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BEHIND THE HEADLINES: Scotiabank in for the long-haul

Tony Best

BEHIND THE HEADLINES: Scotiabank in for the long-haul

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Despite tough financial times, Scotiabank has sent a strong signal to the Caribbean: It isn’t running away from Barbados, Jamaica and their neighbours.

Was it a commitment or simply words of reassurance for these at a time of considerable economic stress?

“We have become the pre-eminent bank in the Caribbean. We’ve seen a lot of people leave or shrink their operations. That’s not what we are doing,” was the way Brian Porter, Scotiabank’s chief executive officer (CEO), put it the other day to the Toronto Globe & Mail newspaper in Washington.

His choice of words may have been a mix of both: a message of comfort and a hard-headed commitment to a part of the world where the bank has deep roots stretching back more than a century.  The trouble is the region’s economies are either stagnating or, in the case of Barbados, in somewhat of a recession.

When the burden of high debt and the impact of rising joblessness are added to the current financial equation, it would become clear why the English-speaking Caribbean states have risen so high on the list of underperforming Western Hemisphere countries.

It also explains something else: why investors and analysts in Canada have been urging Scotiabank, the Royal Bank of Canada and the Canadian Imperial Bank of Commerce (CIBC), to take a hard look at their Caribbean operations which have been dragging down overall profits.

A report card prepared and published by the Toronto Star, Canada largest circulating daily paper, on the operations of three major banks in the Caribbean tell much of the story:

CIBC’s profits for the second quarter of 2014 amounted to CAN$306 million (BDS$542.6 million), or 73 cents a share. A year earlier, the profit was CAN$862 million (BDS$1.5 billion) or CAN$2.09 (BDS$3.70) per share. Just as important, CIBC, the parent of FirstCaribbean Bank with headquarters in Barbados, stated in May that it would take a CAN$420 million (BDS$744.7 million) non-cash good impairment charge related to its Caribbean operations. Incremental loan losses for its Caribbean unit were put at CAN$123 million (BDS$248.1 million).

Earlier in the year, Royal Bank announced it was selling its Jamaica banking operations to Sagicor Jamaica Group. But the bank, which has maintained a presence across the Caribbean for more than a century, made it clear it wasn’t cutting and running from the region. Yes, it asserted, it remained committed to the region but it was paying increasing attention to areas where it had a larger market share.

Scotiabank reported a CAN$168 million (BDS$297.9 million) increase in provisions for bad loans in its international banking operations. It put much of the blame on activities in Peru.

According to Scotiabank’s CEO, the bank’s performance was being skewed by the Caribbean’s failure to rebound from the international financial crisis.

If the International Monetary Fund’s forecast turns out to be right on the money, then the big three Canadian banks shouldn’t expect a return to robust growth in the next few years.

“It seems the economic recovery in the region has been slow to materialise and the results are coming in worse than expectations,” said Tom Lewandowski, analyst at Edward Jones, a brokerage firm.

Indeed, Porter acknowledged that a major contributor to the stagnation in Scotiabank’s operations outside of Canada was weak economic performances in Jamaica, Belize and Puerto Rico.

Why, then, is the bank standing firm in an area where economic fortunes aren’t bright? Kevin Carmichael, a financial journalist, knows why.

“About a quarter of Scotiabank’s profits came from personal and commercial banking at its non-Canadian operations in the most recent quarter, while about a third of the institution’s profit comes from lending to Canadian households and business,” Carmichael wrote recently. “But there is more at stake than the bottom line. Scotiabank proudly bills itself as Canada’s ‘most international bank’ by virtue of its presence in more than 55 countries. Therefore, the institution’s reputation is tied closely to its success away from home.”

Scotiabank has been in the Caribbean since 1889 when it opened its first branch in Kingston to support the trade in rum, sugar and fish.

“Our Kingston branch was the first Canadian bank office to open outside of the UK or the US,” it stated on its website. “In fact, we opened our first branch in Kingston before our branch in Toronto, Canada, where our executive offices are now located.

“A century later, Scotiabank is the leading bank in the Caribbean and Central America, with operations in 25 countries, including affiliates,” it added.

But there may be another reason for Porter’s words of comfort and his bank’s supportive stance on the Caribbean. As he explained it, its losses in the region matched gains in Asia and Latin America.

That supports the time-worn contention of our super elderly Bajan nationals that there is always “more in the mortar than the pestle”.