Bank of Nova Scotia is reportedly eyeing a stake in a mid-size Hong Kong bank, a deal that would boost its presence in Asia after being rebuffed by the Chinese government in a recent acquisition.
The target, Wing Hang Bank Ltd., disclosed in September that two shareholders that collectively own 45 per cent, the Fung family and Bank of New York Mellon Corp., had been approached about selling their positions. Speculation quickly emerged that the likes of Australia and New Zealand Banking Group were potential buyers.
A new report from Bloomberg News suggests the list of interested parties has narrowed, and that Scotiabank is in the mix. Its competitors likely include Beijing-based Anbang Insurance Group and Singapore's OCBC. Scotiabank, Canada's most international lender, declined to comment when asked about any interest.
Wing Hang's appeal is plain to see. The bank makes just over half of its profits from risk-averse retail operations and it has operations in Hong Kong, Macau and mainland China. Its home base, Hong Kong, will likely become an international centre for the yuan. Wing Hang has a market value of $4.5-billion (U.S.).
Scotiabank is keen on expanding in Asia, despite the political interference that stifled its efforts to acquire a 20-per-cent stake in Bank of Guangzhou. The region already generates about 10 per cent of the lender's international banking revenues, and the bank is keen on diversifying its geographic mix after investing heavily in South America over the past five years.
Scotiabank's existing presence in Asia includes a well-respected trade finance business and 49-per-cent stake in Thailand's Thanachart Bank.
But it's unclear whether Wing Hang meets Scotiabank's acquisition criteria. The bank typically prefers to acquire a small minority stake in a target, get on the board of directors and then determine whether management should invest more. Scotiabank is also averse to overpaying in auctions. "Should the process move to a competitive auction, [the bank's] historical pricing discipline could make it less motivated than other bidders," Barclays Capital analyst John Aiken wrote in a note to clients.
Scotiabank ultimately may not be interested in Wing Hang. Similar media reports surfaced when Citizens Bank, the U.S. retail banking arm of Royal Bank of Scotland, was apparently up for sale. Toronto-Dominion Bank was rumoured to be in the running and speculation snowballed until TD chief executive officer Ed Clark poured cold water on the prospects – at least for the time being.
Scotiabank executives have already stressed their interest in expanding in the region. "Asia is a longer-term focus," Barb Mason, executive vice-president of wealth management, said at the bank's investor day earlier this fall. Scotiabank already has an asset management joint venture with Bank of Beijing, and Thanachart has mutual fund and brokerage businesses.
Yet the extent to which Scotiabank will branch away from its commercial roots in the region is unclear.
"Our concentration in Asia is largely in wholesale banking capital markets," Wendy Hannam, executive vice president for Latin America said at a recent conference. "That's where we're known in Asia and that's where we have built some expertise and some market relationships."
Ms. Hannam noted that there are exceptions such as its personal and commercial bank in Thailand, but added that "our focus in Asia will continue to be primarily corporate relationships."