Will Bank of Nova Scotia Earnings Top Its Canadian Banking Peers?

Bank of Nova Scotia (BNS -1.22%) will release its quarterly report on Friday, wrapping up what has generally been a bad week for Canadian banks. With Bank of Montreal (BMO -0.13%), Toronto-Dominion Bank (TD 0.75%), and Royal Bank of Canada (RY 0.42%) among those that have already made their reports, the question Bank of Nova Scotia faces is whether it can buck the trend of its peers and produce strong enough results to let its shares recover somewhat.

Bank of Nova Scotia has a strong reputation for having solid financials, with ongoing efforts to bolster the bank's Tier 1 common-equity ratios having borne fruit over the past year, pushing levels well above what regulators want to see. Yet while the bank has substantial international exposure, it generally hasn't focused on the U.S. market to nearly the extent as Toronto-Dominion, RBC, and Bank of Montreal. With the U.S. making up less than 7% of its total revenue, is Bank of Nova Scotia missing out, or will its decision to favor other international markets help distinguish it from its peers? Let's take an early look at what's been happening with Bank of Nova Scotia over the past quarter and what we're likely to see in its report.

Stats on Bank of Nova Scotia

Source: Yahoo! Finance.

Will Bank of Nova Scotia earnings climb or fall?
Analysts have pulled back their views on Bank of Nova Scotia's earnings in recent months, cutting October-quarter estimates by $0.04 per share and reducing their fiscal 2014 projections by about 1%. The stock has done reasonably well, rising 8% since early September.

Overall, Bank of Nova Scotia gave investors solid momentum coming into the quarter. Its July-quarter results included a rise in revenue of 12%, with adjusted net profit jumping by the same amount after accounting for the one-time sale of its Scotia Plaza property last year. Success in bringing in more fee income from retail banking and wealth-management divisions, as well as better net interest income and a reduction in reserves for loan losses, all helped bolster the bank's performance.

Over the past week, though, we've seen a mix of results lead to some concerns about the potential for Canadian banks to keep performing well. Bank of Montreal started off the week by announcing record revenue, net income, and earnings per share for its full 2013 fiscal year, with strength in wealth management and its core Canadian retail-banking division standing out and helping it raise its dividend. Royal Bank of Canada followed up Thursday morning by beating estimates and posting record results of its own. But Toronto-Dominion missed earnings estimates, and even an announcement that it would split its stock couldn't lift the bank's shares.

The real question facing Canada's banks is whether its economy can keep growing at the same pace as in past years. The natural-resources industry suffered a big blow earlier this year when precious metals prices crashed, and although demand for energy products remains high, the value of the Canadian dollar has dropped compared to the U.S. dollar recently. Concerns about credit expansion and a potential housing bubble in some popular areas in Canada have also weighed on the banking sector, especially as Canada's central bank has signaled that it might keep interest rates low even longer than the Federal Reserve.

For its part, Scotiabank has worked hard to develop its marketing presence through smart advertising placements. With its sponsorships of the popular National Hockey League, the Canadian Football League, and the Cineplex line of movie theaters, Scotiabank has boosted its promotional budget, and that has paid off in faster-paced growth.

In the Bank of Nova Scotia earnings report, be sure to look at the bank's results not just compared to its own past performance, but alongside what its peers have done lately. That will give you clues that could help you decide whether Scotiabank has the potential to outperform its rivals over the long run.

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