05/28/2013 08:02 EDT | Updated 07/28/2013 05:12 EDT

Scotiabank says expanded U.S. trade will improve business conditions

TORONTO - Scotiabank says the economic recovery in the U.S. will boost its North American operations, even as the housing market north of the border continues to cool.

The outlook came as the bank (TSX:BNS) reported a second-quarter profit that was up nearly 10 per cent from a year ago, helped by its acquisition of ING Direct, but short of analyst estimates.

"Looking forward, we expect growth in the United States to favourably impact our Americas footprint," chief executive Rick Waugh said during a conference call Tuesday with financial analysts.

"Expanded U.S. trade with Canada and Mexico in particular will benefit our customers and business conditions."

In the U.S., job growth, record highs for stocks and steady gains in house prices have improved the economy and consumer confidence.

However, the pace of home sales has fallen in many Canadian cities, while prices are growing at the slowest rate in more than two years.

Scotiabank earned $1.6 billion or $1.23 per diluted share in its latest quarter, up from $1.46 billion or $1.15 per diluted share in the second quarter of 2012.

Revenue totalled $5.22 billion, up from $4.7 billion a year ago.

Meanwhile, Scotiabank's adjusted earnings came in at $1.24 per share, up from $1.16 a year in the second quarter of 2012 but two cents below a consensus estimate of $1.26 per share.

The miss came as the bank's overall provision for credit losses — which banks take in anticipation that some loans won't be repaid fully — increased to $343 million.

That was up from $264 million in the second quarter of 2012 and $310 million in the first quarter of 2013, ended Jan. 31.

The bank said provisions for credit losses increased across all its business lines, but the largest increases were in international retail banking and Canadian commercial banking.

International banking's provision for credit losses was $194 million, up from $145 million a year earlier, while Canadian banking's provision was raised to $136 million from $120 million in the second quarter of 2012.

Chief financial officer Sean McGuckin said higher provisions in Colombia, Mexico and Peru were partially offset by lower provisions in the Caribbean.

"The increase in provisions was in line with asset growth and the loan loss ratio remained stable," McGuckin said.

Gareth Watson, vice-president of investment management and research at Richardson GMP, said that although the bank was able to capitalize on growth in global financial markets, some of its trading activities, especially in commodities and precious metals, didn't fare so well.

"Just because markets go up doesn't necessarily mean it's a slam-dunk, that on the wholesale side banks are going to make money," said Watson.

Watson said the bank's precious metals trading business ScotiaMocatta may have been hit by the drop in gold prices in April.

Nevertheless, Scotiabank said its Canadian banking operations earned $547 million, up from $461 million a year ago, helped by the acquisition of ING Direct.

That was nearly matched by its international banking operations, which earned $471 million in the quarter, up from $448 million a year ago.

Global wealth management earned $335 million, up from $298 million, while global banking and markets added $361 million compared with $387 million a year ago.

Scotiabank said recent acquisitions contributed $61 million to the year-over-year growth in net income.

It said the remaining increase was from higher net interest income, growth in transaction-based fees and wealth management revenues and increased net gains on investment securities.

The growth was partly offset by lower trading revenues, increased operating expenses and higher provisions for credit losses.

Scotiabank shares closed unchanged at $59.61 on the Toronto Stock Exchange.