Scotiabank was selected as the winning bidder to buy a 20 percent stake, the Toronto-based company said in a statement today. It expects to complete the deal in December. The transaction, which is subject to regulatory approval, will add to earnings next year, it said.
Scotiabank’s fifth-biggest acquisition would give it funds as well as corporate and treasury operations in China as it seeks to develop consumer banking and wealth management in the world’s fastest-growing major economy. The Canadian lender, which has had operations in the Asian nation for 29 years, has spent about $2 billion on foreign acquisitions in the last five years.
“We really like the footprint of this bank,” Brian Porter, group head of international banking, said today in a telephone interview. “It’s in an exciting region in China.”
Scotiabank fell C$1.18, or 2.2 percent, to C$51.63 in 4 p.m. trading on the Toronto Stock Exchange. The shares have fallen 9.6 percent this year, compared with a 4.8 percent drop on the 10-stock S&P/TSX Banks Index.
Bank of Guangzhou, which has 84 branches, is No. 29 among lenders in China, Scotiabank said. The city of Guangzhou is China’s third-largest after Shanghai and Beijing, with a population of more than 11 million people and gross domestic product of 1.06 trillion yuan ($166 billion) last year, it said.
“If you’re a bank with international interests, it’s absolutely compelling to get a foothold in China,” said Jim Antos, a financial analyst at Mizuho Securities Co. in Hong Kong. “A key part of Bank of Nova Scotia’s long-term strategy seems to be to pursue international investments. With a stake in this bank in Guangzhou, which is a vibrant part of the Chinese economy, they’re plugging a missing link.”
The lender has operations in Guangzhou, Chongqing, Shanghai, Hong Kong and Taipei. Last year, the bank and partner Thanachart Bank paid C$2.2 billion purchase for Thailand’s Siam City Bank Pcl and the bank will hold a quarterly board meeting this year in Thailand.
Scotiabank is also awaiting regulatory approval to increase its stake in China’s Bank of Xi’an to more than 18 percent from 14.8 percent, Porter said. Foreign banks can own two 20 percent stakes in Chinese banks, he said.
Scotiabank reported third-quarter profit that topped analysts’ estimates, led by its international business. Net income for the three months ended July 31 rose 22 percent to C$1.29 billion, it said Aug. 30. That was the eighth straight quarter of earnings growth.
The bank, which has operations in 50 countries including Mexico and Thailand, said profit from international banking climbed 27 percent to C$350 million on increases in commercial lending and higher consumer loans in Chile and Peru.
“We believe its presence in Asian and emerging markets (Latin America) helps to provide a growth engine for BNS that is unique among the Canadian banks,” KBW analyst Brian Klock said today in a note to investors.
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