Scotiabank to Transfer Latin American Banking Operations to Davivienda

Core Viewpoint - Scotiabank has agreed to transfer its banking operations in Colombia, Costa Rica, and Panama to Davivienda, while also acquiring a 20% equity stake in Davivienda through newly issued shares, aiming to enhance profitability and operational efficiency in its international banking markets [1][2][5]. Group 1: Transaction Details - Scotiabank will acquire approximately 20% equity stake in Davivienda through a mix of common and preferred shares, allowing it to appoint board members proportional to its ownership [2]. - The deal includes a mutual referral agreement enabling Scotiabank to service its Corporate, Wealth, and Global Banking clients within Davivienda's operational regions [3]. - The transaction is expected to be completed in about 12 months, pending regulatory approvals [3]. Group 2: Financial Impact - Scotiabank will recognize an after-tax impairment loss of approximately C$1.4 billion in Q1 of fiscal 2025, which may reduce its common equity tier 1 (CET1) ratio by 10-15 basis points [4]. - An additional loss of C$300 million is anticipated upon closure due to cumulative foreign currency translation losses [4]. - The deal is projected to be neutral to Scotiabank's capital, with a potential increase in earnings in the coming years and an estimated increase in CET1 ratio by 10-15 bps due to reduced risk-weighted assets [6]. Group 3: Strategic Rationale - The transaction aligns with Scotiabank's five-year plan to boost profitability in international markets and enhance operational efficiency in non-core areas [5]. - The agreement supports Scotiabank's strategy to create a connected value proposition focused on growth markets in North America and Latin America [5]. - Francisco Aristeguieta, Group Head of International Banking, emphasized that this agreement advances the execution plan towards sustainable and higher returns across international markets [6]. Group 4: Market Performance - Scotiabank's shares have increased by 18.8% over the past six months, outperforming the industry growth of 3.5% [7].