Bank of Nova Scotia's "record quarter" sent its stock to a fresh 52-week high. Bank of Montreal's adjusted profit grew at a similar pace the same week, and its stock barely moved.
Bank of Nova Scotia reported third-quarter results on August 25 that chief executive Scott Thomson called "a record quarter for the Bank, as all business lines reported strong results." Reported diluted earnings per share came in at $2.27, up 23% from $1.84 a year earlier. Adjusted diluted EPS rose 21%, to $2.28 from $1.88. Net income reached $2.95 billion on a reported basis and $2.97 billion adjusted, both up double digits year over year. Return on equity rose to 14.1% reported and 14.2% adjusted, above the bank's medium-term targets, which Thomson said the quarter exceeded.
Every segment contributed. Canadian Banking earnings rose 12% to $1.07 billion. International Banking rose 8% to $766 million. Global Wealth Management rose 23% to $518 million on assets under management up 16% to $474 billion. Global Banking and Markets rose 37% to $647 million. Provisions for credit losses ran at 56 basis points of loans. The bank returned $6.3 billion to shareholders year-to-date through buybacks and dividends, including 8.6 million shares repurchased in the quarter. Common Equity Tier 1 capital stood at 13.1%.
The market's response was unambiguous. Bank of Nova Scotia shares closed August 25 at $93.10, up 7.18% from the prior session's $86.86, a fresh 52-week high.
Three days earlier, Bank of Montreal reported its own third quarter, and on paper a starkly different result. Reported earnings per share fell 24%, to $2.38 from $3.14 a year earlier. That decline traced entirely to a single disclosed item: a $1.109 billion after-tax charge, primarily a goodwill impairment, on the completed sale of BMO's Transportation and Vendor Finance business. Strip that out and Bank of Montreal's adjusted EPS rose 22% year over year, to $3.96 from $3.23, a growth rate in the same range as Bank of Nova Scotia's. Every operating segment at BMO posted positive adjusted net income. Adjusted return on equity rose to 14.0% from 12.0%, nearly identical to Bank of Nova Scotia's own adjusted figure. Provisions for credit losses fell to $722 million from $797 million. BMO's capital ratio eased to 13.0% from 13.5%, a modest softening but still within a point of Bank of Nova Scotia's own 13.1%, so capital strength does not obviously explain the gap either.
Bank of Montreal shares closed August 25 at $173.46, up just 0.64% from the prior session.
Both banks grew adjusted profit at a comparable double-digit clip this quarter, on broadly comparable capital and credit metrics. One got a rally to a 52-week high. The other got almost nothing. Bank of Nova Scotia's reported results already looked like a beat. Bank of Montreal's reported results required investors to read past a one-time charge to find the comparable story. A market that reacts to headline earnings before it reconciles adjustments will reward the bank whose headline number needed no reconciling, regardless of which bank's underlying quarter was actually stronger.
Bank of Nova Scotia reports again in its fiscal fourth quarter, typically in late November. Whether the market's enthusiasm holds once the quarter is no longer fresh news is a better test of the "record quarter" than the first-day reaction alone.