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If Brian Porter wants to acquire a majority stake in CI Financial, he must buy all of the company under a poison pill clause.

FERNANDO MORALES/The Globe and Mail

For Brian Porter, the new head of Bank of Nova Scotia, the priority is making the deals the bank has already done really perform for shareholders. One of these days, though, he is going to have to make the call on the big transaction that has not been done – buying the rest of CI Financial.

Mr. Porter is just breaking in his new chief executive's chair at Scotiabank. In the lead up to taking over from Rick Waugh, Mr. Porter broadcast clearly what he wants to do first. The bank has laid out billions to buy assets at home and abroad, and he will want to jack up the returns from businesses such as Banco Colpatria in Colombia and ING Direct (now known as Tangerine) here in Canada.

To that end, for example, the wealth management business acquired with DundeeWealth Inc. is being retooled to offer a broader fund lineup more in line with the times.

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Those are easy decisions. CI is not. CI is Canada's largest independent mutual fund company and Scotiabank owns 37 per cent. Buying the rest would cost something like $7-billion, factoring in an acquisition premium of 20 per cent or so.

The calculation is not nearly so simple as cutting a very large cheque and working out the math on earnings accretion. The question facing Mr. Porter could easily one day be a business school case study.

He has the luxury of a successful minority investment in CI, which has risen in value and performs very well as an operating company. CI now accounts for a significant chunk of Bank of Nova Scotia's wealth management earnings in Canada, as Scotiabank consolidates its share of CI's profits and revenue.

How do regulators thank Bank of Nova Scotia for such acumen? By demanding a deduction from the bank's capital (all minority interests get this treatment) which makes it tougher to hold CI in its current form. The regulators, under Basel III rules, want to encourage banks to hold more liquid and stable capital. They probably didn't have successful investments such as CI in mind, but CI gets caught nonetheless.

Scotiabank can eliminate the deduction and free up capital by purchasing a majority of CI. Under CI's poison pill, however, Scotiabank can't simply buy a few more shares to get to 50 per cent. It must buy all of CI.

That would help the capital page of the ledger. But it would hurt the earnings-per-share side. CI trades at a price-to-earnings multiple that is roughly double that of the bank. Any purchase is going to depress Bank of Nova Scotia's earnings per share for a time. Cost cuts at CI could ameliorate that, but CI already has a reputation as a lean organization.

There are more facets.

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These days, running a bank means keeping one eye on what your main regulator wants. The Office of the Superintendent of Financial Institutions is no doubt keen to see that Scotiabank – which prides itself on being Canada's most international bank – remains mainly Canadian.

Owning all of CI is a counterweight to Scotiabank's international moves. And Mr. Porter will be very conscious that, at some point, international assets could easily fall out of favour. A shift in the political landscape in a country such as Peru or Colombia can happen at any time. Anybody who worked at Scotiabank will remember starkly how it felt when Argentina fell on tough times, taking with it the bank's local subsidiary.

There is also the personal dynamic. CI and Bank of Nova Scotia are getting along, but it is not always so. The principals at CI who matter, including long-time CEO Bill Holland (who gave up that role three years ago and is now chairman), might now welcome a sale that would leave them big shareholders of Scotiabank. Given the tempestuous history, that could always change.

Just a few years ago relations were about as poisonous as possible in the generally genteel world of Canadian business. In 2011, the situation was so strained that Bank of Nova Scotia withheld its votes for the two top executives at CI when they were seeking election to the CI board. At the time, Mr. Holland called the move "truly idiotic" and "mean-spirited and petty." The executives were elected to the board in any case.

Bank of Nova Scotia also sought to block CI's attempt to put in a poison pill that prevents Scotiabank from trying a creeping takeover until 2014. Scotiabank is also barred by the poison pill from selling 20 per cent or more of CI to a single buyer – limiting the bank's options. The bank and CI fought over that, too, with Scotiabank trying to vote on the matters and CI arguing that the bank had a conflict of interest. CI won.

These days the message from Scotiabank is that the company is happy with its CI investment, and well it should be. The public sparring has ceased, and behind the scenes relations seem cordial. CI CEO Stephen MacPhail has worked to tighten ties with his counterparts in the wealth management business at Scotiabank.

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For now, the status quo makes sense. One day it won't, and at that point Mr. Porter will have to answer one of the tougher questions he will face.

Editors note: This story has been updated to make clear that Bill Holland is no longer CEO of CI. Stephen MacPhail is now the chief executive.

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