Scotiabank’s first quarter results were hammered by its exposure to Argentina.

Today it reported net income of $52 million, including charges of $540 million related to Argentina. Excluding these charges, net income was $592 million, which compares to net income of $510 million in the same quarter in 2001.

“Given the extraordinary political and economic upheaval in Argentina, the bank has carefully reviewed its exposures and taken significant additional charges of $540 million this quarter. The entire Argentine economy, including the financial sector, has been negatively impacted,” said Peter Godsoe, chairman and CEO.

“Our senior management and more than 1,700 employees continue to operate Scotiabank Quilmes under very difficult circumstances, and they are doing an outstanding job. We continue to work closely with the Argentine authorities and have received excellent support from the Canadian government. However, there is still a great deal of uncertainty concerning the implementation of a comprehensive recovery plan for the Argentine economy, including the financial sector,” he said.

“Earnings momentum remained strong across almost all other businesses,” Godsoe noted. “Domestic banking including wealth management, capital markets and other areas of our international operations. We saw broad-based revenue gains of 14% over last year, and expenses remained well controlled.”

Net interest income rose by $373 million in the quarter to $1,796 million, a year-over-year increase of 26%, and up 3% over last quarter. Other income was $869 million, a decline of 14% from last year. Contributing to this were lower investment securities gains, a decline in securitization revenues and the gain on sale of branches last year. Investment, brokerage and trust revenues rose 4%, with higher mutual fund fees reflecting the inclusion of Inverlat and market share gains in Canada.

This was partially offset by lower retail brokerage commissions. The Domestic Banking division, which includes wealth management, reported net income of $279 million for the quarter, up $46 million or 20% from last year. Mutual fund volumes grew substantially year over year, but revenues rose more modestly, reflecting customers’ preference for money market funds that earn lower fees.

Scotia Capital earned $146 million this quarter, an increase of 22% from last year. Total revenues grew by 12% to $760 million. While lending volumes rose slightly in Europe, they were down in the U.S. and Canada, due to more selective lending practices. Record results were achieved in derivatives and funding, and underwriting fees were quite strong this quarter.

Loan loss provisions declined by $32 million from last year, but were $103 million higher than the previous quarter, reflecting ongoing weakness in credit conditions in the U.S. Specific provisions for credit losses were $850 million this quarter. These provisions included $500 million in relation to Argentine risk, following the extraordinary events that have taken place. Of this amount, $313 million related to Scotiabank Quilmes’ loans and $187 million was for the bank’s cross-border loans.

Excluding the Argentine charges, provisions were $350 million, down $50-million year over year and unchanged from last quarter. Net impaired loans were $670 million, an increase of $411 million from last quarter, almost entirely due to Argentina. Excluding NILs related to Argentina, remaining NILs were $195 million, up $41 million from the fourth quarter.

The bank says that it expects the global slowdown, “should soon bottom out with a revival of business activity starting in the summer. The U.S. is expected to drive the economic recovery, with Canada and Mexico close behind. Europe, Asia and Latin America should lag somewhat, with a more durable and balanced global expansion emerging in 2003. Through this period, inflation and interest rates are expected to stay low, although some rate increases are likely as the economy gains momentum. With continued strong earnings across all major businesses, the bank expects to achieve its earnings targets in 2002, excluding the impact of the charges related to Argentina.”