Charges and valuation adjustments caused Bank of Nova Scotia’s fourth quarter profit to tumble to a third of its value in the same quarter last year, but CEO Rick Waugh is still optimistic about growth prospects going forward.

Scotiabank reported net income of $315 million for the quarter ended Oct. 31, versus $954 million for the same period last year. This was due to charges of $642 million after tax relating to the Lehman Brothers bankruptcy and valuation adjustments, a result of unprecedented volatility in global financial markets.

Excluding the charges, Scotiabank net income was flat year over year. Its earnings per share were 28¢, versus 95¢ for the same period last year, with writedowns this quarter of 65¢ per share.

“Clearly, 2008 was a difficult year, particularly with the writedowns we took in the fourth quarter. While Canadian banks have fared better than their counterparts in other parts of the world, none of us have been immune to the forces buffeting global markets,” said Waugh.

The bank’s return on equity for the quarter was just 6%, down sharply from 21% in the year-earlier period.

Scotiabank’s revenue fell 21% to $2.59 billion for the quarter, down from $3.29 billion in the fourth quarter of 2007, on a tax equivalent basis.

The bank’s net interest income rose 5% to $2.04 billion from $1.93 billion in the same quarter last year. This reflects 18% growth in average assets, including growth in Canadian residential mortgages of $12 billion, or 11%. In Scotia Capital, assets grew by $19 billion, comprised of increases in corporate lending and capital markets. International Banking average assets grew by $23 billion or 35%, reflecting both acquisitions and growth in existing operations.

Scotiabank’s net interest margin was 1.68% in the fourth quarter, down 19 basis points from last year due to the negative impact of fair value changes on derivatives, and lower tax-exempt dividend income.

The net interest margin was down 11 basis points from the third quarter due to fair value changes on derivatives and higher volumes of non-earning assets.

Scotiabank’s provision for credit losses was $207 million this quarter, up $112 million from the same period last year and up $48 million compared to last quarter.

Since last year, the bank has witnessed higher provisions in Canadian Banking and in the retail portfolios in International Banking.

The general allowance for credit losses was $1.32 billion as of Oct. 31, unchanged from last quarter.

Despite expectations for continued market challenges, Waugh said he expects modest growth in 2009.

“Scotiabank’s diversity — by business line, by product and by geography, including our presence in higher-growth emerging markets – leads us to anticipate moderate overall growth for the bank in 2009,” he said.

Going forward, the bank will focus on maintaining a strong capital ratio, as well as risk management and expense control, Waugh said.