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Bank of Nova Scotia BNS-T (Scotiabank) shareholders are urging Canada’s No. 3 lender to seriously examine the Mexican consumer banking unit being sold by Citigroup C-N, arguing it would benefit from scaling up in the fast-growing Latin American country.

Markets view Scotiabank as a logical bidder even though Chief Executive Officer Brian Porter downplayed appetite for big deals just a day before Citi announced the sale of Citibanamex, the third biggest retail bank in Mexico.

Acquiring Citibanamex, estimated to be worth $4-billion to $8-billion, would help Scotiabank expand in Mexico, which accounted for nearly a quarter of its international business revenue in fiscal 2021, and 7.6 per cent of total revenue.

“It’s another opportunity to expand outside of Canada, which I’m in favour of,” said Allan Small of Allan Small Financial Group with iA Private Wealth.

“If the assets are made available at the right price, I would not be surprised to see Scotiabank bid for them,” Small added.

Scotiabank had about C$7.5-billion of excess capital at the end of 2021, but Porter said the bank is not considering acquisitions outside of U.S. wealth deals of less than C$900-million ($719-million).

“There aren’t any big files on my desk in terms of buying somebody’s stake in a Mexican bank or anything like that,” Porter said last week at a conference.

A Scotiabank spokesperson declined to comment further.

Expansion in Mexico is not without risks. Scotiabank’s international business, dominated by Mexico, Peru, Chile and Colombia, has disappointed recently as the pandemic hit some markets later and harder than at home.

And the business has historically accounted for most of its impaired loans and writeoffs.

Still, it has helped Scotiabank outperform in other periods. Even in 2021, strength in Mexico and Chile helped offset weakness in the other two markets, and Porter expects them to continue leading growth this year.

With faster economic growth and interest rate increases than Canada, the unit is also expected to drive a recovery in net interest margins.

A deal “would add significant incremental scale that could drive stronger bottom line results within Mexico,” said Edward Jones Analyst James Shanahan.

Limited Canadian growth has driven major banks’ overseas expansion for decades. They have redoubled their efforts after amassing billions of dollars of excess capital during the pandemic, with most focused on the United States.

That has raised some questions about overpaying. Amid concerns about the premium Bank of Montreal paid in its $16.3-billion purchase of BNP Paribas’ U.S. unit last month, executives said it could extract greater efficiencies and better returns than smaller players.

Referring to an analyst estimate that Citi could seek as much $15-billion for Citibanamex, Kingwest & Co Portfolio Manager Anthony Visano said Scotiabank would require “substantial equity financing” to fund such a deal. But its presence in the same markets as Citi would help it achieve better synergies than BMO would in the U.S., and create Mexico’s second-biggest lender by deposits, he said.

“Does it warrant a higher price on the surface? Possibly,” he said. “But they’d be right to be prudent. The key consideration is price.”

Should Scotiabank bid, it could face hefty competition from potential suitors including Mexican entrepreneur Javier Garza Calderon, local billionaire Ricardo Salinas Pliego, Carlos Slim’s Inbursa and Spain’s Banco Santander.

And while Mexican government officials have said they have “no bias” toward foreign or local bidders, President Andres Manuel Lopez Obrador has urged domestic investors to “Mexicanize” the bank.

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