Scotiabank Q4 profit up, submits $2.9-billion offer for Chilean bank

The Bank of Nova Scotia is aiming to double its market share in Chile with a $2.9-billion offer to buy a majority stake in a Chilean bank, a move which comes as the Canadian lender posted a modest profit gain in its latest quarter.

Scotiabank said Tuesday it has submitted a binding offer to acquire Banco Bilbao Vizcaya Argentaria, S.A.'s (BBVA) interests in its Chilean banking operation, BBVA Chile, and certain subsidiaries.

If the deal goes through, it would double Scotiabank's market share in Chile to roughly 14 per cent and make the Canadian lender the third-largest non-state owned bank in the country, it added.

The bank said the transaction is in line with its strategy to increase its scale within the Chilean banking sector and the high-growth Pacific Alliance countries, which also includes Mexico, Peru and Columbia.

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Scotiabank has been investing in region in recent years, with the aim of cashing in on the relatively low banking rates.

'A good fit'

"This is a high-quality asset bank," Scotiabank's president and chief executive Brian Porter, told analysts on a conference call. "It's very well run... We think it's a good fit of assets, and will be a good fit of people and technology."

BBVA owns 68.19 per cent of BBVA Chile which has $29 billion in assets and has 4,000 employees at 127 branches and the Said family owns 31.62 per cent. Scotiabank added that BBVA is willing to accept the deal if its minority partner, the Said family, does not exercise its right of first refusal under a shareholders agreement.

The $2.9-billion offer came hours before Scotiabank posted fourth-quarter earnings of $2.07 billion in net income or $1.64 diluted earnings per share for the three months ended Oct. 31, up from $2.01 billion or $1.57 during the same time last year.

The quarter was helped by Scotiabank's Canadian and international banking business segments, which saw net income attributable to shareholders rise by 12 per cent and 11 per cent, to $1.07 billion and $605 million, respectively. However, this was offset by a 15 per cent drop in fourth-quarter net income in its global banking and markets division to $391 million, the bank said.

Scotiabank's provision for credit losses, or money set aside for bad loans, was $536 million, down from $550 million in the same period a year earlier.

Shares down

"Overall, we had been anticipating a weak close to the capital markets year for the group and, at least so far, that is what we have gotten," said CIBC analyst Robert Sedran in a note to clients. "Soft revenues held back the results this quarter."

Shares of Scotiabank slipped just overtwo percent to close at $81.73 in Toronto.

Even with the modest earnings bump in the latest quarter, the bank reported a nearly 11 per cent increase in net income for the fiscal year to $8.24 billion up from $7.37 billion a year earlier. Return on equity rose to 14.6 per cent, up from 14.3 per cent a year earlier. Scotiabank's diluted earnings per share for the 2017 fiscal year rose eight per cent to $6.49, compared to $6 in 2016.

And its key measure of financial health, the common equity tier 1 ratio (CET1), increased to 11.5 per cent, up from 11.3 per cent in its third quarter and 11.0 per cent in the fourth quarter last year.

That strong ratio gives Scotiabank the "optionality" to deploy its capital in various ways, including acquisitions, Porter said.

If the transaction to acquire all the shares of BBVA Chile is completed, Scotiabank's CET1 would be reduced by approximately 135 basis points, it said.

If successful, Scotiabank expects to settle the transaction during its first quarter, which ends on Jan. 31, and close the deal in the summer of 2018, bank executives said.