Scotiabank Seeks Greater Stake in CI Financial

Bank of Nova Scotia's (BNS) move to buy out Sun Life Financial Inc.'s (SLF) 37% stake in mutual-fund giant CI Financial Income Fund (CIXUF.PK) partners Scotia with one of Canada's market leaders in wealth management and "catapults" the bank into a major player in the asset management sector, according to analysts at Dundee Capital Markets.

It could be a precursor to Scotiabank, which has already shown it intentions to grow its domestic wealth management business, increasing its stake in CI even more.

With a 37% minority interest in CI, Scotia can now arrange a "strategic transaction" with CI by either buying the income trust outright, or executing the sale of its own mutual fund operations to CI, Mr. Aiken said in a note to clients on Monday. With Sun Life out of the picture, the latter is the more likely scenario, he wrote.

Scotiabank is now able to negotiate the sale unhindered, which would likely result in Scotia owning a majority stake in CI once a second deal is done.

He wrote:

We believe that an additional step not only makes sense, but is likely to happen, [allowing Scotiabank] to participate in Canadian mutual fund consolidation without injection of additional capital.

With the uncertainty in the current market place and the opportunities available to BNS, the timing is suspect and may not be as immediate as many investors assume.

Yet the move could take some time, said Mr. Aiken who put a "neutral" rating on Scotiabank shares with a 12-month price target of C$49.