Scotiabank CEO Brian Porter listens during the company's annual general meeting in Ottawa on Thursday, April 9, 2015.Cole Burston/The Canadian Press
Brian Porter repeats something so frequently it's almost an incantation.
Since taking over as Bank of Nova Scotia's chief executive officer four years ago, he's constantly stressed an international strategy that is uber-focused on Mexico, Chile, Colombia and Peru. The countries' shared attributes are spoken of so frequently – growing middle classes, promising economic expansion – that mere mention of this so-called Pacific Alliance now has a bit of a numbing effect.
But the consistency can be useful, because it provides a framework for judging Scotiabank's moves abroad – and that's the whole point. No surprises for shareholders. Which is arguably why no one seems too fussed by Scotiabank's bid for Banco Bilbao Vizcaya Argentaria S.A.'s majority stake in its Chilean retail banking business, despite the $2.9-billion price tag, which could rise to a speculated $4.3-billion.
After revealing exploratory talks with Scotiabank in August, Spain's BBVA shopped its Chilean retail banking arm around. On Tuesday, Scotiabank announced it had reached an agreement to buy BBVA's 68-per-cent stake, but added there is still a wild card. Chile's Said family owns another 32 per cent, and it has a right of first refusal on the position Scotiabank wants to buy. One possible outcome is for the Canadian lender to buy this too, hence the higher price tag.
It'd be a lot to swallow. Yet it fits with Mr. Porter's mantra for the past four years, and Chile is the most conservative bet of the Pacific Alliance countries, because it's more mature with established courts and somewhat reliable politics.
The deal is also a play for scale, and nothing about that is surprising, because scale matters more than ever on Bay Street. Given the strict regulatory environment for financial institutions following the 2008 financial crisis, clamping down on costs has become incredibly important. Bulking up and sharing back-end resources is one of the best ways to do that.
At the moment, Scotiabank and BBVA are the fifth- and sixth-largest banks in Chile. By combining, they'll jump to fourth with a 14-per-cent market share, making Chile the second Pacific Alliance country in which Scotiabank has a double-digit position. (Peru is the other.)
As for bidding strategy, nothing shocking here. Scotiabank seems to like buying from big global banks that want – or need – to scale back. It acquired ING Groep's Canadian division, now known as Tangerine, for $1.9-billion in 2012, and more recently it acquired Citibank's personal and commercial assets in Peru, Costa Rica and Panama. BBVA decided to exit Chile, where it had a roughly 6-per-cent market share, to focus on countries like Mexico, where it is the dominant lender.
Why now for Scotiabank? The competitive threat from Canadian rivals can't be ignored. Since Mr. Porter took over, other Big Six lenders have bought abroad, notably Royal Bank of Canada and Canadian Imperial Bank of Commerce. The home market is heavily saturated, so the next big thing has to come from somewhere else.
Scotiabank is also sitting on cash. The domestic personal and commercial arms of the Big Six lenders reliably grow at a multiple of gross domestic product, and the Canadian economy is humming, which serves up ample cash to spend abroad. Scotiabank says it can easily write a cheque to cover the Chilean acquisition.
Maybe most importantly, Mr. Porter feels like he's done the dirty work to get to a good place. He's suggested the international operation was a bit of a mess when he took over, with too many holdings in too many places. The division's cost base was also bloated after a flurry of previous deals. In his first few years as CEO, he took a hatchet to expenses, which included closing almost 200 branches in countries where there was overlap.
"We're proud of what we've done in the last three years," Mr. Porter said at an investor conference in September after news of a potential deal with BBVA was first revealed. "It would have been hard for me to go to our board three-and-a-half, four years ago, and say 'We've got this whopper acquisition to do in country X,' and we really weren't running our business that well in that particular country," he added.
"Today, obviously, I'm more comfortable – a lot more comfortable."
Tim Kiladze