The Bank of Nova Scotia Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: 2025 started strong with adjusted earnings of $2.2 billion or $1.76 per share, driven by revenue-led client franchise growth and easing funding costs. Noninterest revenue grew 15% year-over-year.
• Capital Allocation: Focused on allocating capital to priority markets, e.g., closed investment in KeyCorp and announced sale of banking operations in Colombia, Costa Rica, and Panama. The transaction is expected to be capital neutral and boost earnings.
• Deposit and Client Growth: Overall bank funding profile strengthened with 4% year-over-year deposit growth. Acceleration of multiproduct clients in Canadian retail, with 25% of Scene+ members having a Scotiabank payment product and 89% of new mortgage originations in Canada in Q1 through Mortgage+ packaged offerings.
• Operational Excellence: Delivered positive operating leverage. Return on equity was 11.8% in Q1. Focus on value over volume and relationship-based businesses.

Segment Performance

• Global Wealth Management: Continued positive momentum, delivering $414 million in earnings. Favorable markets, strong trading revenues, and positive net fund sales drove fee earning assets to record levels, exceeding $730 billion of assets under administration. Fund sales in the quarter were up 50% year-over-year, and new financial plans delivered in Q1 were up 10% year-over-year.
• Global Banking and Markets: Had a very strong start to the year, with earnings of $517 million, up 33% year-over-year. Capital markets revenue was up 41% year-over-year and 47% quarter-over-quarter. Business banking revenues also grew, and non-interest income was up 25% year-over-year.
• Canadian Banking: Reported earnings of $914 million, down 6% year-over-year. Higher revenues were offset by higher loan loss provisions and expenses. Net interest income grew 6% year-over-year, but the net interest margin declined. Non-interest income was up 4% year-over-year, partly offset by lower banking fees from BA conversion.
• International Banking: Delivered earnings of $657 million, up 5% sequentially but down 7% from last year. GBM business in this segment had a strong rebound in activity levels and profitability, delivering $330 million in earnings. Productivity ratio improved to 51% this quarter.

Guidance

• Excluding potential tariff impacts, on track to deliver 2025 earnings growth towards the higher end of the 5% to 7% range prior to KeyCorp earnings pickup.
• Investment in KeyCorp is immediately accretive to earnings growth and return on equity metrics.
• Expect the transaction of selling banking operations in Colombia, Costa Rica, and Panama to be capital neutral and lead to well-ahead earnings pickup compared to stand-alone franchise.

Risks

• Credit Loss Provisions: PCLs remained elevated due to higher interest rates, inflation, geopolitical uncertainty. Approximately $1.2 billion provision for credit losses this quarter, with performing PCLs driven by potential tariffs and macroeconomic volatility.
• Tariff Impact: Potential tariffs could increase macroeconomic uncertainty, affecting Canadian and Mexican portfolios. Base case scenario includes modest tariff risk of approximately 5% on half of Canadian imports and 10% on half of Mexican imports, with more severe scenarios incorporated.

Question and Answer

• Q: On credit outlook and rate backdrop: A: Phil Thomas said consumers are starting to benefit from rate cuts, particularly in variable rate mortgage portfolio, and expect PCLs to trend down in the latter half of the year excluding tariffs.
• Q: Why not initiate buybacks given stock valuations: A: Scott Thomson said will resume dividend growth and hopes to start share repurchases by the end of the year, depending on tariff outcomes.
• Q: On Global Banking and Markets productivity ratio: A: Travis Machen said revenues likely to normalize, and Raj Viswanathan added the business's normal run rate should be between $425 million to $450 million assuming normal market conditions.
• Q: On international transaction: A: Scott Thomson and Francisco Aristeguieta explained the sale of banking operations in Colombia, etc., was a strategic move to be capital neutral and achieve earnings accretion, with the new entity being a strong partner in the region.