The Bank of Nova Scotia on Tuesday reported second-quarter earnings that were hit hard by the economic effects of COVID-19 and investigations of the lender’s metal-trading activities.

Toronto-based Scotiabank, Canada’s third-largest bank, reported net income of $1.32 billion for the quarter ended April 30, down 41 per cent from $2.26 billion for the same three months of 2019. Earnings per share were one dollar, compared to $1.73 a year earlier.

When adjusted for several items, such as the sale of Scotiabank’s operations in Puerto Rico that closed in the first quarter, net income was $1.37 billion, down from $2.26 billion. Earnings per share on an adjusted basis were $1.04, down by 39 per cent, but still above the analyst consensus of 91 cents per share.

The main cause of the drop in profit was the coronavirus pandemic. Scotiabank set aside more than $1.8 billion for possible loan losses for the quarter, up $973 million or 111 per cent from a year earlier. This increase in provision for credit losses was “largely due to the COVID-19 impact on the macro economic outlook,” the bank said in its financial filings.

COVID-19 caused the global economy to screech to a halt during Scotiabank’s second quarter, as governments around the world locked down citizens and shuttered non-essential businesses to try to stop the spread of the virus.

“The bank remains well positioned from a capital and liquidity perspective, and we are appropriately reserved for potential credit losses,” said Brian Porter, president and CEO of Scotiabank, in a statement.

Canadian banks have also been used to help deliver the federal government’s COVID-19 support programs for businesses and consumers, in addition to relief the lenders have provided on their own, such as by allowing customers to defer mortgage payments. Scotiabank said its Canadian banking business has assisted more than 300,000 customers with more than $60 billion in loans.

However, Scotiabank also said Tuesday it had reserved $232 million regarding investigations and costs tied to the wind-down of its metals business, which was announced on April 28.

The bank has said its “activities and trading practices in the metals markets and related conduct” are being investigated by the United States’ Commodity Futures Trading Commission and the U.S. Department of Justice’s Criminal Division. Additionally, the CFTC is investigating Scotiabank’s “practices and processes related to the provision of pre-trade mid-market marks and related conduct,” the lender said.

“The Bank continues to respond to requests for information related to these investigations and is engaging in settlement discussions with the applicable authorities,” Scotiabank said in its report to shareholders. “In addition, in line with its strategy, the Bank has made the decision to wind down the metals business.”

Even though settlement talks and the wind-down are ongoing, Scotiabank said it “currently does not expect the final costs” associated with either matter to be material.

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