Thursday, August 09, 2007

Scotiabank's Rumoured Interest in Chile's Banco del Desarrollo

  
Business News Americas, 9 August 2007

Scotiabank will over the next month launch a tender offer to take over Chile's Banco del Desarrollo in a deal worth some US$1bn, local press reported.

The tender offer will be launched after the due diligence process, which could take a month to complete, Diario Financiero reported.

Scotiabank will then offer US$1bn in cash to shareholders, the paper said.

Local investment company Inversiones Norte Sur holds a controlling 39% stake in Banco del Desarrollo. Credit Agricole, Italy's San Paolo, IIC and microfinance institution Oikocredit hold a combined 46% stake.

Banco del Desarrollo is Chile's seventh largest bank with a 3.9% loan market share. The deal would take Scotiabank Sud Americano to sixth spot from 11th today, reaching a 6.4% market share.
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Business News Americas, 8 August 2007

Canada's Scotiabank is likely to announce the purchase of Chile's Banco del Desarrollo over the next few days, sources told BNamericas.

Given Banco del Desarrollo's complex shareholders structure - which also includes Credit Agricole, Italy's San Paolo, IIC and microfinance institution Oikocredit - talks at this point revolve around the final shape of a new shareholders pact.

Scotiabank valued 100% of Banco del Desarrollo's shares at slightly above US$1bn.

Local investment company Inversiones Norte Sur holds a controlling 45% stake in Banco del Desarrollo.

A group of Scotiabank executives led by Scotiabank retail banking VP for Latin America and the Caribbean Jim Louttit and former Scotiabank Sud Americano commercial manager Jeremy Pallant have been in Santiago since Monday discussing the final details of the deal.

Scotiabank has repeatedly said it is looking for acquisitions to grow in Chile, where it currently commands a 2.5% loan market share.

SME-oriented Banco del Desarrollo is Chile's seventh largest bank with a 3.9% loan market share. The deal would take Scotiabank Sud Americano to sixth spot from 11th today in terms of market share.

"The deal would allow us to increase cross-selling and strengthen our position in segments where Banco del Desarrollo is strong, such as mortgages," a Scotiabank Sud Americano source said.

Over the last year, the bank has been strengthening its position in Latin America through purchases in Costa Rica and Peru.

Two recently failed takeover deals in Central America have left Scotiabank with fresh funds to carry out additional acquisitions in the region, BNamericas previously reported.

Spokespersons from Credit Agricole and Oikocredit declined to comment when contacted by BNamericas.
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Financial Post, Sean Silcoff, 3 August 2007

Canada's most international bank appears set to plant another flag in a far-flung locale. Bank of Nova Scotia, which derives 30% of income from international operations, isn't looking to buy something in the United States or any of the high-growth BRIC countries (Brazil, Russia, India and China).

No, that would be too obvious. Besides, it's not Scotiabank's style.

Instead, it is considering a US$450-million purchase of a control stake in Chile's Banco del Desarrollo, according to local reports (the bank declined to comment).

That would vault its standing in Chile, where it already owns the country's 11th-largest bank, all the way up to sixth.

Scotiabank's international strategy has never been one to excite those with dreams of global domination. If you want to know about opportunities in Russia or India -- forget it. If you'd like to see a nice map of El Salvador, well, check the slides of a recent investor presentation on the bank's Web site.

Last year, Scotiabank spent more than $1-billion on acquisitions in El Salvador, Peru, Costa Rica and Dominican Republic. That would be the ESPCRDR countries that you don't read about nearly as often in the financial press, and just a few of the 40 countries where Scotiabank operates globally. More than one-third of its 58,000 employees greet customers by saying "Hola."

Scotiabank's big Asia play is not in China (where it has opened a branch in Shanghai), but Thailand, where it bought a 24.99% stake in Thanachart bank -- the country's eighth-largest -- this year for $240-million.

And Scotiabank's biggest investment outside Canada is in Mexico, a has-been among up-and-coming developing nations, and a place where the banks are even less popular than in Canada, prone to the occasional bomb attack. And don't forget that Scotiabank bolted from Argentina during the financial crisis of 2002, taking a $540-million writedown.

But since then, Scotiabank's strategy of expanding in underdeveloped banking markets with young populations and good growth prospects has been a happy story: Earnings in the international division have risen faster than its domestic retail and capital markets businesses in the past four years and now account for 30% of profits, $609-million in the first half of this year. The bank has long followed a strategy of buying a small stake in a small bank in a new country, learning about the market, then bulking up to become one of the top domestic banks. Usually, it works. For much of the past decade, Scotiabank has been one of the world's top-performing banks for shareholders.

That track record has been overshadowed of late. A booming domestic economy has fuelled strong growth at all the Canadian banks. Unfortunately for Scotiabank, its retail and wealth-management operations at home are the smallest of the Big Five, meaning others have enjoyed the attention and big gains, notably Royal Bank of Canada.

"With the domestic retail business firing on all cylinders, Scotia doesn't stand out because its retail business in Canada is smaller," said Genuity Capital Markets analyst Mario Mendonca.

A deal in Chile here and investment in Mexico there may not be a big story now, but wait until the Canadian economy succumbs to gravity. Certainly the retail loan business here can't continue to grow at 8% to 10% forever (the long-term average is 6%).

At that point, investors will ask what else the banks have to offer. The answer, outside Canada, is not much. Scotiabank's peers have largely focused on the United States, with mixed results. Scotiabank, on the other hand, has always had wanderlust --it had a branch in Kingston, Jamaica, before Toronto. There will always be risks with investing in developing countries, and the fact the 434-branch Grupo Financiero Scotiabank Inverlat in Mexico accounts for 12% of the bank's profit and is the focus of its expansion efforts won't exactly help investors sleep better. But when the bloom comes off the Canadian economy, "the growth outside Canada will take centre stage, and that is when a bank like Scotia will really stand out," Mr. Mendonca said.
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Business News Americas, 2 August 2007

Two recently failed takeover deals in Central America, one in Guatemala, have left Canada's Scotiabank with fresh funds to carry out additional acquisitions in the region, sources told BNamericas.

Over the last year, the bank has been strengthening its position in Latin America through purchases made in Costa Rica and Peru.

Guatemala, the largest economy in Central America, is seen as the next battleground for large foreign banks such as Scotiabank, Citi and HSBC, which are already placing their bets in the region.

However, the high prices asked by local players - which control most of the country's two dozen banks - are seen as the biggest hurdle for M&A activity.

Scotiabank is reportedly in talks with the controllers of Chile's Banco del Desarrollo, local investment company Inversiones Norte Sur, to acquire their 45% stake in the bank.

While the Chilean bank on Wednesday admitted both local and foreign banks had expressed interest, it denied it had received a concrete proposal or reached an agreement to divest part of its ownership.

Sources, however, say the deal is imminent and set the price at around US$1bn.

Scotiabank's CEO Rick Waugh visited Chile last month and local bank executives were surprised he did not have a predefined agenda for his three-day visit, sources said.

Scotiabank has repeatedly said it is looking for acquisitions to grow in Chile, where it currently commands a 2.5% market share.

SME-oriented Banco del Desarrollo is Chile's seventh largest bank. The deal would take Scotiabank's Chilean unit, Scotiabank Sud Americano, to sixth spot from 11th today in terms of market share.

The remaining shares in Banco del Desarrollo are held by Credit Agricole, Italy's San Paolo, IIC and Dutch microfinance institution Oikocredit.
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Business News Americas, 1 August 2007

Chile's seventh largest bank Banco del Desarrollo on Wednesday denied it received a proposal or reached an agreement to divest part of its ownership, as local press had reported.

Santiago daily El Mercurio had reported Canada's Scotiabank was in talks with the controllers of Banco del Desarrollo, local investment company Inversiones Norte Sur, to acquire their 45% stake in the bank.

While the bank's recent growth has sparked interest from both local and foreign players, these talks have not translated into proposals or formal agreements, Banco del Desarrollo chairman Vicente Caruz said in a statement.

The remaining shares in Banco del Desarrollo are held by Credit Agricole, Italy's San Paolo, IIC and Dutch microfinance institution Oikocredit.

SME-oriented Banco del Desarrollo was one of the three Chilean banks recently cited by Moody's as attractive acquisition targets due to its niche and product expertise and client penetration.

Banco del Desarrollo had a 3.93% market share as of end-June.

Scotiabank unit Scotiabank Sud Americano has a 2.52% market share.

A Scotiabank spokesperson declined to comment when contacted by BNamericas.
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Business News Americas, 1 August 2007

Canada's Scotiabank is in talks with the controllers of Chile's Banco del Desarrollo to acquire its 45% stake in the bank, Chilean daily El Mercurio reported.

Banco del Desarrollo is controlled by local investment company Sociedad de Inversiones Norte Sur. Scotiabank offered three times the book value for the stake, El Mercurio said.

The remaining shares in Banco del Desarrollo are held by Credit Agricole, Italy's San Paolo, IIC and Dutch microfinance institution Oikocredit.

According to El Mercurio, Scotiabank will have to launch a tender offer for Inversiones Norte Sur's stake due to an existing shareholder agreement with the bank.

SME-oriented Banco del Desarrollo was one of the three Chilean banks recently targeted by Moody's as attractive acquisition targets due to its niche and product expertise and client penetration.

The bank is Chile's seventh largest, with a 3.93% market share as of end-June.

Scotiabank unit Scotiabank Sud Americano has a 2.52% market share.

Neither Scotiabank nor IIC spokespersons were immediately available for comment when contacted by BNamericas.
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