Scotiabank invests $3.9bn to navigate uncertain US market

Scotiabank has invested $3.9bn to acquire a 14.9 percent stake in KeyCorp, a Cleveland-based lender, aiming to boost profitability amid an “uncertain” US market.  

Financial Post reports that Scotiabank’s CEO, Scott Thomson, highlighted this during the bank’s third-quarter results conference call on Tuesday, which met analysts' expectations. The deal is pending regulatory approvals. 

This investment is part of Scotiabank’s broader strategy to strengthen its presence in North America. 

Thomson highlighted that the investment offers a “low-cost, low risk” entry into a currently uncertain US market, influenced by political, regulatory, and economic factors. He noted that this move allows the bank to gain insights into the market while benefiting from developed market earnings over time. 

In December, Scotiabank unveiled a new strategy focused on allocating more capital to “stable, high-return markets” within North America. The bank’s immediate priority is to increase its capital allocation to Canada while redirecting capital from its Latin American operations to its US corporate business. 

Despite its extensive international footprint, Thomson had previously mentioned that many of the bank’s Latin American clients only utilize a single banking product.  

However, the international operations showed strength in the quarter ending July 31, with the international banking segment reporting adjusted earnings of approximately $709m, marking a ten percent increase from the previous year due to “strong margin expansion.” 

Overall, Scotiabank has reported adjusted net income of $2.1bn for the quarter, down from $2.2bn in the same period last year. Earnings per share were $1.63, compared to $1.72 the previous year. Reported net income was $1.9bn, a decline from $2.2bn in the previous year.  

Despite this, total revenue increased to $8.3bn, up from $8bn in the same quarter last year. The bank allocated $1bn for potential bad loans, a rise from the $819m set aside during the same period last year. 

Analysts noted that while Scotiabank’s earnings benefited from a lower-than-expected tax rate, the results were consistent with expectations.  

Jefferies Financial Group Inc. analyst John Aiken remarked that Scotiabank had posted the strongest earnings among reporting banks to date and continues to progress on its strategic goals. He also noted the bank’s relatively optimistic outlook on credit compared to its peers. 

Gabriel Dechaine of National Bank of Canada described Scotiabank’s Canadian banking performance as “solid,” with mortgage loan growth resuming for the first time in six quarters.  

Thomson mentioned that while credit costs were at the high end of expectations, he anticipates stabilization in international markets due to monetary easing.  

He also expects the Canadian policy rate to be gradually lowered by mid-next year, providing “early relief” to consumers and boosting home and vehicle sales, benefiting the bank’s earnings in 2025. 

Scotiabank’s shares were up approximately 1.9 percent, trading at $66.86 in Toronto on Tuesday afternoon.