Bank of Nova Scotia's fourth-quarter profit will be cut by a larger-than-forecast $890-million charge caused by slumping markets and the failure of Lehman Brothers Holdings Inc., beginning what analysts expect will be a parade of depressing earnings announcements from the banks.
The charge is equivalent to $595-million after tax, Scotiabank said after markets closed Tuesday. The biggest chunk of the losses came from writedowns on stocks, bonds and derivatives such as collateralized debt obligations (CDOs).
Analysts have been slashing their ratings on Canada's big banks because they continue to grapple with credit market issues at the same time as a plethora of bad economic news makes it evident that their core lending businesses will struggle in future quarters.
With markets in a tailspin in the banks' final quarter, which ended Oct. 31, analysts are on the lookout for similar writedowns from other lenders, particularly Bank of Montreal, Royal Bank of Canada and Canadian Imperial Bank of Commerce.
All these banks have exposures to slumping markets for debt instruments like CDOs.
“It's going to be across the board – we're a little bit nervous about everybody,” said National Bank Financial bank analyst Rob Sedran.
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This will be interesting to watch, Finance Minister Flaherty and PM Harper are still claiming all is cool in the Great White North.
