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Scotiabank's new CEO must sell investors on his plan to boost Latam profits

Published 12/11/2023, 06:33 AM
Updated 12/11/2023, 06:36 AM
© Reuters. FILE PHOTO: The corporate logo of Scotiabank is seen on a branch in San Salvador, El Salvador, February 8, 2019. REUTERS/Jose Cabezas/File Photo/File Photo

By Nivedita Balu

TORONTO (Reuters) - Bank of Nova Scotia CEO Scott Thomson will face shareholders for the first time on Wednesday since taking the job with expectations running high for the Canadian lender to outline a plan to fix its struggling Latin American units and a vision to grow profits at home.

Thomson, who took charge in February, has warned fiscal 2024 profit growth would be marginal and announced one of the biggest job cuts among the Canadian banks this year, preparing the bank for challenging times. Scotiabank's net income for fiscal 2023 fell 21.5% as its bad debt provisions more than doubled to C$3.42 billion ($2.52 billion).

The stock has lost nearly a tenth of its value this year, making it the worst performer among the big six banks.

"We're willing to be open minded to see how Scott Thomson wants to remake the bank," Chris King, portfolio manager at Scotiabank shareholder Morgan Meighen & Associates said.

Thomson was Scotiabank's board member before becoming the CEO, making him one of the first non-banking executives to lead a big five Canadian bank.

Thomson, in his previous role as the CEO of industrial equipment dealer Finning International, built the company's business in Latin America, giving him familiarity with the region.

Scotiabank has spent about C$11 billion in acquisitions over the past decade buying assets in Chile, Panama, Colombia, Peru and others, seeking growth outside of the highly saturated market at home. The Pacific Alliance nations account for more than a quarter of the bank's total net income, with about 1,100 international branches, compared to 900 in Canada.

However, profit growth from that region has dwindled, especially in Colombia where the economy has contracted. Shareholders will watch for Thomson's strategy on the Colombian business and growth prospects in Mexico, a year after the lender shed some of its Caribbean assets to focus on Latin America.

Scotia's Latam exposure distinguishes it among the Canadian lenders and shareholders do not expect an outright exit from the region.

"He does have some experience in dealing with Chile and Argentina. But what's more important is Mexico and how you deal with Colombia," King said, adding it remains to be seen whether carving off Columbia will impact some of the other Latam businesses.

Greg Taylor, chief investment officer of Purpose Investments, said Scotiabank should increase its U.S. footprint since "they call themselves the bank of the Americas."

"They're doing a little bit of everything too much and they need to focus on higher margin businesses in Latin America," Taylor said.

On his first post-earnings conference call in February, Thomson said the bank would look for ways to boost deposits, as it looks to strengthen its balance sheets at a time borrowing costs are elevated.

Scotiabank has been looking to add customers and boost deposits, as it seeks to lower its dependence of wholesale funding which has grown expensive amid the central bank's rate hikes. Still, the bank's larger-than-expected provisions in the fourth quarter surprised the market.

© Reuters. FILE PHOTO: The corporate logo of Scotiabank is seen on a branch in San Salvador, El Salvador, February 8, 2019. REUTERS/Jose Cabezas/File Photo/File Photo

"The big question that everyone had is, how much of this is because they're actually seeing a slowdown versus how much of them are just trying to clean the balance sheet and set up for success going forward with the new plan," Taylor said.

($1 = 1.3587 Canadian dollars)

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