Scotiabank rating downgraded amid multiple unique risks

The bank is labouring under various pressures in its international businesses, markets analyst says

Scotiabank rating downgraded amid multiple unique risks

A markets analyst has downgraded Scotiabank’s rating amid the unique risks posed by the bank’s cross-border coverage and a lack of major growth prospects through major acquisitions similar to the recent ones made by other Big Six banks.

Mario Mendonca, of TD Securities, moved Bank of Nova Scotia from a “buy” rating to a “hold” grade on March 10, citing added risk from the bank’s South American business. The analyst kept the bank’s 12-month price target of $100.00 per share, translating to a potential total return of 12.3% over the next year.

“The Latin American region continues to face political turmoil and [Scotia] is reinventing itself in the region,” Mendonca wrote in a client note.

Read more: Scotiabank posts first-quarter results

However, Mendonca expressed scepticism that Scotiabank’s South American business will exceed its peers’ international performance levels.

“We believe that in a few years’ time, when the accretion from the large deals from the banks with significant excess capital are augmenting earnings growth, Scotia may not have a special growth engine to point to,” Mendonca added.

Recent significant strides in competitor banks include TD’s US$13.4-billion acquisition of the Memphis, Tennessee-based First Horizon Corporation; and BMO’s US$16.3-billion purchase of Bank of the West.