Scotiabank profit drops 41%, more bad loans seen but stock still jumps

By Nichola Saminather and Abhishek Manikandan

(Reuters) - Bank of Nova Scotia on Tuesday said loan-loss provisions will remain high after a second-quarter increase drove a 41% profit decline, but shares still jumped 5% as earnings still beat analyst estimates.

The stock rose 5.1% to C$54.69 around midday in Toronto, outperforming a 0.3% gain in the Toronto stock benchmark

Kicking off bank results for the first period to reveal the hit from the coronavirus pandemic, Canada's third-biggest lender said credit provisions surged to C$1.85 billion ($1.33 billion).

"I would expect (provisions in) Q3 to look very similar to what we experienced this quarter," Chief Executive Brian Porter said on an analyst call. "The banking sector will be picking up the broken eggshells for a number of quarters."

Canadian banks are bracing for higher loan losses this year and next due to the pandemic-driven recession. While loan deferrals and government aid have helped contain some short-term damage, borrowers are expected to struggle when repayments come due.

Scotiabank also forecast lower earnings from its personal and commercial businesses in the third quarter.

On top of a 42% decline in adjusted earnings at home, Scotiabank also posted a 73% slump in international profits.

A C$232 million charge related to U.S. investigations into its metals trading practices and the closure of that business also weighed on profits, Scotiabank said. Reuters reported on the wind-down of that unit last month.

Income in global banking and markets jumped 25%, as market volatility boosted trading, and profit from global wealth management rose 3%.

Scotiabank said adjusted profit was C$1.04 per share, compared with analysts' estimates of C$0.98 per share based on Refinitiv data, but down from C$1.70 a year ago.

($1 = 1.3874 Canadian dollars)

(Reporting by Nichola Saminather in Toronto and Abhishek Manikandan in Bengaluru; Editing by Devika Syamnath, Bernadette Baum, Marguerita Choy and David Gregorio)