TORONTO - The Bank of Nova Scotia is doubling down on Chile with a $2.9-billion offer to buy a majority stake in a Chilean bank, as the Canadian lender's latest quarterly profits rose despite a drop in trading revenues, natural disasters and a flying loonie.
Scotiabank (TSX:BNS) 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 Colombia.
"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," he said. "We think it's a good fit of assets, and will be a good fit of people and technology."
BBVA owns about 68 per cent of BBVA Chile — which has $29 billion in assets and has 4,000 employees at 127 branches — and its minority partner, the Said family, owns about 32 per cent. Scotiabank added that BBVA is willing to accept the deal if 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.
Canada's third-biggest lender was the first of the country's biggest banks to report its fourth-quarter earnings. Scotiabank posted net interest income, or the profit generated from loans, of $3.83 billion, up five per cent from a year earlier. Adjusting for the negative impact of foreign currency translation, fourth-quarter net interest income grew seven per cent.
Scotiabank's latest quarter was helped by its Canadian banking division, with net income attributable to shareholders up by 12 per cent to $1.06 billion. Its international banking division saw an 11 per cent rise in net income to $605 million during the period, even amidst a string of natural disasters including hurricanes in the Caribbean and an earthquake in Mexico.
Still, these profit bumps were offset by a 15 per cent drop in fourth-quarter net income in its global banking and markets division to $391 million.
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.
"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 were down as much as 2.45 per cent on Tuesday to $81.43 in early morning trading in Toronto.
Even still, 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. Scotiabank's diluted earnings per share for the 2017 fiscal year rose eight per cent to $6.49, compared to $6 in 2016.
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. Scotiabank's chief financial officer Sean McGuckin told analysts that he expects the CET1 ratio to stay above 10.5.
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.
Scotiabank shares fell on news of the proprosed deal to $1.75, or 2.10 per cent, to $81.73 at the closing of markets.