DBRS: BNS Ratings Unchanged Following FDIC-Assisted Acquisition of R-G Premier Bank

DBRS believes that the Bank of Nova Scotia’s (Scotiabank or BNS) recently announced acquisition of the banking operations of R-G Premier Bank of Puerto Rico (R-G Premier Bank) will not have a material impact on Scotiabank’s current earnings and capital. Credit risk is manageable, given the loss-sharing agreement with the Federal Deposit Insurance Corporation (FDIC). As such, there are no rating implications for BNS at this time.

DBRS views this transaction as consistent with Scotiabank’s desire to achieve scale in its targeted markets. R-G Premier Bank, which has 6% deposit market share, significantly adds scale to BNS’s existing Puerto Rico operations of Scotiabank de Puerto Rico, which has a 3% market share.

This transaction is expected to have limited downside credit risk as there is a loss-sharing agreement in place, with FDIC sharing in 80% of the loan losses originating from the US$5.3 billion in acquired loans. This FDIC coverage lasts for ten years for residential real estate loans and five years for all other loans.

Scotiabank acquired US$5.6 billion in assets, including US$5.3 billion in loss covered loans, and assuming US$2.2 billion in deposits, with FDIC providing the additional funding to balance the acquired assets. R-G Premier Bank adds 29 branches and 61 ATMs to BNS’s existing network of 17 branches and 60 ATMs in Puerto Rico. R-G Premier Bank is focused on residential mortgages and real estate loans while Scotiabank de Puerto Rico has strength in corporate and commercial banking, mortgage lending and automotive financing.

DBRS believes that one of the headwinds facing BNS is the weak Puerto Rican economy.

Headquartered in Toronto, Canada, the Bank of Nova Scotia has a full-service retail banking operation and wealth management in Canada, international retail banking franchises (Mexico, the Caribbean, Central America and South America) and a full-service domestic corporate and investment bank with global precious metal capabilities. Scotiabank is the most internationally diversified of Canada’s major banks.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Global Methodology for Rating Banks and Banking Organizations (January 14, 2010), which can be found on our website under Methodologies

This is a Corporate (Financial Institutions) rating.