The Bank of Nova Scotia said Tuesday that it has struck a deal to sell banking businesses in nine of the smaller countries in the Caribbean, such as Antigua and Dominica, as the lender continues to narrow down the number of international markets in which it operates.
The move comes as Scotiabank, which has said larger markets in Latin America are still very much part of its plans, reported that adjusted profit from its international banking unit grew at a greater rate than that of its Canadian business over the past year.
“Exiting these non-core operations is consistent with a strategy that began five years ago to sharpen our focus, increase scale in core geographies and businesses, improve earnings quality and reduce risk to the bank,” said Scotiabank president and CEO Brian Porter during a conference call Tuesday morning, adding that the bank has now either exited or announced its intentions to exit more than 20 countries or businesses over that same period.
Scotiabank plans to sell the Caribbean businesses to Trinidad and Tobago-based Republic Financial Holdings Ltd., subject to regulatory approvals and closing conditions. Republic Financial said in a release that the purchase price is US$123 million.
Additionally, Scotiabank announced Tuesday that its subsidiaries in Jamaica and Trinidad and Tobago have agreed to sell their insurance operations to Barbados-based Sagicor Financial Corporation Ltd., which would also underwrite insurance products for Scotia’s banking subsidiaries through a 20-year distribution agreement.
That deal would be subject to approvals and conditions, but it is also contingent on Sagicor being acquired by a Toronto-based special purpose acquisition corporation.
Scotiabank said these transactions would not be material, but that they would increase its common equity tier one capital ratio, a measure of financial strength, by around 10 basis points when they close.
“Due to increasing regulatory complexity and the need for continued investment in technology to support our regulatory requirements, we made the decision to focus the bank’s efforts on those markets with significant scale in which we can make the greatest difference for our customers,” said Ignacio Deschamps, the head of international banking at Scotiabank, in a release.
Scotiabank has been on a bit of an acquisition binge over the past year, expanding its wealth management operations as well as in Latin America, where it is forecasting that growth in some countries will outpace Canada. Its deals include the purchase of a majority stake in a bank in Chile from Banco Bilbao Vizcaya Argentaria S.A., turning it into one of the biggest private lenders in that country.
The lender also announced in August that it had reached an agreement to buy a bank in the Dominican Republic, with Porter saying Tuesday that “we expect to remain in our core markets across the Caribbean region.”
National Bank Financial analyst Gabriel Dechaine said in a note that Scotiabank’s outlook emphasized the integration of its purchases, a message he said was “critically important, as executing on $7 billion worth of acquisitions (i.e., deriving synergies) is necessary to drive (return on invested capital) from the mid-single digits to the double-digits over the next few years.”
As well, Scotiabank reported results on Tuesday for the end of its fiscal 2018, which wrapped up Oct. 31. Earnings for the bank were $9.1 billion for the year, up 10 per cent from the year prior, after adjusting for Scotiabank’s acquisition-related costs.
Of that, $4.4 billion came from Scotiabank’s Canadian banking business, an eight-per-cent increase over last year, while another $3.1 billion came from its international banking unit, which was up 17 per cent year-over-year.
In a release, Porter said the international banking results were “driven by our operations in the countries that make up the Pacific Alliance — Mexico, Peru, Chile and Colombia — which experienced double-digit loan and deposit growth, partly reflecting recent acquisitions, positive operating leverage and stable credit quality.”
The fourth-quarter results for the bank came in slightly under analyst expectations, with the lender reporting adjusted earnings per share of $1.77 for the three months ended Oct. 31, which was still up from $1.65 the previous year.
“By and large, the underlying businesses performed well this quarter versus street expectations,” Eight Capital analyst Steve Theriault wrote, adding in a later note that “(t)he divestitures in the Caribbean are not likely the end of the road.”
This article has been republished from www.business.financialpost.com