On August 25, The Bank of Nova Scotia (NYSE:BNS) reported third-quarter results that hit a target management had been promising for the medium term, not the near term. Return on equity reached 14.2%, adjusted net income climbed to $2.97 billion, and adjusted earnings per share rose to $2.28 from $1.88 a year earlier, a 21% jump. CEO Scott Thomson signaled that 14% won’t be the high-water mark for the bank’s returns going forward. With every division growing at once, the quarter reads like a strategy finally clicking into place.
Every Business Line Delivering
Canadian Banking earned $1.1 billion, up 12% year over year, with return on equity jumping 160 basis points sequentially to 19.4%. That came from a fifth straight quarter of margin expansion, plus commercial loan growth that accelerated to 3% sequentially after 2% the quarter before, with small business lending up 10% year over year. Credit card premium mix rose to 45% of new acquisitions, up from 35% a year ago.
Global Banking and Markets posted its best quarterly net income ever, $647 million, up 37% year over year, helped by a net interest margin that expanded more than 30 basis points and a run of marquee deals, including the two largest debt capital markets issuances ever done in Canada and the country’s biggest IPO since 2021. Loans in that segment grew 7% sequentially as the bank reinvests after a period of deliberate optimization.
Global Wealth Management earnings rose 23% to $515 million as the segment posted net sales of $3 billion for the quarter, a Q3 record, while assets under management reached $474 billion. Referrals between Canadian Banking and Wealth Management hit $14 billion year to date, with commercial-to-wealth referrals up 33%. International Banking added $725 million, up 6% on a constant dollar basis, with retail loans growing 5% as management leans into primary banking relationships. The bank also logged its tenth straight quarter of positive operating leverage.
Cracks Beneath The Surface
The quarter wasn’t friction-free. Expenses grew 14% year over year, driven largely by performance-based pay and a 16% increase in technology spending to $1.5 billion. Chief Risk Officer Shannon McGinnis flagged, “We continue to monitor some pockets of weakness, including elevated mortgage delinquencies,” even with the retail book carrying an average FICO score of 798. International Banking’s provision for credit losses ran at 138 basis points, well above the 42 basis points booked in Canadian Banking, and the segment absorbed an incremental $57 million provision tied to a corporate account in Brazil that management said it continues to work through.
Two changes land specifically in the fourth quarter. Capital ratios will take a roughly 15 basis point hit as certain international portfolios shift onto the Advanced Internal Ratings-Based approach for credit risk. Separately, a planned cut to Chile’s corporate tax rate over the next three years will force a one-time deferred tax asset write-down. Thomson also pointed to the evolving trade relationship between Canada and the U.S., noting that tariffs imposed last year continue to create uncertainty that management is watching, even as the Canadian economy has so far proven more resilient than expected.
What The Smart Money Sees
Hedge fund interest in Scotiabank rose from 19 funds to 24 in the most recent quarter, a sign institutional investors are adding rather than trimming. That accumulation comes alongside a stock trading at 13.53 times forward earnings as of September 1, a multiple that doesn’t yet price in aggressive growth assumptions. Shares look priced for steady execution rather than a breakout story, which is roughly what this quarter delivered.
Where The Story Goes Next
The quarter leaves one central question open: whether the margin expansion in Canadian Banking and the record run in Global Banking and Markets can outlast a single strong quarter, or whether the fourth-quarter capital and tax hits mark the start of choppier waters. McGinnis’s mortgage delinquency warning and the still-unresolved Brazil account are the loose threads worth watching. Everything else in the report points toward a bank that closed the gap with its own targets faster than it expected to.
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