Which of Canada's big banks stands alone in generating about 33% of its net income from over 50 countries around the globe?
With a third of its earning assets outside Canada, major international operations make Scotiabank unique among the top six Canadian banks. Canada's third largest bank in terms of assets is growing fastest in Central and South America, the Caribbean and Mexico.
For those who remember the debt-driven financial crises and high interest rates that Mexico, Argentina and Brazil endured starting in the mid-1990s, fear not.
First, Scotiabank's business in developing nations represents about a quarter of the bank's total international portfolio. Most of Scotiabank's foreign operations are in developed areas such as the U.S. and Western Europe. Second, those developing countries are much better financial shape these days, with Brazil now a leading driver of global trade. Consequently Scotiabank plans to open over 100 new branches in Mexico this year, and is increasing its presence in Southeast Asia. So, even though its exposure in developing countries is small relative to the bank's size, these markets could sustain growth.
Some stock analysts believe that eventually Scotiabank's international banking division will be larger than its domestic banking arm. As it is, Scotiabank's 22,500 employees in foreign countries now outnumber its 21,300 Canadian employees.
At the end of August 2006, the bank reported third quarter earnings of C$936 million up almost 20% from a year earlier. International operations earned $278 million thus accounting for some 30% of total profits.
And The Winner Is...
Pretty much across-the-board, Canada's banking industry is reporting record earnings. Among Canada's world-class banks, Scotiabank has proven to be one of the best and most consistent performers. In terms of net profitability, Scotiabank finishes slightly behind the leading Royal Bank. However, Royal is nearly 50% larger and generates 85% more revenue than Scotiabank.
Investment analysts like Morningstar think that Scotiabank is one of Canada's most conservative banks in one of the world's most conservative domestic banking markets. While Scotiabank's stock (BNS on NYSE & TSX) is a low-risk investment, the firm has less exposure to more aggressive wealth management and capital markets than other Canadian big banks. So many expect the current rise in Scotiabank's stock price to slow in the near term.
It all comes down to an old investment adage, specifically "buy on bad news, sell on good news."
At a current price of about US$43 on the NYSE and C$47.50 on the TSX, it may be wise to wait for the current banking boom to fade from the headlines. Personally I'm waiting for Scotiabank's stock price to fall about 10% to about US$39 and C$42 respectively. At those prices, Scotiabank affords a safer way to benefit from the bank's strong international growth while providing a dividend of some 3.5%.
Note: Suite101 does not offer investment advice. Instead, we seek to educate and inform our readers by writing about the latest trends in world trade. Armed with these insights, you are in a much better position to make your own decisions.
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