The bank of Nova Scotia’s acquisition of Sun Life Financial Inc.’s stake in CI Financial Income Fund, all of Toronto, will allow Scotiabank and Sun Life to pursue core growth strategies and is evidence that both firms are aiming to take advantage of opportunities presented by the global credit crisis.
“Recent market events have been nothing short of seismic as the fallout from the credit crunch continues to take its toll,” said Donald Stewart, CEO of Sun Life, in a conference call to announce the deal earlier this month. “It’s in times like these that the strong prosper.”
Scotiabank is acquiring Sun Life’s 37.6% stake in CI for $2.3 billion in an all-cash deal, making the bank the largest individual shareholder of the asset-management firm. The deal, pending regulatory approvals, is expected to close in November.
For Sun Life, the cash from the sale is intended to be used for possible acquisitions of U.S. or other foreign firms reeling from the effects of the global financial crisis. In September, insurance giant American International Group Inc. teetered on the brink of failure and had to be bailed out by the U.S. government. Other big firms also remain in danger of collapse, bruised and battered by the uncertainty enveloping global credit markets.
“[This deal] provides Sun Life with enhanced firepower to aggressively pursue our growth objectives,” says Stewart, who declined to name specific targets.
For Scotiabank, the deal is yet another acquisition in a long line of recent moves to build out its wealth-management business. That includes the purchase of E*Trade Canada Securities Corp. for $444 million this past summer, when E*Trade’s U.S.-based parent ran into serious trouble as a result of the credit crisis.
Scotiabank’s purchase of the CI stake was negotiated quickly during the first weekend in October, after Sun Life approached Scotiabank with an offer to sell its interest in CI to the bank. The deal was announced Oct. 6.
“There are not many of these assets available in the marketplace,” says Chris Hodgson, executive vice president and head of domestic personal banking at Scotiabank in Toronto. “It became available to us late on Friday [Oct. 3] and we worked through the weekend to get this done.”
CI is the country’s third-largest mutual fund company, with $62.9 billion of assets under management as of Sept. 30. For the month of September, CI posted $152 million in net mutual fund sales, the largest increase among all mutual fund companies that month.
Scotiabank says that the deal for CI will fit nicely with last year’s acquisition of 20% of DundeeWealth Inc. The Toronto-based wealth-management firm sold a stake in itself and all of subsidiary Dundee Bank of Canada Inc., to Scotiabank after the fledgling bank ran into problems related to the asset-backed commercial paper fiasco.
“We’re very clear that we want to be a leader in wealth management,” said Rick Waugh, president and CEO of Scotiabank, during the conference call. “Now, we have a very strong association with two of the leaders in the mutual fund industry, and we are going to have lots of interesting options and discussions going forward.”
Sun Life will continue to have a distribution agreement with CI, although the length of the agreement has not been disclosed. “It was important for us to have discussions to ensure that [agreement] remains in place for a period of time,” Hodgson says. “We have done that.”
In addition, Scotiabank intends to look for ways that it and Sun Life, which already provides some insurance-related services to Scotiabank, can work together more closely. Hodgson adds: “We will be exploring with Sun Life, over the course of the next number of months, opportunities for insurance and white-label banking opportunities.”
Scotiabank says the CI acquisition will not endanger its underlying financial strength; it still has enough resources to make future acquisitions. “We entered this financial crisis with a very strong balance sheet and sustainable earnings,” Waugh says. “We will obviously make sure we maintain our balance sheet. We will see what other opportunities present themselves, but we’re going to stay very disciplined on what we do and how we do it.”
Analysts looking at the deal wonder what plans Scotiabank has for its in-house mutual fund business. Will the bank sell its $19.7-billion business to CI, merging the two businesses? Scotiabank executives say that they haven’t made any decisions.
@page_break@“For the time being, it is business as usual for our existing businesses,” Hodgson says. “We will be looking to sit down and look at value that we can create with CI. If that involves vend in and other types of things, we will certainly give that consideration, but that is not something we are announcing at this point.”
For its part, Sun Life says that it not only will continue its distribution partnership with CI, it will also look to broaden its product selection as opportunities arise.
“Sun Life continues to enjoy industry-leading scale with more than $400 billion in AUM,” Stewart says. “We remain fully committed to pursuing our growth strategy through [Boston-based] Massachusetts Financial Services, McLean Budden Ltd., and Sun Life Global Investments, in which we have majority ownership interests.”
In recent months, Sun Life has announced that it has had some exposure to a number of troubled U.S. financial services firms, including $270 million of securities exposure to Washington Mutual Inc., $315 million in AIG bonds and some $334 million in Lehman Bros. Holdings Inc. bonds.
Nevertheless, Sun Life has said that the exposure to the troubled U.S. financial services sector did not force the company to sell CI, adding that Sun Life’s capital position would have been strong even without the sale of CI. IE
Bank of Nova Scotia builds wealth-management business
Scotiabank’s purchase of Sun Life’s slice of CI Financial Income Fund gives insurer “firepower” to pursue growth
- By: Rudy Mezzetta
- October 14, 2008 October 14, 2008
- 11:36