Scotiabank to Reduce Thai Stake as BMO Posts Earnings Surge

(Bloomberg) -- Bank of Nova Scotia agreed to cut its stake in Thai lender Thanachart Bank, further scaling back internationally even as loan growth abroad outstrips its home turf.

Scotiabank, which owns 49 percent of Thanachart Bank, struck a deal that would “significantly reduce” its investment, the Toronto-based lender said Tuesday in a statement. Under the agreement, TMB Bank Pcl agreed to combine with Thanachart in a transaction valued at as much as $4.5 billion, with ING Groep NV, the Thai finance ministry and Thanachart Capital Pcl expected to be major shareholders. In November, Scotiabank said it was exiting nine Caribbean nations.

The Thanachart announcement “marks a major step in the repositioning of the bank’s geographic footprint that began five years ago,” Chief Executive Officer Brian Porter said Tuesday on an analysts’ call to discuss quarterly results. “The collective management actions result in a better, lower-risk bank with focused operations.”

Read more about the Thanachart Bank merger

Scotiabank’s retreat comes even as earnings growth abroad has been one of the few bright spots for the Toronto-based lender. Canada’s most international bank posted a 3.8 percent drop in first-quarter profit on Tuesday, missing analysts’ estimates for its third straight quarter. International banking was the only division to post earnings growth.

Bank of Montreal, which also reported results Tuesday, beat estimates with a 55 percent jump in profit, fueled by record earnings from its U.S. banking operations.

Bank of Montreal “reported a result that would appear to be inconsistent with the high levels of volatility during the period, with strong U.S. results and stable capital markets results helping power earnings ahead of expectations,” Robert Sedran, an analyst at CIBC Capital Markets, said in a note to clients.

On Scotiabank, Sedran called it a “messy quarter” as “a combination of higher expenses and higher loan losses held back revenues that were a touch better than modeled.”

Scotiabank has been focusing international efforts on Mexico, Chile, Peru and Colombia under Porter. The bank announced or completed the sale of operations in 18 countries and sold five non-core businesses in the past five years “while simultaneously gaining scale in our key markets and businesses, improving the quality of our earnings, building capital and greatly improving our technology and controls,” Porter said on the call.

Shares of Scotiabank fell 2.9 percent at 9:32 a.m. trading in Toronto, the biggest intraday decline since Dec. 21. Bank of Montreal rose 0.8 percent.

Key Takeaways:

  • Scotiabank’s first-quarter net income fell to C$2.25 billion, or C$1.71 a share, from C$2.34 billion, or C$1.86 a share, a year earlier. Adjusted per-share earnings of C$1.75 missed the C$1.82 average estimate of 12 analysts in a Bloomberg survey.
  • Scotiabank raised its quarterly dividend 2.4 percent to 87 cents.
  • Bank of Montreal’s first quarter profit rose to C$1.51 billion, or C$2.28 a share, from C$973 million, or C$1.43, a year earlier, according to its earnings statement.
  • Bank of Montreal posted record profit in its U.S. personal and commercial division, which includes Chicago-based BMO Harris Bank, while earnings growth in the Canadian bank was little changed. Earnings from wealth management and the BMO Capital Markets division fell from a year earlier.

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