Bank of Nova Scotia has struck a deal to sell its banking and insurance operations in El Salvador as the lender continues to concentrate its international footprint.
The agreement announced Friday will see Scotiabank El Salvador, its subsidiaries and Scotia Seguros sold to Imperia Intercontinental Inc., which is the main shareholder of Banco Cuscatlan SA and Seguros e Inversiones SA in El Salvador. Scotiabank expects to take an after-tax loss of $170-million on the sale, most of which represents a writedown on goodwill – an intangible asset tied to a company’s value. The loss will be recorded in the bank’s second fiscal quarter this year.
For years, Scotiabank has been shedding businesses it considered non-core. The divestitures aim to focus the bank’s international operations on its core Latin American markets of Mexico, Peru, Chile and Colombia, and to free up capital after the bank spent nearly $7-billion on major acquisitions last year. Scotiabank bulked up in Chile, taking a majority stake in Banco Bilbao Vizcaya Argentaria SA’s retail-banking business for $2.9-billion, then bought Canadian money managers M.D. Financial Management and Jarislowsky Fraser Ltd. for a combined $3.5-billion.
In a statement, Ignacio Deschamps, Scotiabank's group head of international banking and digital transformation, said the deal with Imperia "is in the best interest of our customers, employees and shareholders."
Late in 2018, Scotiabank announced it was selling its operations in nine Caribbean countries, its insurance businesses in Jamaica and Trinidad and Tobago, and its pension and insurance businesses in Dominican Republic. Scotiabank has said it intends to remain in some key Caribbean markets, such as Barbados and Jamaica.
The bank expects the cumulative effect of those divestitures, after the $170-million loss on the El Salvador transaction, will be an after-tax gain of $250-million. More importantly, Scotiabank anticipates the deals will boost its common equity Tier 1 (CET1) capital ratio – a key measure of a bank’s health – by a total of 25 basis points as it rebuilds capital reserves following last year’s acquisition streak. (100 basis points equal one percentage point).
The sale in El Salvador, which is subject to regulatory approval and closing conditions, is expected to boost Scotiabank’s CET1 ratio by six basis points. As of Oct. 31, Scotiabank’s CET1 ratio was 11.1 per cent, down from 12 per cent as of Apr. 30 last year but still well above regulatory minimums.
The bank will report first-quarter earnings for 2019 on Feb. 26.
At a conference in January, Scotiabank chief executive officer Brian Porter said the bank’s capital rebuild plan “is happening faster than we had anticipated,” adding: “Before you know it, our capital level’s back to where it started.”