Scotiabank to Sell Troubled Operations in Colombia, Costa Rica, and Panama
Banking Giant Scotiabank Signs Agreement to Sell Operations in Three Countries
The Bank of Nova Scotia has signed an agreement to sell its operations in Colombia, Costa Rica, and Panama as it looks to boost efficiencies and reorganize its Latin American businesses.
Agreement with Banco Davivienda SA
The foreign operations will be transferred to Banco Davivienda SA, Colombia’s third-largest bank in terms of assets and profits, in exchange for a 20 per cent equity ownership in the ‘newly combined entity,’ the Toronto-based lender said.
"This agreement represents an important step in our execution plan towards sustainable and higher returns across our international banking markets," Francisco Aristeguieta, Scotiabank’s head of international banking, said in a statement on Monday. "Through the combined entity, we will deliver more scale."
Part of Strategic Plan to Allocate Capital
The move seems to be a part of a strategy to allocate more capital to ‘stable, high-return markets’ in North America, which Scotiabank announced in late 2023. The bank is currently looking to allocate a greater share of capital to Canada as well as recycle capital from its Latin American businesses to its corporate business in the United States.
Scotiabank’s Largest International Footprint
Scotiabank has one of the largest international footprints among Canadian banks, with operations in over 50 countries. The bank has been looking to strengthen its presence in North America and reduce its exposure to emerging markets.
Analysts’ Reactions
Gabriel Dechaine, a National Bank of Canada analyst, said that the move was a ‘vend-in of troubled operations’ for Scotiabank and that it was a ‘modest positive’ for the bank. "Colombia, in particular, had been a drag on (Scotiabank’s) bottom line for several years," he said.
John Aiken, an analyst at Jefferies Inc., also commented on the deal saying that it ‘ticks the box’ for Scotiabank’s strategic plan and does not negatively impact its earnings outlook. "We believe that contributions from these countries were minimal at best," he said.
Deal Expected to Close in 12 Months
As part of the transaction, Mercantil Colpatria SA will sell its interest in Scotiabank Colpatria SA in Colombia. The deal is expected to close in 12 months.
"The 20 per cent Davivienda stake could be more profitable to (Scotiabank) than its current position is, considering that its new partner has existing operations in these three countries that should allow it to extract expense synergies," Dechaine said.
Impact on Scotiabank’s Bottom Line
The bank reported net income of $1.7 billion in its previous quarter. The deal is expected to result in an impairment charge of around $1.4 billion during the first quarter of 2025.
Aiken said that the deal does not negatively impact Scotiabank’s earnings outlook. "We believe that contributions from these countries were minimal at best," he said.
Conclusion
The sale of Scotiabank’s operations in Colombia, Costa Rica, and Panama is a significant move for the bank as it looks to reorganize its Latin American business and allocate more capital to North America. The deal is expected to result in an impairment charge but should not negatively impact Scotiabank’s earnings outlook.
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