08/30/2011 09:07 EDT | Updated 10/30/2011 05:12 EDT

Scotiabank expects stock market volatility to affect Q4 bottom line

TORONTO - The stock market's roller-coaster ups and downs this summer will cut into Scotiabank's profits, but it is well-prepared to weather the volatility, the bank said Tuesday after announcing its third-quarter profit was up 18 per cent from a year earlier.

In a conference call hours after its latest financial report beat analyst estimates, Scotiabank (TSX:BNS) said the recent market weakness and volatility will have "some impact" on its global wealth management results later this year.

"However, we do expect the impact to be mitigated by our global insurance businesses which continue to perform strongly," said Chris Hodgson, the bank's head of global wealth management.

"Certain of our wealth businesses will be less impacted than others, including our global private client business and our international wealth management business."

Stock markets turned volatile in early August, as investors worried about the European debt crisis, the United States debt rating was downgraded by Standard & Poor's, and some were concerned that country could fall back into recession.

The bank's CEO Rick Waugh said Scotiabank doesn't plan on drastically changing its earnings per share targets because it has shown sustainable revenue growth over the last several quarters during times of volatility and low growth rates.

He said the bank, which is considered the country's most international bank, is cautious but optimistic about where it has chosen to do business. The bank has said it has limited exposure to areas of concern, which would include Europe, where debt problems have plagued several countries.

"We can bring the revenue and you can certainly see it in the net profits," he said.

"So this year that we're in is a high year, the rate of growth next year will be significantly different and more mitigated, because of these issues that I've seen. But if things get worse — not in our forecast — we have the ability and the track record to react in a very relevant way."

Earlier Tuesday, the bank said its third-quarter profits for the three months ended July 31 rose 18 per cent to $1.29 billion, helped by recent acquisitions and strength in its international division which includes branches in Mexico and Chile.

Scotiabank's earnings were equivalent to $1.14 per share, coming in two cents above expectations from analysts polled by Thomson Reuters.

The results compare with profits of $1.06 billion, or 99 cents per share, a year ago. Revenues increased to $4.3 billion from $3.78 billion.

Scotiabank is the fourth major Canadian bank to report its third-quarter results. Bank of Montreal (TSX:BMO) soundly beat analyst estimates last week while National Bank (TSX:NA) was near or slightly ahead of expectations and Royal Bank (TSX:RY) fell short due to weakness in its trading operations.

Royal Bank also reported a rare loss for the quarter as it wrote down the value of its U.S. retail banking operations, which RBC is selling to PNC Bank.

Scotiabank said its provisions for credit losses slipped to $243 million, a drop from $276 million a year ago, and also down from $262 million in the previous quarter.

Breaking out the divisions, Canadian banking profits rose to $461 million from $442 million, with revenues benefiting from more clients taking out home mortgages, which partly offset "ongoing competitive pricing pressures."

International banking net income grew to $350 million from $275 million, while the bank noted that it's seeing solid underlying organic growth in its commercial lending business in most countries. It highlighted Asia and Latin America as two regions with notable growth.

Global wealth management profits were $256 million, up from $221 million as it was helped by Scotiabank's recent buyout of the shares of DundeeWealth it didn't already own.

Scotia Capital profits fell to $289 million from $305 million as lower trading revenues had an effect. The bank said challenging market conditions hit trading revenues, but were partially offset by higher client trading in precious metals and foreign exchange.

During the quarter, Scotiabank signed a partnership deal with Tiger 21, an investment club for the super rich, that helps members more easily borrow money.

Tiger 21 gives Scotiabank access to a group of extremely wealthy clients. Membership costs US$30,000 a year and requires at least $10 million in assets.

Scotiabank has nearly 75,000 employees in more than 50 countries.

Shares in the Bank of Nova Scotia gained $1.15 on Tuesday to close at $53.50 on the Toronto Stock Exchange.