Bank of Nova Scotia's decision to sell the majority of its stake in CI Financial Corp. is benefitting the bank more than originally thought.
At first Scotiabank said it would recognize a $400-million gain, after tax, from selling its shares for much more than their book value. Now the bank says it will generate another $150-million gain stemming from a read of certain accounting rules.
Originally Scotiabank owned 38 per cent of CI, but because the lender now owns less than 20 per cent, it is reclassifying the remaining 22 million shares as 'securities held for sale.' In doing so, the bank can mark this position to market, meaning the shares can be revalued to reflect where they trade in the market.
Depending on how CI's stock continues to trade, this means Scotiabank may not be able to book another gain when it finally sells these remaining shares – or may even have to report a loss on the sale.
While the share sale initially generated plenty of hoopla, the deal has benefited almost everyone involved. Scotiabank will book a large $550-million profit boost; CI finally gets the freedom it has long wanted; and GMP, one of the lead underwriters for the share sale, reported a strong quarter Friday, helped in large part by the CI offering.