The Bank of Nova Scotia BNS or Scotiabank has agreed to transfer its banking operations in Colombia, Costa Rica and Panama to Davivienda. Further, Mercantil Colpatria will divest its stake in Scotiabank Colpatria in Colombia as part of the deal.
Davivienda, one of the most renowned banks in the Latin American region, has operations in Colombia, Costa Rica, El Salvador, Honduras, Panama and Miami. It caters to more than 24.6 million clients.
Details & Financial Terms of the Scotiabank Deal
Under the terms of the transaction, Scotiabank will acquire roughly 20% equity stake in Davivienda through a combination of freshly issued common and preferred shares. Further, the company will be able to appoint personnel to the board of directors of the combined operations of Davivienda in proportion to its ownership stake.
Moreover, both entities plan to enter into a mutual referral agreement that allows Scotiabank to continue to service Corporate, Wealth and Global Banking and Markets clients across Davivienda's footprint.
The deal is anticipated to be completed in roughly 12 months, subject to requisite regulatory approvals.
Scotiabank will recognize an after-tax impairment loss of roughly C$1.4 billion in the first quarter of fiscal 2025. This will likely reduce the bank’s common equity tier 1 (CET1) ratio by nearly 10-15 basis points (bps). Also, the company anticipates recording an additional loss of C$300 million upon closure on account of cumulative foreign currency translation losses.
Rationale Behind BNS’ Move
The move aligns with Scotiabank’s five-year plan and will help boost profitability across its international banking markets. The bank aims to enhance its operational efficiency in its non-core markets and reinforce its strategic focus on creating a connected value proposition that prioritizes clients across its growth markets in the North American corridor and Latin America.
The deal will be neutral to BNS’ capital with a potential increment to earnings in the upcoming years, with an enhanced simplification of the business operations. At closing, the company’s CET1 ratio is estimated to increase by 10-15 bps on the back of a reduction in risk-weighted assets.
Francisco Aristeguieta, Group Head, International Banking, Scotiabank, stated, “With this agreement, we advance our execution plan towards sustainable and higher returns across our International Banking markets.”
Aligning with its pivot North America strategy, BNS recently completed its equity investment in Cleveland, OH-based KeyCorp KEY. The company holds a 14.9% stake in KEY for an almost $2.8 billion investment.
Scotiabank’s Zacks Rank & Price Performance
Shares of BNS have risen 18.8% compared with the industry’s 3.5% growth in the past six months.
Image Source: Zacks Investment Research
BNS currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Restructuring Initiatives by Other Finance Firms
Last month, Toru Nakashima, CEO of Sumitomo Mitsui Financial Group, Inc. SMFG, in an interview with Bloomberg said that Japan’s SMFG seeks to strengthen its alliance with Jefferies Financial Group Inc. JEF to expand into new areas such as equity trading to enhance its global business.
Nakashima mentioned that SMFG hasn’t been able to benefit from relationships with U.S. corporate clients, given the weakness in equity underwriting. This alliance aims to resolve this by combining SMFG’s massive balance sheet and debt capital markets expertise with JEF’s significant experience in mergers & acquisitions advisory and equity financing services.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
