Scotiabank is the most internationally diversified of the major Canadian banks, with over 30% of its assets coming from its overseas operations, primarily what the bank describes as the three Pacific Alliance countries of Mexico, Peru, and Chile. It sold its subscale operations in Colombia, Panama, and Costa Rica to bank Davivienda in the first quarter in exchange for a 20% stake in Davivienda, taking a $1.4 billion impairment charge on the sale. Scotiabank has strengths in mortgage and corporate lending and wealth management and is usually the lowest cost operator amongst the major banks.
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Scotia was the worst-performing of the Big Six banks until TD’s recent fall from grace. This was due to Scotiabank’s exposure to what investors regarded as higher-risk areas, including Latin America, the Caribbean, and Asia. Scotiabank has taken substantial writedowns in recent years in the latter two areas, most recently $379 million on its holding in the Bank of Xian in China in the latest quarter. While Scotia did not increase its dividend at all in the last year, it still has the second-highest yield among the banks at 5.4%, while there is the possibility of further moves in North America, as Mr. Thomson has mentioned his interest in expanding in Quebec. Buy now for reasonable earnings growth, a high and sustainable yield, and a continued rerating after years of underperformance. - Gavin Graham
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BNS was first recommended here on August 29, 2007