Bank of Nova Scotia (NYSE: BNS) Posts Strong Results, Led By Investment Banking

While Investment Banking revenues have remained flat at most US firms, there has been an interesting development north of the border: the Bank of Nova Scotia (NYSE: BNS), the third largest bank in Canada posted it’s biggest quarterly profit increase since 2002, attributed to higher investment banking fees.

Net income in the fourth quarter rose to $855.7 million, or 83 cents per share, compared to 28 cents per share in the same period of 2008.

Scotiabank was the last of Canada’s six largest banks to report their quarterly results, and those earnings are fueled by a surge in fees that were derived from trading, along with arranging stock sales.

David Baskin, president of Baskin Financial Services in Toronto, noted “The business climate for the banks in general in Canada is very strong right now.” With capital market activity showing clear signs of improvement, the Canadian banks are in a unique position, as they are insulated from European bank’s Dubai troubles, and not facing the scrutiny of the treasury department which America’s banks are.

While Scotiabank’s results matched the profit estimates from the analyst community, three of Canada’s six largest banks beat profit forecasts in the third quarter. Brad Smith, an analyst at Blackmont Capital rates the stock as “outperform”, and although the firm has a bit lower than expected revenues as compared to his forecasts, they paired that with expense savings.

The news is not all good though, as the firm noted in the earnings release that they have set aside C$420 million for loan loss provisions, which is more than double the year ago period. Scotiabank has set a target of earnings per share between 7 and 12 percent for 2010, which matched the 2009 plan, along with an ROE of 16 to 20 percent.

The banking industry as a whole is keep it’s ear to the ground on consumer credit, and the potential deterioration of it as the economic contraction persists. For the past twelve months, many analysts have expected that to be the next shoe to drop, as historically consumers slow down paying their credit cards during recessions, which then turn into losses on banks income statements. Thus far though, this correlation has not held, or at least has not been as bad as expected.

Scotiabank is in a great position, in a stable country with solid returns, where debt ratings have not deteriorated – now, the firm must capitalize on these opportunities, if they seek to get to the next level.