Bank of Nova Scotia chief executive officer Brian Porter has unveiled a comprehensive global restructuring that caps off his bold first year at the helm of Canada's most international lender.
Since taking the reins in November, 2013, Mr. Porter has moved quickly to alter Scotiabank's international strategy, zeroing in on four specific countries – Chile, Colombia, Mexico and Peru. He has also retooled the bank's wealth management operation by selling a multibillion-dollar stake in CI Financial Corp., a decision that emphasizes the lender's own wealth platform going forward.
His latest move, which includes cutting the work force by 1,500 people and incurring $451-million in one-time charges, is Mr. Porter's biggest to date. After years of acquisitions under former CEO Rick Waugh, Mr. Porter is finally clamping down on costs, firmly putting his stamp on the bank he recently inherited.
The swift restructuring also extends an unusual run of executive turnover at the bank. Before the latest changes were announced, Scotiabank had recently made changes to several top positions including chief risk officer, chief operating officer, capital markets head, wealth management head, and marketing head. The restructuring has now replaced two regional heads as well, one for the bank's Latin America operations, the other for its Mexican business.
Because the changes have come so quickly, analysts and investors have a clear indication of what Mr. Porter wants to do, a level of certainty that often does not come so quickly in a new CEO's term.
However, the charges also raise questions about Scotiabank's growth potential, particularly in its international arm. The latest restructuring included $109-million worth of loan losses in the Caribbean business and a $129-million writedown on an investment in Venezuela.
Although CIBC World Markets analyst Rob Sedran isn't worried about the lender's long-term outlook, "we believe the charges that cover the international banking segment do … highlight a challenging operating environment that seems set to persist for some time."
Mr. Porter said on a conference call Tuesday that the bank's revenue growth has been encouraging outside Canada, but profit has not jumped as much he would like. "The frustration for us across the international footprint is we've had very solid asset growth over the last three or four years, and not all of that has dropped to the bottom line," he said, adding that the bank still has plans to grow in the region.
"If anything, the fact that [Scotiabank] took no extra credit provisions for its operations in Peru, Mexico, Colombia, Chile is an indication that, while currently depressed, these operations aren't facing additional deterioration to the operating environment," Canaccord Genuity analyst Gabriel Dechaine wrote in a note to clients.
Such a large restructuring can seem shocking when Canada's banks are churning out record profit. Scotiabank alone made a record $6.7-billion net income in 2013. But the sector is quietly preparing for a new landscape. In speeches and conference calls, there are signs that a number of the large lenders are fretting about the future.
In particular, bank executives know their industry moves in cycles. After experiencing phenomenal growth for the past few years, they are realizing the need to change gears for the next wave.
"The reality is in a slow-growing economy like the Canadian market, expense management through operational excellence is imperative," Anatol von Hahn, the lender's head of Canadian personal and commercial banking, said during an investor day in April.
Restructuring Scotiabank's staffing will cost $148-million, and the majority of the severance costs will be tied to positions in personal and commercial banking in Canada and abroad. The 1,500 affected jobs amount to a fraction of the bank's total work force of nearly 87,000, and two-thirds of these cuts will be made in Canada.
At home, Scotiabank has been trying to centralize and automate a number of mid-office functions. Outside Canada, the bank will shut or shrink 120 branches, largely in Mexico and the Caribbean, to focus on high-growth markets such as Chile and Colombia. Once made, these changes are expected to save the bank $120-million annually.