Bank of Nova Scotia’s plan to sell its majority stake in a Thai bank will free up capital to invest in more productive business lines, says Moody’s Investors Service.
In a new report, the rating agency says that Scotia’s planned sale of its shares in Thanachart Bank Public Co. Ltd. (TBank) would be a positive for its credit position. The financial details of the proposed sale have not been announced, Moody’s notes; the transaction would also be subject to regulatory approval.
Nevertheless, in its report Moody’s says, “Reducing its reliance on earnings from international operations and freeing up capital for allocation to businesses with more stable sources of earnings would be credit positive for [Scotia].”
The rating agency notes that Scotia made two significant acquisitions in the Canadian wealth management sector last year — MD Financial Management and Jarislowsky Fraser — which strengthen its domestic franchise, add assets under management and provide economies of scale.
“Asset management growth initiatives leverage [Scotia’s] existing core competencies and allow it to rely more on wealth management as a sustainable source of earnings,” it says.
In terms of its international strategy, Moody’s says it makes sense for Scotia to divest from countries where it doesn’t have adequate scale. “[Scotia] is focused on developing strong franchises in the Pacific Alliance countries of Mexico, Peru, Chile and Colombia, and the TBank transactions under consideration are consistent with this strategy,” it notes.