The Bank of Nova Scotia Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: Q4 earnings totaled $2.6 billion, up 21%, with diluted earnings per share (EPS) of $1.93. Return on equity (ROE) was 12.5%, up 190 basis points year-over-year. The efficiency ratio was 54.3%, an improvement of 180 basis points.
• Strategic Objectives: Client primacy is yielding results, with closed referrals between Canadian retail, commercial, and wealth units at $15 billion for the year, up 18% from the prior year. Deposit gathering is paying off, with 400,000 primary clients added since the new strategy was launched.
• Segment-Specific Highlights: Canadian Banking improved sequentially over the past two quarters. The Mortgage+ program was a key contributor to multiproduct banking relationships. Global Wealth Management saw record earnings across segments, with AUM driven higher by rising markets. International Banking delivered results ahead of Investor Day commitments. Global Banking and Markets had a strong quarter, with investments in U.S. cash management.

Segment Performance

• Canadian Banking: Q4 earnings of $942 million, up 1% year-over-year. Pretax pre-provision profit grew 3% but was mostly offset by higher loan loss provisions. Revenue grew 3% while expenses increased 5%.
• Global Wealth Management: Earnings were $453 million, up 17%. Canadian earnings grew 16%, and International Wealth earnings rose 30%. Assets under management (AUM) increased 16% to $430 billion, and assets under administration (AUA) grew 13% to nearly $800 billion.
• Global Banking and Markets: Reported earnings of $519 million, up 50%. Revenue increased 24%, net interest income grew 29%, and noninterest income rose 23%.
• International Banking: Earnings were $638 million, up 3% year-over-year but down 7% quarter-over-quarter. Revenue increased 3% while expenses grew 2%.
• Other Segment: The adjusted net loss was $34 million, an improvement from the prior quarter.

Guidance

• 2026 Outlook: The bank expects strong earnings growth in 2026, supported by growth in net interest income and noninterest revenue. Lower provision for credit losses (PCL) is anticipated, but a higher tax rate is expected. Canadian Banking is projected for double-digit earnings growth. International Banking earnings are expected to be modestly higher. Global Wealth Management is set for strong earnings growth. Global Banking and Markets is expected to see modest growth following a very strong 2025.

Risks

• Macroeconomic Uncertainty: The bank operates in a highly uncertain macroeconomic environment with shifting tariff policy and unclear trade negotiations muting economic activity.
• Credit Risk: PCLs were approximately $1.1 billion (58 basis points) in Q4, up from the prior quarter. Impaired PCLs were driven by retail portfolios in Canadian and International Banking, with elevated delinquency in Canadian mortgages, particularly in the GTA. Some weakness was seen in unsecured retail lines, but it was isolated and not systemic.

Question and Answer

Q: Ebrahim Poonawala asked about double-digit EPS growth in Canadian Banking, unpacking PCL normalization and PTPP growth drivers.

A: Rajagopal Viswanathan responded that growth would come from mid-single-digit pretax pre-provision (PTPP) growth, driven by margin expansion from loan growth and deposit growth, with expense management also playing a role.

Q: John Aiken inquired about the credit outlook, specifically seasonality vs. underlying weakness in Canadian retail.

A: Philip Thomas stated that the seen issues in Canadian retail, particularly mortgages in the GTA, were mostly seasonal and not indicative of systemic weakness, with strong FICO scores and well-collateralized portfolios.

Q: Gabriel Dechaine asked about EPS guidance breakdown by segment.

A: Rajagopal Viswanathan explained segment-wise expectations, noting double-digit growth in Canadian Banking, high single-digit growth in Global Wealth Management, modest growth in International Banking and Global Banking and Markets, and improvement in the Other segment.

Q: Doug Young asked about capital generation and PCL guidance.

A: Rajagopal Viswanathan discussed CET1 generation and expected progression, while Philip Thomas clarified that PCL guidance was for impaired PCLs and IB earnings growth was modest excluding divested operations.

Q: Matthew Lee inquired about the U.S. strategy and organic growth.

A: Scott Thomson, Francisco Aristeguieta, and Travis Machen discussed the focus on organic growth in the U.S. via global transaction banking and connectivity across North America.

Q: Paul Holden asked about IB growth guidance and pivot to balance sheet growth.

A: Francisco Aristeguieta explained factors contributing to modest growth, including regionalization, deselection of low-returning loans, and strategic changes in commercial banking.

Q: Mario Mendonca asked about deposit strategy and mortgage originations.

A: Aris Bogdaneris and Jacqueline Allard discussed deposit growth from retail and wealth, and mortgage origination dynamics in the GTA, including renewal rates and channel mix.

Q: Darko Mihelic asked about fees and private credit.

A: Rajagopal Viswanathan and Aris Bogdaneris discussed fee growth drivers in Canadian Banking, while Travis Machen and Philip Thomas addressed private credit exposure and stress testing, noting low-risk exposure and strong underwriting.

Q: Jill Shea asked about net interest margin (NIM) outlook.

A: Rajagopal Viswanathan explained that NIM expansion would come from deposit growth, mortgage repricing, and global transaction banking investments.