Newspaper article The Canadian Press

Scotiabank's Cost Reductions Could Signal Further Industry Pressure: Analysts

Newspaper article The Canadian Press

Scotiabank's Cost Reductions Could Signal Further Industry Pressure: Analysts

Article excerpt

Scotiabank to cut 1,500 positions worldwide


TORONTO - Widespread cost reductions at Scotiabank, which include plans to cut 1,500 jobs, could be a sign of changes to come in Canada's banking industry, several analysts suggest.

After sailing through years of global economic turbulence relatively unscathed, Scotiabank said Tuesday it will close 120 branches at its international banking arm as it takes a $341-million hit after taxes to its fourth-quarter earnings.

Scotiabank (TSX:BNS), which calls itself Canada's most international bank, expects to remain on track to meet its 2014 financial objectives.

The cost reductions have raised questions about whether other Canadian banks will make similar adjustments to their operations, as underperforming regions and slower overall growth put pressure on results.

"While some of the issues do appear to be specific to Scotia, the charges highlight ongoing concerns that the markets have towards the Canadian banks' operations and growth outlook," Barclays analyst John Aiken wrote in a note.

"We would expect that Scotia's announcement will cast a shadow on the other banks as investors attempt to extrapolate meaning towards its peers."

Most Canadian banks are as broadly exposed to fluctuations in the global economy, but several executives have talked about a renewed focus on lowering expenses as the growth in the domestic economy remains muted for the next several years.

In August, incoming TD Bank (TSX:TD) chief executive Bharat Masrani told investors he will be focused on ways to run the business more efficiently, while Royal Bank (TSX:RY) said it was prepared to deal with slower growth in some areas of its business.

"Usually these types of changes happen at the end of the fiscal year before the bonuses go out," said Gareth Watson, vice-president of investment management and research at Richardson GMP in an interview.

"The fact that it's happening now is not a shock at all."

Canada's biggest banks will begin to report their full-year financial results on Dec. 2, with Bank of Montreal (TSX:BMO) going first.

Of the Canadian lenders, Scotiabank was considered one of the safest bets during the economic downturn, largely because its international operations were outside the United States, where the housing crisis tore into the results of some of its Canadian peers.

Scotiabank took a more global approach, picking up smaller banks in places like Mexico and building its operations in Latin America and the Caribbean.

But over the past year, those assets have proven to be a weight on the bank. In its most recent quarterly report, profits at the bank's international division fell 16 per cent to $452 million from a year earlier.

Analysts said it was no surprise that Scotiabank zeroed in on those operations, with plans to close about 10 per cent of its branches outside of Canada, including in Mexico and the Caribbean. …

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