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BNS sharpens Latin America focus

Scotiabank is Canada's most international bank and continues to sharpen its focus in two areas.

Scotiabank is Canada’s most international bank and continues to sharpen its focus in two areas.

One is wealth management, where it has made several acquisitions in the past year and the other is in Latin American markets. The Latin American focus is on the so-called Pacific Alliance trading bloc of Peru, Chile, Mexico, and Colombia.

Scotia gets about 50% of its revenue outside Canada with the Pacific Alliance accounting for 25% of revenue and rising.

Scotia’s stock (TSX:BNS) did not perform well in 2018, in line with all Canadian banks, but it was among the best of a bad bunch. Big Six bank stocks fell by an average of 12% in 2018, excluding dividends. Scotia dropped 8.8%.

This year, the shares are lagging its peers. BNS is up 4.35% year-to-date (as of July 10) while the S&P/TSX Capped Financials Index is up 13.3 per cent.

On May 28, BNS reported second-quarter earnings. They missed analysts’ estimates and the shares sold off on the news. Scotia sees low-single-digit growth in mortgages this year and a rise in non-interest expenses and provisions for bad loans.

On June 26, BNS announced the sale of its operations in Puerto Rico and the U.S. Virgin Islands to Oriental Bank. These consist of loans and deposits, 21 branches, and approximately 1,000 employees.

Scotia will record an after-tax loss of about $400 million in the third quarter of 2019 following the deal.

BNS has increased dividends in 43 of the last 45 years, most recently by two cents (2.3%) per share with the April payment. The stock pays $0.87 per quarter ($3.48 per year), to yield 4.84% at current prices.

The asset sale means Scotia is nearly done shedding non-core operations to sharpen its focus on the Pacific Alliance. As growth elsewhere slows, young populations and a growing middle class in Latin American markets are creating opportunities for loans and wealth management.

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 A version of this article appeared in the July 15, 2019 issue of the Internet Wealth Builder.

Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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