Bank of Nova Scotia Chief Executive Officer Brian Porter said the lender sees the most potential for expansion in Mexico, Peru, Chile and Colombia, countries with economic stability and a rising middle class.
His view puts Latin America back in the forefront for the Toronto-based bank after his predecessor, Richard Waugh, highlighted Asia as offering the best prospects.
“Asia is always going to be important, but our primary focus is really building scale in the four countries,” Porter, 56, said yesterday during an interview at the New York headquarters of Bloomberg News. “We really want to drive growth in those.”
Scotiabank, Canada’s third-largest lender by assets, has operations in more than 55 countries and, according to Porter, gets 42 percent of its profit from outside Canada. Waugh, 66, who retired Nov. 1, said in an interview a week before stepping down as CEO that he expects the bank’s international growth to come from acquiring or building up businesses in Southeast Asia after decades of expansion in Latin America.
Porter said yesterday that Asia “is a more difficult place” to do business because of ownership restrictions, while the four Latin American countries offer “huge potential” for long-term growth.
“These countries have been blessed with very good macro-economic management,” said Porter, who oversaw the lender’s international banking business from 2010 to 2012. “They have great growth potential.”
The four nations are creating and sustaining a middle class that will want to buy cars, houses and set aside money for the future, Porter said. Chile and Peru also are poised to benefit from mining and copper production, which will fuel their economies and trading in the region, he said.
“Peru has been a home run for us,” said Porter, calling the country “the unsung hero of Latin America,” with an economy that’s tripled over the past decade.
Scotiabank shares fell 3 cents to C$63.69 at 4:10 p.m. in Toronto. The shares have climbed 4.2 percent in the past year, the worst performer among Canada’s six biggest banks.
Porter said Scotiabank isn’t interested in expanding into personal and commercial banking in the U.S. as competitors Toronto-Dominion Bank and Bank of Montreal have done.
“The U.S. doesn’t have any interest to us,” Porter said. “The U.S. is a dynamic banking market, but we just don’t think we can get a return for our shareholders.”
Scotiabank shelved plans in 2003 to spend as much as C$3 billion ($2.72 billion) on U.S. retail bank acquisitions after deeming the assets too expensive. Porter said the company briefly revisited the idea after the 2008 financial crisis.
“We did take a look at some U.S. banking businesses during the depths of the crisis, but it didn’t last very long,” he said. “It was out of strategy.”
Scotiabank has completed about C$13 billion of acquisitions since the financial crisis. They include the $1 billion purchase in 2012 of a 51 percent stake in Bogota, Colombia-based Banco Colpatria Red Multibanca Colpatria SA, the largest foreign purchase, and the C$3.1 billion purchase of the Canadian unit of Amsterdam-based ING Groep NV’s online banking platform in November 2012.
In the Caribbean, the Dominican Republic offers the best promise for growth for Scotiabank, which has less than 10 percent market share there, he said. He wouldn’t rule out an acquisition.
“If there were something that was on strategy that looked attractive, we might do something,” Porter said.
Puerto Rico, in contrast, has been “tough” for Scotiabank, he said, adding the lender has no plans to pull out.
“Puerto Rico is now in its seventh year of recession, a contracting economy and a very difficult environment,” Porter said. “Our investment thesis there was, obviously, the recovery would come faster and that Puerto Rico would become a more rational banking market.”
In Canada, Scotiabank is interested in boosting its presence in credit cards, and would consider acquisitions of card portfolios or partnerships with retailers, Porter said. Toronto-based Canadian Tire Corp., the country’s largest sports retailer, said Aug. 8 that it’s seeking a financial partner for its C$4.4 billion MasterCard portfolio.
“I can’t comment about one specific deal, but we’re interested in partnering” with a compatible company, Porter said.
Porter questioned forecasts by international investors including Pacific Investment Management Co. predicting a decline in Canadian housing prices and economic slowdown, which could hurt domestic lenders.
He said a spike in unemployment, more than a drop in home prices, would be the more predictive gauge.
“Whatever way you cut it, it’s going to come down to your unemployment number,” said Porter, who was previously group head of risk and treasury and chief risk officer. “Unless you see that unemployment number escalate by 200, 250, 300 basis points, you’re not going to see much of anything in terms of losses in the Canadian banking system.”
Still, Porter said an economic event such as another financial crisis that leads to a 2 to 3 percentage-point jump in unemployment rates would worry him. Even if that happened, “our business is still profitable,” he said.