People walk past the Bank of Montreal Financial Group building in downtown Toronto on January 28, 2014. THE CANADIAN PRESS/Nathan Denette

TORONTO - While volatile market conditions have dampened Canadian lenders' latest results, the Bank of Montreal's first-quarter profit still blew past expectations on strength in the U.S. as the Bank of Nova Scotia's earnings fell short despite a surge in international lending.

BMO delivered adjusted net income of $1.54 billion for the period, up eight per cent from a year earlier, despite a drop in profits from its wealth management and capital markets divisions reflecting market uncertainty in late 2018 amid U.S.-China trade tensions and other geopolitical concerns.

The Toronto-based lender's North American personal and commercial banking businesses performed "very well," particularly in the U.S. which saw a 43 per cent profit increase year-over-year, BMO chief executive Darryl White said Tuesday.

"Performance for this quarter played out well... Our diverse business mix across geographies, products and customers continues to produce sustainable earnings power, even as the environment in which we operate evolves," he told a conference call with financial analysts.

Meanwhile, Scotiabank's net income during the three-month period ended Jan. 31 slipped to $2.25 billion from $2.34 billion a year earlier.

Canada's third-largest lender, which has been seeking growth by expanding its footprint in the Pacific Alliance countries of Mexico, Chile, Colombia and Peru, saw a 17 per cent increase in international banking earnings to $782 million during the quarter ended Jan. 31. However, Scotiabank's global banking and markets business saw a 26 per cent drop in net income attributable to equity holders to $335 million.

"Capital markets volatility was challenging for the industry in both Canada and the U.S. and this directly impacted our origination and secondary trading businesses within our global banking and markets business," said Scotiabank's chief executive Brian Porter on a call with analysts.

"Despite these conditions, we delivered strong corporate loan growth in the quarter and better results overall in January support our outlook for stronger results over the remainder of the year."

BMO and Scotiabank's earnings come after Royal Bank of Canada reported a five per cent uptick in first-quarter profit last week in line with expectations despite weaker contributions from its wealth management and investor and treasury services businesses.

BMO's latest profit, on an adjusted basis, amounted to $1.54 billion for the quarter or $2.32 per diluted share, compared with $1.42 billion or $2.12 during the same period a year earlier. Analysts had expected a profit of $2.23 per share, according to those surveyed by Thomson Reuters Eikon.

It was a "solid quarter" for Canada's fourth-largest lender, said Robert Sedran, an analyst with CIBC Capital Markets. Earnings from BMO's Canadian retail banking operations were essentially flat and its profit beat was largely driven by U.S. personal and commercial banking, he added.

"Overall, the bank reported a result that would appear to be inconsistent with the high levels of volatility during the period, with strong U.S. results and stable Capital Markets results helping power earnings ahead of expectations," Sedran said in a note to clients.

Scotiabank's adjusted earnings amounted to $1.75 per diluted share, down from $1.87 per diluted share a year ago and below the $1.82 per share expected by analysts.

The bank could not escape the weak capital markets environment, and also saw a decline in Canadian retail banking, said John Aiken, an analyst with Barclays in Toronto.

Scotiabank's Canadian banking arm reported income attributable to equity holders slip by three per cent to $1.07 billion.

"While strong growth in international will be viewed as a positive, the continued deterioration in the domestic retail efficiency ratio will remain a focus, particularly for investors still not sold on the recent wealth management acquisitions," Aiken said in a note to clients.

Scotiabank recently acquired investment firm Jarislowsky Fraser and financial services company MD Financial Management, part of a broader overhaul the lender has embarked on in recent years.

Earlier this month, the bank announced plans to sell its banking and insurance operations in El Salvador and in November, Scotiabank said it planned to divest its banking operations in nine Caribbean countries.

The bank said the divestments were part of its strategy to add scale in key markets such as in the Pacific Alliance, including its recent acquisitions in Chile and Peru.

On Tuesday, Scotiabank also announced it has entered into a non-binding memorandum of understanding regarding its interest in Thailand-based Thanachart Bank Public Co. Ltd, also known as TBank. TBank and TMB Bank Public Co. Ltd., also based in Thailand, have been planning to merge, subject to approval.

"It is currently expected that the merger and related transactions would result, if concluded, in Scotiabank significantly reducing its investment in Thailand and holding a significantly smaller stake in the combined bank and receiving proceeds which is expected to result in a gain on sale," the bank said in a statement.

The transaction, which is expected to close in late 2019, would free up capital and provide Scotiabank with "optionality" to further invest in its international footprint in the Americas, Porter said.

Over the next three years, the pace of change at Scotiabank "will slow," he told analysts. The bank has been able to "dispose" of its "non-core" businesses, and is "comfortable" with the work that has been done to align its footprint, he added.

"The acquisitions we did last year were critically important to get scale in Chile, which is a key market," Porter said. "We basically reworked our whole wealth management business in Canada and we're very pleased with the end result. So anything you see from here on in will be what I would classify as tinkering."

Companies in this story: (TSX:BMO, TSX:BNS)

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