A rchive Date
[ 15-10-2004 ]
Category
[ International Relations ]
sub-Categoy
[ Argentina ]
|
[http://www.canoe.ca/Canoe/canoemoney.html
Scotiabank's stake in Argentina in doubt amid country's financial collapse
Tue., Jan. 08, 2002
Last update: 17:28 EST
TORONTO (CP) - Scotiabank's BNS strategy in South America has been thrown in limbo thanks to a financial crisis in Argentina that will likely see the big Canadian bank pull out of the country.
Losing Scotiabank Quilmes - the 12th largest bank in Argentina - would take a big chunk out Bank of Nova Scotia's assets in South America, said Tanya Azarchs, who follows Canadian banks for Standard and Poor's in New York.
"If they don't have that, the other investments are really quite small. It throws it into doubt as to whether it makes sense to have a couple of third-tier banks in some of the lesser countries."
And as the crisis intensifies, it's looking more like Scotiabank's $327 million investment in the wholly owned Argentine subsidiary "may turn out to be a total writeoff," she said Tuesday.
"I think their continued ownership of Quilmes is in doubt. I think there's a good chance that they'll disinvest there," said Azarchs.
"In order to stay there, they'd have to invest further, help recapitalize and put more investment into it... It would be hard to justify additional investment."
Other analysts agree Scotiabank is likely to pull out of Argentina but opinions vary on what effect that will have on the bank's overall strategy in South America.
Scotiabank is the most international of Canada's financial institutions, with major operations in Latin America, the Caribbean and Asia.
It has a significant investment in Mexico with its Grupo Financier Inverlat bank, which Azarchs said would be unaffected by the bank's possible retreat from Argentina.
Apart from Quilmes, which has 93 branches and 1,700 employees in Argentina, Scotiabank's other significant South American investment is Banco Sud Americano in Chile.
Banco Sud Americano would be most affected by a pullout from Argentina as Scotiabank's strategy had been to combine back offices of the two banks and impose North American infrastructure on the operations to cut costs.
Scotiabank also has small stakes in banks in Peru and Venezuela.
Quentin Broad, a bank analyst with CIBC World Markets, said he doesn't think Argentina is the critical lever of Scotiabank's Latin American strategy.
"You start with Mexico and you move on down. As you move into South America, they have a number of toes in the water that they'll continue to build on."
Broad said the bank will likely slowdown its acquisitions and investments but it's unlikely to "abandon" the region.
The Toronto-based bank had $918 million in loans and investments in Argentina in its financial fourth quarter ended Oct. 31, including the Quilmes investment.
In a conference call with analysts last month, chief executive Peter Godsoe indicated the bank wasn't prepared to invest further in Quilmes. The worst-case scenario would be to pull out of the country at a cost of about $566 million - or less than a quarter's profit, he said.
But in the past few weeks, the Argentine situation imploded with a turnover of five presidents and the country declaring itself bankrupt. A new economic plan announced on the weekend has been reportedly rejected by the Group of Seven countries that hold the key to a $15-billion US bailout package.
The plan calls for the devaluation of the peso, pegged for the past 11 years at one to one with the U.S. dollar. A dollar will now officially buy 1.4 pesos for all import and export transactions, while a parallel floating rate is to be set on the foreign exchange market for ordinary Argentines.
The financial impact of the devaluation of the peso, combined with "the going concern of operating in Argentina," will lead to writedowns in the bank's first quarter ending Jan. 31, Broad predicted.
"If you don't think you've got $200 million US of equity left, then you've got to start writing it down," he said Tuesday.
"As the devaluation runs through, they're going to feel the pressures domestically. Having said that, at the end of the day, if they don't like what they see... they can walk away."
The political and economic uncertainty led Scotia Capital bank analyst Kevin Choquette to conclude in a recent report that "the exit strategy (is) the most likely outcome."
Choquette said the bank should consider selling the subsidiary as it may not otherwise be able to recover its investment. He calculates the bank would lose as much as 40 cents a share if it had to write down all of its Quilmes assets.
 World Fact Book (CIA]
|