Acquisition outlook and anticipated timing of
accretion to Diluted EPS remain unchanged
TORONTO, July 6, 2018 /CNW/ - In 2018, Scotiabank has
committed or deployed approximately $7
billion in capital towards five acquisitions that will grow
the Bank in line with its strategy. The acquisitions of these
prized assets have been financed 62% through cash and 38% through
the issuance of 33.8 million Scotiabank common shares at a weighted
average price of $77.04. These
acquisitions increase the Bank's market share in the strategically
important Pacific Alliance countries as well as grow and diversify
the Bank's wealth management business. To recap:
Personal and Commercial business acquisitions enhance the
Bank's presence in core Pacific Alliance countries
- BBVA Chile, a premier bank in one of the most attractive and
developed markets in our international footprint, will double
Scotiabank's presence in the country and creates one of the largest
private banks in Chile – completed
in Q3, 2018
- Citibank's Consumer and Small business operation in
Colombia, the third largest
economy in Latin America, will
create the market leader in credit cards in the country and
strengthen our overall presence with the addition of 500,000 high
quality new customers – completed in Q3, 2018
- A controlling interest in Cencosud Peru creates the second
largest card issuer in Peru, and
leverages our successful partnership with one of the leading
retailers in the Pacific Alliance – anticipated to close in Q4,
2018
Wealth management acquisitions diversify and increase AUM by
over $80 billion (40%)
- Jarislowsky Fraser has a long history of delivering outstanding
investment capabilities to institutional investors and high net
worth customers, and aligns with our strategic commitment to
diversify our global wealth management business – completed in Q3,
2018
- MD Financial, the largest Canadian, non-bank Private Investment
Counsel, Estate & Trust business measured by assets under
management, will result in Scotiabank having the largest Private
Investment Counsel business in Canada – anticipated to close in Q4, 2018
Acquisition-related impact of IFRS 9 on acquired performing
loans
The recently-implemented accounting standard IFRS 9
– Financial Instruments does not differentiate between
originated and purchased loans and as such, requires the same
accounting treatment for both. Although credit quality is
considered in determining the purchase price, the accounting
standard requires the Bank to measure the acquired loan portfolios
at fair value and subsequently for performing loans set-up an
allowance for credit losses equal to 12 months of expected losses
(Stage 1), through the income statement, immediately after the
loans come on to the Bank's balance sheet. Consequently in Q3
2018, the Bank will recognize Day 1 acquisition-related provision
for credit losses on performing loans of between $375 million and $425
million, applicable only to the BBVA Chile and Citibank
Colombia acquisitions. This is expected to reduce reported
third quarter Net Income available to common shareholders between
$150 and $200
million and Diluted earnings per share between $0.15 and $0.20.
This accounting impact does not change the Bank's view of the
quality of the businesses acquired or underlying quality of the
acquired loan portfolios. There is no change to the
previously-announced impact to the capital ratios of approximately
100 basis points due to these two acquisitions. Further details
will be provided with the release of Scotiabank's third quarter
results on August 28, 2018.
There is no acquisition-related impact on the wealth management
acquisitions, Jarislowsky Fraser and MD Financial.
Integration efforts led by in-country
resources
Scotiabank has a long history of successfully
acquiring and integrating businesses that strengthen the overall
Bank. The resources for integrating the international acquisitions,
BBVA Chile, Citibank Colombia and Cencosud Peru, are principally
sourced from and led by the respective countries. These
resources also include global teams that recently successfully
completed the integrations of acquisitions in Central America and resources that were
assigned to the replacement of our core banking system in
Mexico. We expect to complete the
integrations by fiscal 2020.
The execution and integration efforts on the wealth management
acquisitions, Jarislowsky Fraser and MD Financial, are less
extensive, as these standalone franchises will maintain their
independence and continue to provide their core service to their
respective clients. System or process integration work and
enhancing our broader, combined capabilities is well planned and
led by experienced and dedicated teams in Canada.
Accretive to Diluted earnings per share by
2020
Adjusting for the impact of amortization of
acquisition-related intangibles and integration costs
("acquisition-related costs") these on-strategy acquisitions,
collectively, are estimated to be neutral to Diluted earnings per
share in 2019 and accretive by approximately 15 cents in 2020. The Bank will report
adjusted Net Income and adjusted Diluted earnings per share, as
non-GAAP measures, adjusting for the acquisition-related costs and
the Day 1 impact of IFRS 9 on acquired performing loans, commencing
this quarter.
Capital ratios
The Bank's Common Equity Tier 1 capital
ratio is expected to be approximately 10.7% by the fourth quarter
of fiscal 2018, upon completion of these acquisitions. Strong
internal capital generation and selective, non-core divestitures
are expected to contribute to the capital ratio growing to 11% in
early fiscal 2019.
About Scotiabank
Scotiabank is Canada's international bank and a leading
financial services provider in North
America, Latin America, the
Caribbean and Central America, Europe and Asia-Pacific. We are dedicated to helping our
24 million customers become better off through a broad range of
advice, products and services, including personal and commercial
banking, wealth management and private banking, corporate and
investment banking, and capital markets. With a team of more than
89,000 employees and assets of over $926 billion (as at
April 30, 2018), Scotiabank
trades on the Toronto (TSX: BNS)
and New York Exchanges (NYSE: BNS). For more information, please
visit www.scotiabank.com and follow us on Twitter @Scotiabank.
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and Accounting Policies – Critical accounting estimates" in the
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anticipation of and success in managing the risks implied by the
foregoing. A substantial amount of the Bank's business involves
making loans or otherwise committing resources to specific
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adverse effect on the Bank's financial results, businesses,
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the Bank's actual performance to differ materially from that
contemplated by forward-looking statements. For more information,
see the "Risk Management" section of the Bank's 2017 Annual
Report.
Material economic assumptions underlying the forward-looking
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the actual outcome is uncertain. Readers should consider the
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list of factors is not exhaustive of all possible risk factors and
other factors could also adversely affect the Bank's results. When
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SOURCE Scotiabank