Looking to extend its reach internationally, Bank of Nova Scotia is pushing more aggressively into Asia and deepening its roots in the Caribbean and in Central and South America. This includes expanding wealth-management services in the developing countries of the Americas.

Canada’s third-largest bank has announced a number of Asian acquisitions and expansions over the past few months.

“Just as 10 years ago, we saw enormous potential in the markets of Latin America, today we are seeing strong growth potential in many Asian markets,” says Hong Kong-based Michele Kwok, Scotiabank’s senior vice president for Asia-Pacific and the Middle East. “In the long term, there is potential for Scotiabank to realize success in Asia similar to the success it has in Mexico and Latin America.”

In April, Scotiabank opened four new commercial banking branches in Malaysia, adding to its existing Malaysian position of a branch in Kuala Lumpur and an offshore financial centre in Labuan.

The previous month, Scotiabank had announced that it had struck a deal to buy a 25% stake in Thanachart Bank, Thailand’s eighth-largest bank, for $240 million. The deal, which is expected to close in June, includes a limited provision that gives Scotiabank the opportunity to increase its stake to 49%, should local legislation be changed to allow it. Thanachart Bank is the leading auto lender in the country.

Also in March, Scotiabank confirmed reports that it was in talks to buy a 20% stake in China’s Bank of Dalian Co. Ltd. and also announced it was opening a representative office in Turkey, which it hoped would serve as a gateway to opportunities in Europe, Asia and Africa.

Scotiabank operates in more than 40 countries outside Canada, with much of its business located in the developing nations of the Americas. That contrasts to the international strategies of its major Canadian rivals, which, with the exception of CIBC, each own a U.S. regional bank, fighting it out with fierce competitors in a tough market.

30% OF EARNINGS

In 2006, Scotiabank realized 30% of its earnings overall from its international business. The recently announced deals each build on existing positions the bank has in the countries in which the deals were made, a key part of the bank’s foreign-expansion strategy.

Observers seem to agree that Scotia’s recent acquisitions in Asia fit with an overall pattern the bank has of making modest international acquisitions and building on them over time. They applaud the bank’s “go it slow” approach.

“If one of these investments were to blow up, there wouldn’t be any material impact on Scotia’s balance sheet — or on its capital, in particular,” says John Aiken, an analyst with Toronto-based Dundee Securities Corp. He says that the modest acquisitions give Scotiabank an opportunity to assess the market and get experience, and provide it with a launching pad for further expansion.

“It’s still focused on Latin Ameri-ca and the Caribbean, but it’s also trying to diversify internationally. And, I think, in a prudent way,” says Ted Macklin, a managing director at Toronto-based Guardian Capital LP. “It’s taking small positions initially, with options to increase exposure down the road.”

Macklin, who is lead manager of GGOF Canadian Large-Cap Equity Fund, says he likes that Scotiabank is not confining itself to investing in China, but is also investing in a number of other Asian countries as well, spreading out the risk and giving itself a chance to participate in economic growth across the region.

Scotiabank says it has established a corporate development department for the region to identify future acquisitions while, at the same time, building on what it already has. Kwok says that in many cases, Scotiabank has been limited by local regulations to the size of stake it can take in any given market. Still, the bank will “adapt appropriately to the needs of each local market” by leveraging the expertise it has developed operating in small and developing economies.

Aiken says that it’s unlikely that Scotiabank can drive cost synergies across the region — at least, in the short term — given the modest size of the positions and the fact they’re spread out. But he also doesn’t think that’s necessarily a problem. “Keep in mind that the growth prospects for Asia are expected to be greater than that of Canada and the U.S.,” Aiken says. “These are good places to be on a stand-alone basis.”

@page_break@INTEGRATED STRATEGY

While Scotiabank works on building out an Asian platform, it has also announced that it is introducing an integrated wealth-management strategy for the Caribbean and Central and South America.

In March, Scotiabank opened a private client group office in the Bahamas, with plans to open a total of 16 offices in 14 countries over the next year and a half. The bank will open offices in countries in which it already has established retail businesses.

Scotiabank plans to offer investment advice, trust services, private banking and insurance to mass–affluent investors (with more than $250,000) and high net-worth clients (more than $1 million) in the region. It will also offer offshore private banking, such as U.S. dollar-denominated private banking in Puerto Rico.

“Our plan is to grow international wealth management to the same size as domestic wealth management within the next three years, in terms of overall contribution,” says Dan Wright, Scotiabank’s Toronto-based senior vice president of international wealth. Wright, who has experience in the bank’s domestic wealth-management arm, was given the task last September of developing and implementing a strategy for international wealth management.

Scotiabank inherited a number of mutual fund companies and wealth-management businesses as it made acquisitions across the region over the past decade. This new initiative is meant to integrate the businesses under one brand and a common overall strategy.

Unlike Royal Bank of Canada, which recently merged its Canadian and international wealth-management businesses under one corporate segment, Scotiabank has decided to keep international wealth management separate from its domestic business.

“Our markets are very different and, country by country, so are the regulations,” Wright says. “We’ve leveraged a lot of what we’ve done in domestic markets. But being in the build phase internationally, we decided to give it dedicated focus and leadership — at least, in the short term.”

Wright says his main compet-itors are the big international wealth-management banks, such as Switzerland-based UBS AG and U.S.-based Citibank Inc., as well as RBC, among the big Canadian banks.

“Scotiabank’s plan on the international private client group side is just a logical extension to the banking platform it has put together,” says Aiken. “I view it favourably, but it’s still a ‘wait and see’ on how successful it will be.” IE