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Finance

Finance

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

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 corporate logo of Scotiabank is seen on a branch in San Salvador, El Salvador, February 8, 2019.... 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 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 corporate logo of Scotiabank is seen on a branch in San Salvador, El Salvador, February 8, 2019.... 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

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Scotiabank’s new CEO must sell investors on his plan to boost Latam profits. The Chief Executive Officer of Bank of Nova Scotia (BNS.TO), Scott Thomson, will meet with shareholders for the first time since he took over the position. The Canadian lender is expected to provide a strategy to improve its struggling Latin American businesses and a vision to increase earnings within the country.

Thomson, who took over as CEO in February, has warned that the profit increase in the fiscal year 2024 will be meager. He has also declared that the bank will implement one of the most significant employment cutbacks among Canadian banks this year, preparing the institution for difficult times. As a result of the bank’s bad debt provisions more than doubling to a total of C$3.42 billion ($2.52 billion), Scotiabank’s net income for the fiscal year 2023 dropped by 21.5%.

Because the stock has lost about ten percent of its value this year, it has had the worst performance among the six largest economic institutions.

Chris King, portfolio manager at Scotiabank shareholder Morgan Meighen & Associates, stated that the company is prepared to have an open mind. “We are willing to be open-minded to see how Scott Thomson wants to remake the bank,” King said.

When Thomson became the CEO of Scotiabank, he was one of the first non-banking executives to run a significant Canadian bank. Before becoming CEO, Thomson served on Scotiabank’s board of directors.

Throughout his former position as Chief Executive Officer of Finning International (FTT.TO), Thomson was responsible for expanding the company’s operations throughout Latin America. This experience provided him with knowledge of the area.

To pursue expansion outside of the highly saturated market in Canada, Scotiabank has spent around eleven billion Canadian dollars on acquisitions over the previous decade. These acquisitions include purchasing assets in Chile, Panama, Colombia, Peru, and other countries. Over 1,100 foreign branches are located in the Pacific Alliance nations, making up more than a quarter of the bank’s total net revenue. In comparison, there are only 900 branches in Canada.

On the other hand, the increase in profits from that region has slowed down, particularly in Colombia, where the economy has shrunk. A year after the lender sold some of its Caribbean businesses to concentrate on Latin America, shareholders will watch for Thomson’s strategy regarding the Colombian company and development possibilities in Mexico.

Scotia’s presence in Latin America sets it apart from other Canadian lenders, and shareholders do not anticipate the company’s thorough withdrawal.

There is evidence that he had previous experience working with Chile and Argentina. However, as King stated, Mexico and how you interact with Colombia are more important. He also mentioned that it is still unclear if the separation of Colombia would affect some of the other Latin American companies.

According to Greg Taylor, chief investment officer of Purpose Investments, Scotiabank needs to expand its presence in the United States 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,” according to Taylor.

During his first post-earnings conference call in February, Thomson said the bank would search for measures to grow deposits. This assertion was made because the bank attempts to improve its balance sheets with rising borrowing prices.

To reduce its reliance on wholesale borrowing, which has become more expensive due to the central bank’s rate rises, Scotiabank has been attempting to increase the number of clients it serves and the number of deposits it accepts. The bank’s provisions in the fourth quarter, which were significantly higher than anticipated, surprised the market.

“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,” according to Taylor.


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