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Scotiabank's Historical Acquisitions And Charges

|Includes: The Bank of Nova Scotia (BNS)

Q4/2014 Charges

On November 4, 2014, BNS announced a series of charges that are expected to reduce Q4/2014 pre-tax income by $451M. The breakdown is illustrated in appendix 1, with most of the charge relating to restructuring. BNS expects to reduce headcounts by 1,500 (1,000 in Canada and 500 internationally) and close 120 international branches, mostly in Mexico and Caribbean. This restructuring will reduce duplication and help BNS realize $120M run-rate savings, coming to full fruition in 2016.

Strategic Acquisitions

ING Direct was renamed Tangerine, a unique name "that reflects its progressive approach to banking". There has been some concern in the media over brand confusion due to CIBC's "Tangerine Saturday", an event for CIBC Aeroplan Visa cardholders. Beyond this, the acquisition has largely been favourable as it has made BNS increasingly competitive in the (very competitive) Canadian retail banking landscape. Moving forward, we view the acquisition of ING (and its successful integration) as favourable due to its lack of physical offices (operating at a lower cost base), powerful web platform, and advance technological retail banking platforms.

On May 8, 2014, BNS announced its acquisition of a 20% stake in Canadian Tire's Financial Services for $500 million (NASDAQ:CASH) as part of a strategic partnership between the two companies, leveraging the companies' long-time business relationship. For consumers, the deal is likely to lead to cross promotions between Scotiabank and Canadian Tire products, with the bank beginning by offering $500 in Canadian Tire Money to any Canadian Tire MasterCard holder who signs up for a new five-year mortgage from Scotiabank. BNS also becomes the exclusive partner for new financial products for Canadian Tire customers and will provide up to $2.25 billion in credit card receivable financing for CTFS. BNS has an option to buy up to 29% of CTFS within the next 10 years.‚Äč

We view this acquisition as a favourable strategic move by BNS. This shows management's commitment to increase their competitive position in domestic retail banking by growing its high-margin credit card business. BNS' association with another strong Canadian brand builds on the existing partnerships with Cineplex Entertainment and the National Hockey League.

Strong Capital Position

Commencing the first quarter of 2013, OSFI required Canadian deposit-taking institutions to fully implement the 2019 Basel III reforms, without the transitional phase-in provisions for capital deductions (referred to as 'all-in') and achieve a minimum 7% Common Equity Tier 1 (CET 1) target.

In a March 2013 advisory letter, OSFI designated the 6 largest banks in Canada as domestic systemically important banks, increasing its minimum capital ratio requirements by 1% for the identified banks. This 1% surcharge is applicable to all minimum capital ratio requirements for CET1, Tier 1 and Total Capital, by no later than January 1, 2016, in line with the requirements for global systemically important banks.