Scotiabank to Take $980 Million Charge on Colombia Unit Transfer

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(Bloomberg) -- Bank of Nova Scotia agreed to transfer its operations in Colombia, Costa Rica and Panama to Banco Davivienda SA of Colombia, saying it will take an after-tax charge of C$1.4 billion ($980 million) as a result.

The Toronto-based bank has been evaluating the potential sale of a handful of under-performing assets in Latin America for more than a year, and the planned transaction “supports Scotiabank’s operational efficiency efforts in its noncore markets,” the company said in a statement Monday.

As part of the transaction, Scotiabank will take a 20% ownership stake in Davivienda, Colombia’s third-largest bank, which has operations in Costa Rica, El Salvador, Honduras, Panama and Miami. Scotiabank will have the right to name one or more directors to serve on the board of the Bogota-based bank, which has more than 24.6 million clients.

“This is probably not a bad deal for them,” Greg Taylor, chief investment officer at Purpose Investments, which has more than $15 billion of assets under management, said in an interview. “Scotia can turn operations over to Davivienda to get the synergies with their other businesses and still participate as a minority investor. It is also on plan with setting up to focus more on the US.”

As part of its US focus, Scotiabank on Dec. 27 completed the remainder of a $2.8 billion deal to acquire 14.9% of Cleveland-based KeyCorp.

The deal is subject to regulatory approvals and set to close within a year, Scotiabank said, noting that it will take the impairment charge in the first fiscal quarter. The impairment charge will dent Scotiabank’s Common Equity Tier 1 capital ratio by about 10 to 15 basis points. But when the transaction closes, it should lead to a lower level of risk-weighted assets, the lender said, noting that at that point the CET1 ratio should get a benefit of roughly 10 to 15 basis points.

The lender also expects to record losses of about C$300 million upon closing, the result of currency-translation losses.

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