Volatile financial markets dragged first-quarter earnings down 18%, Bank of Nova Scotia reported today.

Scotiabank said it made $835 million, or 82¢ a share, down from $1.02 billion, or $1.01 a share, a year earlier.

Return on equity tumbled to 18.3% during the quarter, compared with 22.1% a year ago.

“While we had anticipated the first quarter to be difficult, results were weaker than expected,” said Rick Waugh, president and CEO, in a news release.

“This was due primarily to substantial volatility in global financial markets. Our exposure to these stressed markets is modest and well diversified, but our portfolios did experience some valuation writedowns,” Waugh said.

The bank said it took $158 million in pre-tax writedowns on its holdings in collateralized debt obligations, collateralized loan obligations, structured investment vehicles, and non-bank asset backed commercial paper.

The bank also said it took a charge of $80 million related to exposure to a bond insurer.

While the bank was taking hits in its capital markets division, its domestic and international banking units reported better results.

Domestic banking reported net income available to common shareholders of $367 million this quarter, an increase of $6 million or 2% from the first quarter of last year.

International Banking’s net income available to common shareholders in the first quarter was $282 million, a decrease of $34 million or 11% from last
year and $71 million or 20% from last quarter.

Excluding the $71 million after-tax gains on the global Visa reorganization, the results were in line with the prior quarter.