DBRS Comments on BNS Expansion in Thailand

DBRS has today reviewed the announcement made by the Bank of Nova Scotia (BNS or the Bank) that it has reached an agreement to acquire almost 47.6% of Thailand’s Siam City Bank, PCL (Siam City Bank). There are no rating implications.

The transaction is consistent with BNS’s strategy of growing its international operations. DBRS views BNS’s international operations as a key component of the Bank’s growth strategy. While this strategy is not without risk, the risk is managed through diversification among many different countries.

Upon closing of the 47.6% acquisition of Siam City Bank, Thanachart Bank (Thanachart; 49% owned by BNS) will launch a tender offer for the outstanding shares of Siam City Bank. Following completion of the tender, Siam City Bank and Thanachart would be merged. BNS will own 49% of the merged bank. The transaction is expected to close by January 2011.

The merged bank will be the fifth largest bank in Thailand as measured by assets, branches, loans and deposits. The acquisition positions the Bank for future growth opportunities in the country, given the low penetration rate of banking in Thailand.

BNS is investing approximately $650 million in capital as its part of financing for the transaction. The transaction is expected to be accretive to earnings in year one ($0.05 per share) and have a modest impact on BNS’s Tier 1 capital ratio (a decrease of 12 basis points).

Thanachart is the eighth largest bank in Thailand, with $13.9 billion in assets, representing 4.2% market share, and has a focus on auto lending. Siam City Bank is the ninth largest bank in Thailand, with $13.6 billion in assets, representing 4.1% market share; it is focused on commercial and mortgage lending.

Notes:
All figures are in Canadian dollars unless otherwise noted.

DBRS ratings also apply to Scotia Mortgage Corporation, Montreal Trust Company of Canada and National Trust Company, which are unconditionally guaranteed by Bank of Nova Scotia.

The applicable methodologies are Rating Banks in Canada, Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessment and Rating Preferred Shares and Equivalent Hybrids, which can be found on the DBRS website under Methodologies.

This is a Corporate (Financial Institutions) rating.