and small and medium enterprise operations in Colombia for an undisclosed amount. In December, Scotiabank said it had secured a deal to buy a 68 per cent stake in a Chilean banking operation, BBVA Chile, for $2.9 billion.
Risks loom for global trade, however, as the seventh round of strained negotiations for the North American Free Trade Agreement began this week.
Scotiabank's CEO said Tuesday he was "confident in our footprint, and particularly in the resilience of the Mexican market."
"Given the country's extensive network of free-trade agreements, Mexico is well positioned to adjust to any NAFTA outcome," Porter told analysts.