WRAPUP 1-Scotiabank, BMO profits top estimates on domestic strength
* Domestic loan growth helps BMO, Scotiabank top estimates
* Scotiabank hikes dividend, but international growth weak
* BMO holds dividend steady, some had expected increase
* BMO up 0.2 pct, Scotiabank down 0.9 pct
TORONTO, Aug 27 (Reuters) - Bank of Nova Scotia and Bank of Montreal kicked off the quarterly reporting season for Canadian banks on Tuesday with slightly stronger than expected results that highlighted the resilience of their domestic banking franchises.
Despite concerns that a cooling housing market in Canada would dry up growth in loan profits, domestic lending income was up at both banks, compensating for international banking income that fell short of expectations and pressured the shares of Scotiabank, the most internationally focused of the country's banks.
"The story for the quarter so far is strength in Canada and weakness outside Canada," said Peter Routledge, a banking analyst at National Bank Financial.
Scotiabank, Canada's No. 3 lender, posted a 17 percent jump in profit after stripping out the impact of last year's sale of the bank's main Toronto office tower, a deal that added C$614 million to 2012 results.
On a net basis, the bank earned C$1.8 billion ($1.71 billion), or C$1.37 a share, compared with C$2.1 billion, or C$1.69 a share, a year earlier.
Excluding items, the bank earned C$1.32 a share, exceeding the C$1.30 average estimate of analysts, according Thomson Reuters I/B/E/S.
Scotiabank also raised its dividend for the fourth time in two years, boosting its quarterly payout by 3.3 percent to 62 Canadian cents a share.
BMO, the country's No. 4 bank, said net profit rose 17 percent to C$1.14 billion, or C$1.68 a share.
That was up from a year-before C$970 million, or C$1.42 a share, and topped analysts' estimate of a profit of C$1.52 a share, according to Thomson Reuters I/B/E/S.
Despite the beat, BMO shares were up just 0.2 percent at C$65.92 on the Toronto Stock Exchange, which analysts attributed in part to its decision not to raise its dividend.
"We believe that many were anticipating an increase in the dividend and may be disappointed," Barclays Capital analyst John Aiken said in a note.
Scotiabank shares were down 0.9 percent at C$58.19.
The results from Scotiabank and BMO are the first of a Canadian bank reporting season that had been expected to show pressure on domestic earnings growth due to borrower fatigue and a housing market that has cooled after a decade-plus run.
Instead, domestic income at both banks was an area of strength.
Scotiabank's Canadian banking income jumped 13 percent to C$590 million, helped by the 2012 acquisition of ING Groep's Canadian online bank, but also driven by widening interest margins, marking a reversal of recent trends.
Intense competition had prompted Canadian banks to cut mortgage rates to rock-bottom levels in recent years, eating into the profit they make on loans.
At BMO, Canadian retail bank profit rose 9 percent to C$497 million, as a narrowing of interest margins was more than offset by a strong 10 percent growth in loans.
"The Canadian banking area in both of them did quite well, a bit of a surprise with everybody looking for a slowing in growth because of the mortgage situation and the high debt that Canadian consumers are carrying," said John Kinsey, a portfolio manager at Caldwell Securities, which manages about C$1 billion and holds Canadian bank stocks.
Lower loan-loss provisions also helped both banks, particularly BMO, where provisions fell to C$77 million from C$237 million.
The strength in Canada offset a weaker performance for both banks' international divisions, which they have been bulking up in recent years as a vehicle for growth outside Canada's entrenched banking market.
BMO's acquisition of Wisconsin lender Marshall & Ilsley in 2011 essentially doubled the size of its Chicago-based Harris Bank unit, giving it exposure to U.S. Midwest clients in the midst of a rebound from the 2008 banking crisis.
Net income at Harris climbed 7 percent to $147 million, with the result pinched by interest margins that narrowed by 41 basis points. On an adjusted basis, profit rose 4 percent.
Scotiabank, meanwhile, has been steadily building a footprint through Latin America and Asia.
Scotiabank's profit from its international unit jumped 26 percent to C$494 million, but that was largely due to a C$90 million gain on the sale of an insurance subsidiary by Scotiabank's 49 percent-owned Thanachart Capital Pcl in Thailand.
Excluding that, income from the unit rose 3 percent on the year.
Royal Bank of Canada and Toronto-Dominion Bank , the country's two largest banks, as well as No. 5 lender Canadian Imperial Bank of Commerce, will report results on Thursday.