Scotiabank Seeks to Boost Wealth Earnings to 30% of Profit

Bank of Nova Scotia, Canada’s third-largest lender by assets, seeks to generate 20 percent to 30 percent of total profit from its global wealth and insurance unit in three to five years.

The goal was among four Scotiabank disclosed today during an investor conference in Toronto, where the company is based. The business accounted for 19 percent of the lender’s earnings in the first three fiscal quarters, with 25 percent of that from outside Canada.

The unit is also targeting “organic” earnings growth, which excludes acquisitions, of more than 10 percent, and a return on economic equity of at least 16 percent to 20 percent. Scotiabank seeks to boost contributions from wealth operations outside of Canada to at least 30 percent of the division’s earnings.

“We’re expecting to achieve these through good markets or bad markets,” Chris Hodgson, group head of global wealth and insurance, said in a telephone interview. “But they’re not a slam dunk by any stretch.”

Scotiabank joins Canadian lenders including Toronto-Dominion Bank and Canadian Imperial Bank of Commerce in attempting to expand the share of profit from wealth management as domestic consumer lending slows and investment demands from an aging, affluent population increase.

‘Growth Strategy’

“Wealth and insurance is a very significant growth strategy for the bank,” Hodgson said.

The division can increase earnings in the short term by 10 percent to 15 percent, and more in the medium term, Hodgson said. Additional growth could come through “opportunistic” acquisitions, he said, though the priority is internal growth. Scotiabank has spent more than C$6 billion ($5.8 billion) on wealth acquisitions in the past five years.

Scotiabank seeks to expand in the institutional asset-management business in Canada, Hodgson said, building on its purchase of a 37 percent stake in CI Financial Corp. in 2008 and the takeover of DundeeWealth Inc. in 2011.

Outside Canada, Scotiabank is interested in buying more pension assets, such as last year’s purchase of a stake of Colfondos AFP, Colombia’s fourth-largest pension-fund company, and its April agreement to buy a stake in Banco Bilbao Vizcaya Argentaria SA’s pension-fund management business, AFP Horizonte, in Peru, he said.

‘Eye Open’

“We’ll be keeping an eye open for other assets that may come available, but we’d only do them in markets where we already have a strong banking presence,” Hodgson said. “We’re not going to do it in markets where we have no other presence. It just doesn’t make sense from our perspective.”

Scotia’s global wealth business has C$139 billion of assets under management, C$315 billion of assets under administration and operates in 24 countries, the lender said. The business had C$3.3 billion of revenue for the 12 months ended July 31. Insurance accounted for about C$600 million of revenue for the period, and operates in 30 countries.

Scotiabank President Brian Porter said during today’s conference that he has an “appetite” for acquisitions to build on the lender’s existing businesses.

“There are some markets where we’d like to have additional scale and some product categories where we’re looking to be bigger,” said Porter, 55, who becomes chief executive officer on Nov. 1.

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