Thursday, March 29, 2007

Scotiabank Expands in Thailand & Turkey

Dow Jones Newswires, Monica Gutschi, 29 March 2007

Bank of Nova Scotia is increasingly focused on opportunities in Asia, officials said Thursday in announcing the purchase of a small stake in a Thailand bank.

"The Asia-Pacific region has always been an important market for us," said Luc Vanneste, Bank of Nova Scotia's chief financial officer. "We are currently focused on extending our reach there."

The area's favorable demographics and growing economies make it an attractive place to invest, Vanneste said. What's more, local governments are becoming more welcoming of foreign investment, and have strengthened banking regulations. Bank of Nova Scotia already has operations in 11 countries in the region.

"Asia has become an area of focus for us," he said.

Earlier Thursday, Bank of Nova Scotia announced it had taken a 24.99% stake in Thanachart Bank for the equivalent of C$240 million (US$207 million).

It also has an option to raise its ownership to 49% by the end of the year if pending banking legislation is approved by the Thai parliament.

The initial deal is expected to add 3 Canadian cents a share to earnings in the third year, will have no impact on the bank's Tier 1 capital ratio. If the bank takes a 49% ownership, earnings accretion would double, said Tim Hayward, the bank's head of international acquisitions.

The transaction is expected to close by the end of June.

The move in Thailand comes shortly after Bank of Nova Scotia announced a minority investment in Bank of Dalian in China and highlights the bank's growing interest in Asia.

Vanneste said Thailand has a young and developing middle class, a consumer market twice the size of Canada's, and an improving banking industry. Bank of Nova Scotia has had a small presence since 1981, and its local branches will be sold to Thanachart.

Although Thailand has been politically unstable in recent years, Vanneste said the political risk is manageable, and its credit rating is similar to that of Mexico's, where Bank of Nova Scotia has a large presence.

"This is the next step in our long-term Asian strategy," Vanneste said.

Analysts said the deal is consistent with Bank of Nova Scotia's international strategy, and its policy to purchase attractive assets at a good price. The Thanachart buy was made at 1.6 times book value.

"Given the history of BNS operating in less than stable economies (and its desire to build its Asian platform), we believe the market will be supportive of this deal," BMO Capital Markets analyst Ian de Verteuil said in a note.

In Toronto, Bank of Nova Scotia is up 18 Canadian cents to C$53.80 on volume of 1.2 million shares.

Thanachart is Thailand's eighth-largest bank, with C$9.1 billion in assets and a 3% market share. It has a strong niche in consumer finance, and is the country's largest automotive financer. It holds more than 500,000 auto loans, giving it a 24% share of the new-car market.

The bank has also been rapidly expanding its branch network and its desire to grow even faster brought it to Bank of Nova Scotia, said Rob Pitfield, head of the bank's international unit. "They chose us because of the experience we've had" building retail banks internationally, he said.

Thanachart Bank, which is majority held by Thanachart Capital, increased its assets by 32% in 2006 and plans to continue growing aggressively, Hayward said.
Dow Jones Newswires, 29 March 2007

Bank of Nova Scotia's latest international foray is a little unusual, notes BMO Capital Markets. Thailand's Thanachart Bank has weak ROE and most of loan book is auto-loans, not the usual profile for BNS. On other hand, firm says, purchase price of 1.4x book value is attractive, and BNS has strong history of improving results at entities it takes under its wing. BNS to take 25% in Thanachart for C$240M, with option to increase ownership to 49%.
Financial Post, Jonathan Ratner, 29 March 2007

Bank of Nova Scotia continues to invest in its global banking business, with the launch of an office in Turkey and the purchase of a minority interest in Thailand’s top car loan company as its most recent moves.

Scotiabank is buying a 25% stake in Thanachart Bank for roughly US$203-million.

It’s plans in Istanbul, Turkey, while unlikely to have a significant financial impact in the near-term, according to Blackmont Capital analyst Brad Smith, reflects the confidence Scotiabank has in banking opportunities in Eastern Europe and elsewhere.

The bank’s past international initiatives collectively contribute more than 30% to Scotiabank’s revenues and earnings, Mr. Smith said in a note to clients.

He noted that Turkey’s Gross Domestic Product is 60% the size of Canada’s and the move should open doors for some of the bank’s other units, such as oil and gas specialist Scotia Waterous and precious metals trading group Scotia Mocatta.

Mr. Smith maintained his ‘buy’ recommendation and $61 price target on Bank of Nova Scotia shares, which represents upside of 13.7% from Wednesday’s close of $53.63.

Scotiabank, which operates in 11 countries in the Asia-Pacific and Middle East regions, says it has made seven international acquisitions in the past 18 months.

Last week, the bank signed a cooperation deal with Bank of Dalian Co. Ltd. as it pursues a strategic partnership and minority investment in China’s seventh-largest city commercial bank.