Friday, November 07, 2008

Scotiabank Unlikely to Buy a US Bank

The Globe and Mail, Tara Perkins & Heather Scoffield, 7 November 2008

There is little chance that Bank of Nova Scotia will take the plunge and buy a U.S. bank, its chief executive says.

“Especially with what's developed over the last several weeks, it's very unlikely we would have any interest,” CEO Richard Waugh said in an interview Friday.

When the value of U.S. financial institutions began to plummet, Scotiabank was one of the first global banks to dust itself off and go shopping. It took a good look at Cleveland-based lender National City Corp. in the spring.

But the U.S. government's recent decision to inject capital into American banks has nearly knocked Canadians out of the running in the race for U.S. regional assets, Mr. Waugh suggested.

He acknowledges that the cheap prices of U.S. banks did make the idea of an acquisition “intriguing.” Scotiabank had some interest in National City, and was weighing whether it could reap enough value out of a takeover and get the struggling regional lender on strategy, Mr. Waugh suggested.

“But after the middle of September, when the American banks were given substantial amounts of equity from the U.S. government at very attractive rates, that makes it quite academic,” he said.

The U.S. liquidity injections are being carried out through the purchase of preferred shares from the banks.

Late last month, Pennsylvania's biggest bank, PNC Financial Services Group Inc., scooped up National City for $5.2-billion (U.S.). PNC was able to make the move thanks to a $7.7-billion injection from the Treasury's $250-billion recapitalization program.

“My understanding is three American banks showed up with a substantial amount of money from these preferred shares, and they're very attractively priced,” Mr. Waugh said. “We couldn't compete with that.

“We've got to be disciplined, and our access is to the private markets, which we do have access to, but not at the availability and the rates that they have.”

Other Canadian bank and insurance executives have echoed Mr. Waugh's concerns in recent weeks.

For Scotiabank's part, Mr. Waugh said it will continue to seek expansion opportunities in the areas it's already operating in. The company, which is known as Canada's most international bank, has an extensive presence in Mexico and Latin America, and is looking to beef up in Asia.

“We do have significant opportunities in countries we're already in that are not suffering the trials or the tribulations of the United States or Europe, and who have a lot less of the issues,” Mr. Waugh said.

“And we've been there, we understand it, and we think the outlook is good. So, the U.S. and Europe have got a lot to compete against to get our money.”
Financial Post, Jonathan Ratner, 3 November 2008

Bank of Nova Scotia revealed that the earnings contribution from its Mexican operations will be $74-million in the fourth quarter as rising credit provisions more than offset the revenue growth driven by higher assets and deposits, improving margins and solid non-interest revenue growth.

This represents a 6% decline on a quarterly basis and 31% from a year ago, noted Dundee Securities analyst John Aiken.

"Although not a drastic sequential decline, it is illustrative of the slowdown anticipated in Scotiabank’s international operations as many of the countries it operates in will likely be negatively impacted by the U.S. recession,” he said in a research note, adding that the year-over-year decline is more telling.

The analyst expects earnings will continue to be under pressure in coming quarters and said “spiky” provisions for the bank in Mexico and the Caribbean are a real risk going forward.

Mr. Aiken rates Scotiabank a “sell” with a $36 price target.
The Globe and Mail, Tara Perkins, 3 November 2008

Dwindling profits from Bank of Nova Scotia's Mexican operations are illustrative of the slowdown the bank's large international operations could be facing, an analyst said Monday.

Grupo Scotiabank has announced a quarterly profit of $75-million. After being adjusted for Canadian accounting rules, the earnings should contribute $74-million to Scotiabank's fourth-quarter results.

Higher taxes and provisions for bad loans outweighed revenue growth in the Mexican business.

The profits are down 6 per cent from the prior quarter and 31 per cent from a year ago, Dundee Capital Markets analyst John Aiken wrote in a note to clients.

“Although not a drastic sequential decline, it is illustrative of the slowdown anticipated in Scotia's international operations as many of the countries it operates in will likely be negatively impacted by the U.S. recession,” he wrote. “In our opinion, the year-over-year decline is more telling.”

Earnings could remain under pressure in the coming quarters, and spikes could occur in provisions for bad debts, in Mexico and the Caribbean, he said.
Dow Jones Newswires, 28 October 2008

Scotiabank, will continue to expand in its home market as well as emerging markets such as Mexico, rather than making a foray into the U.S. retail banking industry, the company's chief executive said Tuesday.

"We are going to concentrate in the markets we are in such as Mexico, Canada and other emerging markets as we see things right now," said Richard Waugh, the bank's president and chief executive, at a press conference in Mexico City.

"We have chosen not to be in the retail market in the U.S.," he said when asked if Scotiabank would look to buy a U.S. bank.

Scotiabank, Canada's most international bank with operations in 50 countries, has been an active buyer in recent years, especially in Latin America where it has built up a sizable commercial banking franchise across the region.

Scotiabank's purchases include Chile's No. 7 bank, Banco de Desarrollo for $1.02 billion last year; $293.5 million for Costa Rican bank Interfin; $330 million to acquire and merge two Peruvian banks in 2006; and $178 million for El Salvador's No. 4 bank, Banco de Comercio, in 2005.

In Asia, Waugh said Scotiabank plans to raise its stake in Thailand's Thanachart Bank to 49% from about 25% today.

Asked about the recent steps by central banks and governments to recapitalize banks and inject liquidity into the global financial system, Waugh said the measures will work, but the timing of a turnaround is still a big question.

"The problem started 14 or 15 months ago with the subprime crisis in the U.S.," he said. "Underlying that, of course, was housing and housing prices. I think certainly from my view and many many discussions I've had around the world what we need to see is a bottoming out and restoration of housing prices in the U.S."