Nichola Saminather

TORONTO (Reuters – Scotiabank shareholders have urged Canada’s No. 3. lender, to examine seriously the Mexican consumer bank unit being sold by Citigroup (NYSE:), asserting that scaling up would be beneficial in this fast-growing Latin American nation.

The market views Scotiabank as an obvious bidder, even though Brian Porter, Chief Executive Officer of Scotiabank, downplayed his desire for large deals just one day before Citibanamex was announced. This is Mexico’s third largest retail bank.

Citibanamex is valued at $4 billion-8 billion. This acquisition would allow Scotiabank to expand Mexico. Mexico accounted for almost a quarter its total international revenue and 7.6% of Scotiabank’s total revenue.

Allan Small, Allan Small Financial Group and iA Private Wealth said that “it’s another chance to expand beyond Canada,”

Small said, “If assets become available at the correct price, I wouldn’t be surprised to hear Scotiabank make an offer for them.”

Scotiabank had approximately C$7.5 billion in excess capital by the end 2021. Porter however stated that Scotiabank isn’t considering any acquisitions outside U.S wealth deals worth less than C$900million ($719 million).

Porter stated last week that there aren’t large files in my desk regarding the purchase of a stake in Mexico’s bank, or any other similar matter.

Scotiabank declined further comment.

Mexico’s expansion isn’t without its risks. The international banking business of Scotiabank, which is dominated by Mexico and Peru, Chile, and Colombia has been hit hard recently.

The business is responsible for the majority of impaired loans and writeoffs.

FASTER GROWTH

However, Scotiabank has performed better in this period than other periods. Porter believes that the strength of Mexico and Chile will offset any weakness in other markets in 2021.

The unit will drive an increase in net interest margins due to faster economic growth than Canada and higher interest rates.

James Shanahan from Edward Jones analyst said that the deal could “enable significant incremental growth in Mexico, which would drive better bottom-line results.”

Limited Canadian growth has driven major banks’ overseas expansion for decades. After amassing large amounts of capital in excess during the pandemics, they have intensified their efforts and are now focusing on the United States.

This raises questions about whether overpaying is a problem. In spite of concerns over the $16.3 million premium Bank of Montreal spent on BNP Paribas’ U.S. Unit (OTC:), executives stated that it can extract higher efficiencies and greater returns than smaller competitors.

Referring to an analyst estimate that Citi could seek as much $15 billion for Citibanamex, Kingwest & Co Portfolio Manager Anthony Visano said Scotiabank would require “substantial equity financing” to fund such a deal. However, it would be able to achieve more synergies with Citi than BMO will in the U.S. by being present in the same market as Citi and would make Scotiabank Mexico’s second largest lender.

He asked, “Does it justify a higher surface price? He suggested that it could. But they would be wise to exercise caution. Price is the key factor.

If Scotiabank decides to bid for Spain, it may face stiff competition from local billionaires Ricardo Salinas Pliego and Javier Garza Calderon (Mexican entrepreneur), Carlos Slim’s Inbursa, Spain’s Carlos Slim, as well as potential suitors like Ricardo Salinas Pliego and Ricardo Salinas Pliego. Banco Santander (MC:).

And though Mexican officials say they don’t have any bias toward bidders from abroad or locally, President Andres Manuel Lopez Obrador has called for domestic investors “Mexicanization” of the bank.