Scotia strategy paying off
Focus on developing world helps fuel record profit
As the world’s largest and most glamorous financial market, the U.S. has always been a magnet for Canadian banks, most of which have had a go at building a beachhead there.
Bank of Nova Scotia chose a different tack, opting to pursue growth in Latin America, Asia and other developing regions, and it now has operations in more than 50 countries.
The process has been going on gradually for decades, with the bank typically announcing a small acquisition at least once a year. For instance, last year it paid $1 billion for a 51-percent stake in Banco Colpatria, one of Colombia’s largest retail lenders.
Scotiabank is betting that its international business will not only add to the overall revenue stream, it will provide a cushion if its other businesses in Canada start to slow.
The strategy is paying off. On Friday, Scotiabank posted record results for the year, with income of $6.5 billion, up 21 per cent from the previous 12-month period. For the most part, profit was fairly evenly distributed among the main businesses.
The domestic retail bank earned $1.9 billion, the international operation had a profit of $1.7 billion, wealth management $1.2 billion and capital markets $1.5 billion.
In other words, the four main platforms are roughly in balance.
That’s a big deal. With many economists calling for a downturn in the Canadian economy, there’s a lot of concern around the housing market and the potential impact on the banks of a pullback in consumer lending. The banks are largely insulated from potential defaults in their mortgage portfolios, but analysts warn that troubles in mortgages could quickly spread to other areas of consumer lending like credit cards.
All the banks have been lifted by the surge in consumer borrowing, especially on mortgages, that’s been going on for the past decade, and as a result their domestic retail lending arms have taken on a growing importance as revenue generators. For many, it accounts for the lion’s share of total profit.
Scotiabank has also benefited, but it’s able to grow its other operations as well and as a result it’s much less exposed than its peers to the uncertain domestic market.