DBRS holds Scotiabank rating steady following BBVA Chile deal

Thursday, December 7, 2017

Canadian rating agency DBRS said its ratings for Scotiabank remain unchanged after the lender announced it was buying BBVA's 68.2% stake in subsidiary BBVA Chile for US$2.2bn.

Scotiabank will also acquire BBVA's local insurance company and some support subsidiaries.

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This week minority shareholder the Said family waived its right of first refusal to acquire BBVA's stake and announced it was willing to invest US$500mn to become holders of a 25% stake in the merged business. The family currently controls 31.6% of the lender.

DBRS said in a statement: "Importantly, the acquisition will significantly enhance BNS's [Scotiabank's] presence in Chile doubling its market share to 14%, and creating the third-largest private bank in the region. Moreover, BBVA Chile has significant capital markets expertise and cash management capabilities that complement Scotiabank Chile's retail banking operations and distribution channels.

"With [Cdn] $29 billion in assets [US$22.6bn], BBVA Chile represents approximately 3% of BNS's total assets as at October 31, 2017. Overall, the Pacific Alliance region currently represents approximately 18% of BNS's F2017 earnings and 15% of loans as at October 31, 2017, with Chile representing approximately 5% and 5%, respectively. While this region represents growth opportunities for BNS, DBRS believes that significant earnings volatility in this region could negatively impact the ratings."

In September, prior to the two banks striking the deal, rating agency Moody's said a sale would be credit negative for Scotiabank.

"Should a deal occur, it would be credit negative for BNS [Scotiabank] because the bank would allocate more capital to international markets, where it has less market presence and pricing power than in its home market, where its franchise is strong," Moody's said in a report at the time.

The merger is due to be completed by the end of next year.

In July, DBRS confirmed Scotiabank's rating of 'AA'.