Scotiabank forecasts conservative growth

The corporate logo is seen outside Scotiabank headquarters in the financial district in Toronto on December 3, 2002. THE CANADIAN PRESS/Kevin Frayer

TORONTO - Scotiabank predicts it will experience conservative growth in 2012 as its diversification into emerging economies helps to offset the drag on global growth from European financial turmoil.

"Looking ahead, global prospects are being pressured again by financial market volatility, resulting of course from the European debt crisis and the longer-term challenges in the United States," president and chief executive Rick Waugh said on a conference call Thursday.

Scotia (TSX:BNS) is targeting earnings per share growth of between five and ten per cent in 2012.

"This reflects the current environment and is conservative," Waugh said.

Canada's most international bank said its direct exposure to Europe is "not large," adding its Canadian and international banking segments are expected to show positive growth.

Waugh said the bank's international footprint is in areas of growth that have limited exposure to the areas of global concern.

"The upside of the volatility is that it provides opportunities for stable well capitalized banks. The windows of opportunity... which are a result of our diversified footprint continue to be available," Waugh said.

Scotia said a number of acquisitions in the past year — many in the developing countries in Latin America — are expected to make solid contributions to its 2012 earnings.

While many Canadian banks have also been diversifying into emerging markets for growth — mostly in Asia —Scotiabank has targeted Latin America, where it now operates in 13 countries.

The Toronto-based financial services giant is also the biggest bank in the Caribbean and has businesses in Asia and other parts of the world.

In emerging economies, the growth in credit card use and traditional financial services such as mortgages and consumer loans puts the bank in a position to cash in on solid economic growth and expansion of the middle class.

The bank also expects Canadian banking to be a big contributor to earnings, as — along with emerging markets — the country benefits from strength in domestic spending, foreign investment, supportive economic and fiscal fundamentals.

Waugh said the diversification of Scotiabank (TSX:BNS) helped it weather an "increasingly volatile" economic environment during its most recent quarter.

It reported earlier Thursday that fourth-quarter profit rose 11 per cent to $1.24 billion, or $1.07 per share, which was up from $1 a share or $1.12 billion in the fourth quarter of fiscal 2010.

Scotiabank's revenue increased to $4.35 billion in the three months ended Oct. 31, rising from $3.94 billion a year earlier.

Only Scotia Capital showed a decline compared with its year-earlier profit, falling 16 per cent — as growth in corporate lending was more than offset by lower trading revenue.

Scotiabank's fourth-quarter coincided with prolonged and deepening concern about the government debt crisis in Europe that has cast doubt on the survival of the euro currency and seriously undermined confidence in the global economy.

The Canadian division generated about one-third of the overall profit, or $460 million, up four per cent from $441 million a year ago. The increase was driven by lending growth and higher deposit volumes on both the residential and commercials sides.

"In 2012, we expect to continue this success despite the uncertain economic environment and persistently low interest rates," said Anatol von Hahn, head of banking operations in Canada.

Von Hahn said he expects to see continued asset and deposit growth in small business and commercial banking, but a slight decline in retail banking, due to some retrenchment from indebted consumers. The bank expects to feel some pressure on its margins from the prolonged low interest rate environment and high levels of competition. Provisions for loan losses are expected to be stable, von Hahn said.

Scotiabank's international division contributed $373 million in profit, wealth management added $250 million and its Scotia Capital wholesale banking division provided $230 million, down from $273 million a year earlier.

Profits at the International division, which operates in many countries in Latin America, the Caribbean and Asia, was up 10 per cent to $373 million from $338 million in the fourth quarter of 2010 and Wealth Management was up 39 per cent.

Brian Porter, head of international banking, said he is optimistic about the prospects for growth in the division next year, both organically and through acquisitions.

"Acquisitions have been an important driver of our business over the past few years and we will continue to look at selective acquisitions to complement our footprint," he said.

Some of Scotia's rivals who have already reported similarly strong fourth-quarter results, have also predicted moderate growth next year as the continue to grapple with the fallout from U.S. and European debt.

Royal Bank, which also reported Friday, outperformed expectations from analysts, posting $1.09 per share of earnings, representing a profit increase of 43 per cent from a year ago when earnings were $1.12 billion or 91 cents a share.