Weaker Fiscal Third Quarter for Scotiabank as Fees Drop; Lowering our Fair Value Estimate Slightly

Narrow-moat-rated Bank of Nova Scotia reported a weaker fiscal third quarter. Adjusted earnings per share were CAD 2.10, representing growth of 4% year over year but growth of negative 4% quarter over quarter. The biggest point of weakness was fees, particularly within the more market and activity sensitive investment banking, trading, and wealth businesses. This is a pattern we have already seen start to play out for the U.S. banks, and we expect to see similar trends as the rest of the Canadian banks report. Despite weaker fees, net interest income and expenses remain essentially in line with our expectations. After adjusting our near-term fee outlook down, we are lowering our fair value estimate to CAD 85/USD 65 from CAD 87/USD 68.