Scotiabank's Q4 profit drops 14% to $1.44 billion including severance costs

TORONTO – Scotiabank’s fourth-quarter net income fell 14 per cent from last year to $1.438 billion as it recognized severance expenses relating to its downsizing efforts and faced a “perfect storm” of factors in its international operations.

The net income amounted to $1.10 per share, down from $1.676 billion. Excluding the restructuring and certain other items, Scotiabank’s net income was $1.703 billion — up two per cent from last year.

The bank’s shares were little-changed in early trading, slipping 46 cents or less than one per cent to $67.12.

Scotiabank president and CEO Brian Porter told analysts Friday it’s a “year of transition” and said the bank expects stronger earnings growth in the second half of 2015, as economic conditions in Latin America improve.

“You’re always going to have a hurricane in the Caribbean or something somewhere that’s going to impact you for a quarter or two. But we’ve had a bit of a perfect storm,” Porter said during a conference call Friday.

Higher regulatory costs and lower interest rates in Latin America, higher provisions for credit losses related to write-offs the bank took in Puerto Rico and the Caribbean and challenges at two of the bank’s associated companies in Venezuela and Thailand were among the items that cost the bank $250 million over the course of the year.

“In that regard, we’re glad 2014’s over. But I think the team’s done a very good job managing through it and we look forward to a better second half in 2015,” Porter said.

Total revenue during the quarter ended Oct. 31 was $5.747 billion, up from $5.4 billion a year earlier but less than the estimate of $5.8 billion.

The quarter included a restructuring charge totalling $110 million after tax, mostly relating to employee severance as Scotiabank (TSX:BNS) moves to increase efficiency in its domestic operations and reduce the number of branches it has outside Canada.

The bank announced Nov. 4 that it planned to cut 1,500 jobs worldwide — about two-thirds of them in Canada. Its international arm will shut 120 locations but none of the Canadian branches is set to close.

The bank’s core earnings per share, which Scotiabank says is the best measure of analyst expectations, amounted to $1.39 per share — close to the $1.40 per share that was anticipated.

However, data compiled by Thomson Reuters indicated the bank’s adjusted earnings per share at $1.11, short of analyst estimates of $1.40 per share, and net income before adjustments was also short of the estimate of $1.29 per share.

Despite the decline in fourth-quarter profit, Scotiabank’s full-year profit for 2014 was up 10 per cent from last year, rising to $7.298 billion and the bank’s dividend remains unchanged at 66 cents per common share. Adjusting for notable items, its profit was $7.008 billion, up from $6.52 billion in 2013.

“Over the last year we’ve taken some important steps to become an even better bank,” Porter said in a statement before the call.

“We are focused on providing an improved banking experience for our customers while reducing structural costs, in part by simplifying our operating model.”

Porter added that Scotiabank’s earnings growth will “moderate somewhat” in 2015 due to continuation of low interest rates and ongoing investments in technology and other initiatives.

Canadian banking had $483 million of net income in the quarter, or $556 million before notable items — compared with $555 million in the fourth quarter of 2013.

International banking had $316 million of net income, or $344 after adjusting for notable items, down from $455 million. Global Wealth and Insurance generated $327 million, up from $313 million, while Global Banking and Markets had $327 million of net income, down from $337 million in the fourth quarter of 2013.

Barclays analyst John Aiken wrote tha the earnings were “broadly in line” with expectations after accounting the pre-announced charges but “underlying growth continues to face net interest margin pressures.”