Why Did Bank of Nova Scotia's Costs Rise So Quickly?

| About: The Bank (BNS)

By Boyd Erman

If Bank of Nova Scotia (NYSE:BNS) isn't careful, it could lose its hard-won reputation for being parsimonious.

Looking at the earnings report from Bank of Nova Scotia, one line jumps out, especially at a bank known for being rigourous on costs. Non-interest expense at the bank's Scotia Capital securities arm took a serious jump, for the second straight quarter.

That took a strong quarter on the top line at Scotia Capital and turned it into a middling quarter on the bottom line. At 38 percent of revenue, net income as a percentage of revenue was at the low end of the range in the last five quarters.

Non-interest expense at a securities firm usually translates to one main thing: Pay. That's a big part of it in Scotia's case, the bank said, as is investment in its trading platform.

Why did pay jump so much? It could be that Scotia had to adjust downward the discount rate it's using to value liabilities for future pay costs like pensions; it could reflect the bumpy nature of investment banking compensation; or it could be simply that the bank is paying more.

Whatever the case, it's out of character for Scotia -- and you can expect the bank's executives to take some serious questions on it on the conference call that's happening Tuesday.

Here are the numbers: Non-interest expense rose to $386 million in the bank's fiscal first quarter. That's $64 million more than in the quarter immediately prior, and $79 million more than in the year-ago quarter.