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Customers queue up at a Standard Chartered Bank branch in the central business district of Singapore.

EDGAR SU/REUTERS

There's plenty of chatter that London-based Standard Chartered PLC may be sold, and Citigroup analysts are now making a case that Bank of Nova Scotia would be a logical buyer.

Such a transaction would make Scotiabank, which already bills itself as Canada's most international bank, far larger in emerging markets. Standard Chartered is big in areas such as Asia and Africa, and the two lenders combined would get most of its business outside Canada. It would also make Scotiabank the largest bank headquartered in Canada, vaulting past Royal Bank of Canada and Toronto-Dominion Bank.

Citi's analysts wrote in a report on Thursday that they "find the relative lack of discussion on Scotiabank as a potential partner for STAN surprising given that a tie-up could be among the most attractive non-organic options available." The Financial Times recently wrote a story raising the possibility of a takeover, but Scotiabank's name did not come up.

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The strong performance of Canadian bank shares has created a "once-in-a-generation opportunity" for the country's banks to grow internationally. Standard Chartered shares are depressed by a series of stumbles.

The analysts opined that "the combined group would be an international bank spanning all key continents, with a cash-cow Canadian operation generating capital that could organically fund international growth."

The key would likely be regulatory approval. Canada's government and main banking regulator would have to approve any such huge purchase. Would they be comfortable with the risk of a bank based in Canada that is mostly operating globally? That's not clear, as some bank executives have said quietly in past that the regulator may not be want to see a domestic bank with more than half of its business outside Canada.

Scotiabank is already very close to that benchmark, with almost half of both revenue and profit from international operations. Together, the possible bank that Citi dubbed "Scotia Chartered" would get 40 per cent of its revenue from Asia, 30 per cent from Canada and 20 per cent in Latin America. In emerging markets, the merged group would trail only HSBC PLC in size as measured by loans and deposits.

Citi's analysts suggested they believe regulatory issues could be surmounted.

"The Canadian regulator may not be as negative on a Scotia Chartered merger as a U.S. or European regulator may be, given Standard Chartered's geographical presence complements that of Scotiabank and a combined entity would still be smaller than other major international banks. Finally, Canada shares with the U.K. and parts of Asia a Commonwealth heritage that may make cultural issues in a BNS/STAN tie-up easier."

A Scotiabank spokeswoman declined to discuss the Citi report. "As a normal course of business we do not comment on market rumour or speculation."

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