A sign for The Bank of Nova Scotia, doing business as Scotiabank, in Toronto, Ontario, Canada December 13, 2021. REUTERS/Carlos Osorio

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TORONTO, Jan 18 (Reuters) – Bank of Nova Scotia (Scotiabank) (BNS.TO) shareholders are urging Canada‘s third-largest lender to take a serious look at the Mexican consumer banking unit sold by Citigroup (CN), arguing that she would benefit from scaling up in the fast-growing Latin American country.

Markets view Scotiabank as a logical bidder, even though chief executive Brian Porter downplayed appetite for big deals just a day before Citi announced the sale of Citibanamex, the third-largest bank retail in Mexico.

The acquisition of Citibanamex, which is estimated to be worth between $4 billion and $8 billion, would help Scotiabank expand into Mexico, which accounted for nearly a quarter of its international business revenue in fiscal 2021 and 7.6 % of its total revenue. Read more

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“This is another opportunity for expansion outside of Canada, which I welcome,” said Allan Small of Allan Small Financial Group at iA Private Wealth.

“If the assets are made available at the right price, I wouldn’t be surprised to see Scotiabank bid for them,” Small added.

Scotiabank had about C$7.5 billion in excess capital at the end of 2021, but Porter said the bank wasn’t considering acquisitions outside of U.S. wealth deals under C$900 million. Canadian dollars ($719 million).

“There are no big files on my desk about buying someone’s stake in a Mexican bank or anything like that,” Porter said at a conference last week.

A Scotiabank spokesperson declined to comment further.

Expanding into Mexico is not without risks. Scotiabank’s international business, dominated by Mexico, Peru, Chile and Colombia, has recently disappointed as the pandemic hit some markets later and harder than at home.

And the company has historically been the source of most of its bad loans and write-offs.


Yet it has helped Scotiabank outperform in other periods. Even in 2021, strength in Mexico and Chile helped offset weakness in the other two markets, and Porter expects them to continue to lead growth this year.

With economic growth and interest rate hikes faster than in Canada, unity should also lead to a recovery in net interest margins.

A deal “would add significant additional scale that could drive stronger bottom lines in Mexico,” said Edward Jones analyst James Shanahan.

Limited Canadian growth has driven the big banks’ overseas expansion for decades. They have doubled down after amassing billions of dollars in excess capital during the pandemic, with most of it focused on the United States. Read more

This raised questions about overpayments. Amid concerns over the premium Bank of Montreal paid in its $16.3 billion purchase of BNP Paribas’ U.S. unit last month, executives said it could extract greater efficiency and better returns than smaller players.

Referring to an analyst estimate that Citi could seek up to $15 billion for Citibanamex, Kingwest & Co portfolio manager Anthony Visano said Scotiabank would need “equity financing substantial” to fund such a transaction. But its presence in the same markets as Citi would help it realize better synergies than BMO in the United States and create Mexico’s second-largest lender by deposits, he said.

“Does this justify a higher surface price? Maybe,” he said. “But they would be right to be cautious. The key factor is price.”

If Scotiabank bids, it could face stiff competition from potential suitors including Mexican entrepreneur Javier Garza Calderon, local billionaire Ricardo Salinas Pliego, Carlos Slim’s Inbursa and Spain’s Banco Santander (SAN.MC). Read more

And while Mexican government officials have said they have “no bias” toward foreign or local bidders, President Andres Manuel Lopez Obrador has urged domestic investors to “Mexicanize” the bank. Read more

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Reporting by Nichola Saminather; Editing by Bernard Orr

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