Open this photo in gallery: Scotiabank announced this week that it plans to divest most of its ownership stake in its banking operations in Colombia, Costa Rica and Panama.ANDREW LAHODYNSKYJ/THE CANADIAN PRESS
Scott Thomson still has his work cut out for him.
The chief executive officer of Bank of Nova Scotia BNS-T is in the second year of a turnaround plan for Canada’s most international bank, which has lagged its domestic peers on a slew of key metrics, including earnings per share growth, for many years.
It’s a relief that Scotiabank’s flag-planting days are a thing of the past. Under Mr. Thomson’s leadership, the Toronto-based lender is aptly shifting its strategic focus from Latin America to North America and stripping risk out of its operations as it repositions itself for growth.
In line with those objectives, Scotiabank announced this week that it plans to divest most of its ownership stake in its banking operations in Colombia, Costa Rica and Panama. Under the terms of the proposed deal, Scotiabank will transfer those non-core assets to Colombian bank Davivienda.
In exchange, Scotiabank will obtain a 20-per-cent stake in Davivienda and the right to designate one or more individuals to serve on its board of directors. It will also record losses totalling roughly $1.7-billion on this deal.
Despite that short-term pain, pursuing these divestitures was the right thing to do. Latin American markets may have long-term growth potential, but they are also volatile. Mr. Thomson and his team are appropriately embracing the relative stability of North America to generate sustainable returns for the bank’s shareholders.
Still, some North American markets are less predictable than others (ahem, Mexico). That’s why Mr. Thomson’s next challenge is to offer investors specifics about how Scotiabank is mitigating a slew of risks facing its Mexican operations – its largest international division – in light of President Claudia Sheinbaum’s agenda and U.S. president-elect Donald Trump’s tariff threats.
Although Mr. Thomson has broached Mexico’s challenges in recent months, his commentary is short on details. It’s unfortunate. Offering just a few nuggets of clear and digestible information about how the bank is approaching risk management and capital deployment in Mexico would go a long way toward assuaging investors.
His comments Tuesday at the RBC Capital Markets 2025 Canadian Bank CEO Conference illustrate how communications are falling short.
Yes, he recognized “there is a lot of uncertainty” in all three North American countries. But instead of directly addressing those risks, he focused on the longer-term attractiveness of the regional trade bloc.
“In an environment like we have now, we’re being very thoughtful about deployment of capital into Mexico, as an example,” he said.
“However, longer-term, I do believe the economic rationale, the political rationale for a connected corridor continues to exist, and we’ll be there to capitalize on it when we get more clarity.”
To be fair, Mr. Thomson is in a tricky position because the political situation is in flux in Mexico, the United States and Canada. But that shouldn’t preclude him or other executives from offering additional insights about the evolution of Scotiabank’s risk management and its capital deployment criteria in Mexico.
Doing so is important because there are concerns that Ms. Sheinbaum and foreign investors are miscalculating the trade risks posed by Mr. Trump.
“though acquiescence is the prevailing approach to the us, mexican officials and investors are underestimating the challenge they face,” wrote Ian Bremmer, the president and founder of Eurasia Group, a political risk consultancy, in a report. (Mr. Bremmer has a thing about writing in lower-case letters.)
“while relations during the first trump presidency were prickly and the nafta renegotiation was difficult, tensions were contained. this time around, officials in washington will be more hawkish and united in their approach.”
In particular, Mr. Trump’s concerns about fentanyl, illegal immigration and the belief that China will use Mexico to circumvent tariffs will make reaching a new deal arduous, Mr. Bremmer added.
There are other risks for foreign investors to consider when it comes to Mexico.
Mr. Trump has also threatened to tax remittances from the United States. Those money flows total about US$60-billion a year, 4 per cent of Mexico’s GDP.
Certain planks of Ms. Sheinbaum’s domestic agenda are also eliciting concern.
There is speculation that she could target the banking sector for tax increases to bolster government coffers and tackle the country’s deficit. Mexico’s public finances are so messy that there are fears credit-rating agencies could downgrade its sovereign debt.
Mexico’s judicial reform, meanwhile, also has the potential to harm foreign investors. Starting this year, judges and magistrates will be elected by popular vote – a change that undermines judicial independence.
It’s unclear whether the government will accede to a banking industry request to create a specialized financial court that would make it easier for lenders to collect from delinquent borrowers.
Also causing consternation is a proposal to eliminate seven independent Mexican institutions, including the Federal Commission of Economic Competition, to save as much as 100 billion pesos a year. The proposal envisions transferring those functions to the government’s executive branch – a prospect that is fuelling legal uncertainty and anti-trust concerns.
Scotiabank owes it to investors to offer forthright commentary about these issues. The bank’s leadership, including Mr. Thomson, must recognize that an information vacuum is also a risk.