Scotiabank sign outside Bank of Nova Scotia building at King St. West and Bay St. in downtown Toronto.Fred Lum/The Globe and Mail
Bank of Nova Scotia has confirmed that it is exploring strategic options for its stake in a Thai bank, following a report by Bloomberg News suggesting that Scotiabank is considering selling it.
"As part of a strategic shift in the direction of Scotiabank's Asia Pacific operations, led by the realignment of regional operations under the global banking and markets business line, Scotiabank may consider strategic options for its 49-per-cent stake in Thanachart Bank Public Co. Ltd.," Scotiabank said in a statement on Friday morning.
"No final decision has been made with respect to this investment."
Scotiabank bought an initial 25-per-cent stake in Thanachart in 2007 for $240-million, as part of an ambitious global expansion. It raised its interest in the Thai bank to 49 per cent two years later, the maximum ownership stake permitted, exposing Scotiabank to Thailand's rising level of affluence in recent years.
Thanachart now has a carrying value of $2.4-billion, according to Scotiabank.
Peter Routledge, an analyst at National Bank Financial, believes that Scotiabank is highly unlikely to sell its stake for more than this amount. If a sale did occur, he expects the proceeds would drive up the bank's common equity tier one ratio – a measure of financial strength watched by regulators – only slightly.
"The rather modest improvement in Scotiabank's capitalization signals to us that the rationale of any divestiture of Thanachart would stem from Scotiabank's intention to re-orient its geographic footprint, and not from a need to free-up capital," Mr. Routledge said in a note.
Indeed, analyst believe that if Scotiabank decided to part with some or all of its stake, the apparent shift in strategy could be far more significant than the price tag.
"While no final decision has been made, we believe that this may be a signal that Scotia's international banking focus has shifted to concentrate on the Americas," John Aiken, an analyst at Barlcays Capital, said in a note.
Scotiabank has been vocal about its interest in Latin America under the leadership of chief executive officer Brian Porter, who has said that the bank is particularly focused on the Pacific Alliance trading bloc of Chile, Colombia, Mexico and Peru, markets prized for their relative economic and political stability.
"What we have said is, we are invested in the geographies that have stability, good demographics, a history of regulation and good central bankers – and that's the Pacific Alliance countries," Dieter Jentsch, group head of international banking at Scotiabank, said in September.
The bank's stock has been lagging its Canadian peers, though, under the impression that Scotiabank is essentially a play on all emerging markets, which have struggled with shifting U.S. monetary policy, low commodity prices and volatile currencies.
According to the World Bank, Thailand's economic growth slowed to just 0.9 per cent in 2014, with only a slight acceleration expected over the next couple of years.
In its statement on Friday, Scotiabank said that it continues to maintain a good working partnership with Thanachart Capital Public Co. Ltd., or TCap, which owns the other 51 per cent of Thanachart.
"TCap is aware of Scotiabank's consideration of strategic options and is open to considering proposals that are also in the interest of TCap and TBank's customers, employees, shareholders and regulators," Scotiabank said.
The lender expects that its global operations will eventually drive about half of the bank's profit. In fiscal 2015, its international banking division reported a profit of $1.85-billion, or about 26 per cent of the total for the year.
David Berman