Scotiabank (TSX:BMO) vs. Bank of Montreal (TSX:BMO) After Earnings

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), or Scotiabank, and Bank of Montreal (TSX:BMO)(NYSE:BMO) released their Q3 2020 earnings in August.

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Canada’s top banks released their third-quarter earnings in late August. To start this week, I’d compared Royal Bank and TD Bank stocks, the top two financial institutions in the country. Today, I want to compare Scotiabank (TSX:BNS)(NYSE:BNS) and Bank of Montreal (TSX:BMO)(NYSE:BMO). Which is the better buy today? Let’s find out.

Why Scotiabank stock is down over the past week

On Monday, I’d discussed how Scotiabank looked after its third-quarter earnings release. Its shares dropped 1.33% on September 1 in what proved to be a solid start to the month for the TSX Index. Scotiabank stock has fallen 20% in 2020.

Canada’s “international bank” suffered in the third quarter, as Latin America has been late to feel the worst impacts of the COVID-19 pandemic. Over 250,000 people with COVID-19 have died across Latin America. Worse, the pandemic and the effects of the lockdowns may trigger a humanitarian crisis. Scotiabank’s Latin American interests may be in for a tough fight in the quarters to come.

On the domestic front, there were some bright spots. Global Wealth Management net income rose 6% to $321 million. This was primarily due to higher net sales, trading volumes, and market appreciation. Many of its peers were also reliant on positive Capital Markets performance in Q3 2020.

Shares of Scotiabank last possessed a price-to-earnings (P/E) ratio of 9.8 and a price-to-book (P/B) value of one. This puts the stock in attractive value territory right now. The bank boasts an immaculate balance sheet. Moreover, it offers a quarterly dividend of $0.90 per share. This represents a tasty 6.4% yield.

Is Bank of Montreal the better option?

Bank of Montreal is the fourth-largest Canadian bank, right behind Scotiabank. It released its third-quarter 2020 results on August 25. Shares of BMO have climbed 11% month over month. However, the stock is still down 15% so far this year.

In Q3 2020, BMO reported adjusted net income of $1.25 billion — down from $1.58 billion in the prior year. Revenue rose 4% year over year to $6 billion. Meanwhile, provisions for credit losses rose to $1.05 billion — up from $306 million in Q3 2019. Overall, it was a strong quarter for BMO in a brutal environment. Pre-provision pre-tax earnings increased 12% year over year to $2.6 billion. BMO Wealth Management reported adjusted net income of $349 million — up 35% from the prior year.

BMO stock last possessed a favourable P/E ratio of 11 and a P/B value of one. It maintained its quarterly dividend of $1.06 per share, representing a strong 5.1% yield. Like its peers, BMO also has an excellent balance sheet. It is well equipped to weather the challenges ahead, as Canada looks to fight its way out of this historic recession.


Scotiabank has a rough road ahead, as Latin America wrestles with the COVID-19 outbreak. However, I’m still bullish on its prospects for the future. Its stock is undervalued, and it offers a fantastic dividend. Scotiabank may be the bigger gamble, but it’s one I’m willing to take considering the upside today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK. The Motley Fool recommends BANK OF NOVA SCOTIA.

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