Analysts Give Bank of Nova Scotia's E*Trade Canada Deal High Marks

The Bank of Nova Scotia's (BNS) acquisition of E*Trade Canada could be followed by more acquisitions, says National Bank Financial analyst Robert Sedran.  

On Monday, Scotia said it was purchasing E*Trade Canada from U.S.-based parent E*Trade Financial Corp. (ETFC) for $442-million in an all cash deal. In addition E*Trade Financial will withdraw $69-million of capital from the Canadian division, bringing total proceeds to C$511-million. The deal adds about C$4.7-billion in assets under administration and 190 employees to Scotia's wealth management business.

In a research note, Robert Sedran, an analyst at National Bank wrote:

In our view, this transaction sharpens the focus on a key component of our investment thesis: those companies that do not have to concentrate on retrenchment and risk reduction are better positioned to grow - both organically and via acquisition. 

Given Scotiabank's well-earned reputation as a shrewd acquirer, we expect more transactions to be announced in coming quarters as this theme matures.

Mr. Sedran added that while the deal is not financially material, it does add to Scotia's wealth management earnings.

He maintained his "outperform" rating and left his C$55 price target on the stock unchanged.  

Meanwhile, Desjardins analyst Michael Goldberg,reiterated his "top pick" rating, and C$57.50 price target for Scotia.

In a note, he told clients:

Yesterday's [Monday] announcement that Scotia will acquire E*Trade Canada is a tangible example of a Canadian bank benefiting from the U.S. turmoil.

While it is not an entré into the U.S. for Scotia, it avoids the risk of doing so and instead furthers Scotia's goal of continuiing to strengthen its Canadian wealth management franchise.

Comments

[tayand7:]

Certainly gives Scotiabank a boost in an underdeveloped area for them,
keeps them away from the mortgage investment exposure of Etrade's parent. Etrade Canada improves simply by being severed from the parent and Scotiabank gets it on the cheap. Now if only they don't flub it by making too many changes to their new toy.

2008 Jul 16 03:33 PM

[Go US:]

What happen to everyone? Etrade starts moving to the up side and everyone seems to keep quiet. I know don't want to say anything until the stuck gets to atleast $5/ share.... I did not realize that the "Shorts" had that much influence on a stock. Oh well keep believing in LONG on Etrade.

2008 Jul 18 06:44 PM

[Mr. Stupid:]

Definetely long on E-trade....It's positioned for a breakout, positive cash flow, for 2009...They are making great strides and Citadel will get a great return on their investment.

2008 Jul 20 10:15 PM