By David Pett From Financial Post

Trouble in the Caribbean is becoming a popular refrain on Bay Street these days: The Bank of Nova Scotia is the latest to suffer, announcing it will write down more than $100-million in loans related to its hospitality portfolio in the region.

‘Not something we have traditionally done,’ Scotiabank CEO says of major writedown

Brian Porter, the first of a new crop of CEOs to take over at Canada’s biggest banks, closed out his first year Tuesday by announcing a fourth-quarter hit of $451-million in restructuring and other charges.

Mr. Porter cast the wide-ranging overhaul affecting Canadian and international banking businesses, including the Caribbean, as part of an ongoing effort to cut costs and focus on high-growth areas. Keep reading.

The charge, which was part of a bigger package of impaired charges announced by the bank Tuesday, follows on the heels of an even bigger one suffered by Canadian Imperial Bank of Commerce’s First Caribbean subsidiary earlier this year and further underlines a persistent weak spot in the international growth prospects of the country’s Big 6 banks.

“They’re not running away from the Caribbean, but they’re certainly not expanding there,” said Craig Ellis, a portfolio manager at Bellwether Investment Management Inc. “For most of the banks, it’s now simply about trying to reduce their cost structures there.”

Canadian banks have long been dominant players in the Caribbean, with Royal Bank of Canada, CIBC and Scotiabank accounting for close to 60% of bank assets in the region.

It was a lucrative place to do business in the early 2000s, but many countries including islands such as Jamaica and Barbados have not fully recovered from the financial crisis, leaving economies there burdened by high unemployment and rising debt.

Tourism in the region, in particular, has suffered in recent years, largely from the tepid recovery in the U.S., said Peter Routledge, analyst at National Bank Financial.

“The data from the U.S. over the past six months is encouraging and as more and more people feel comfortable about their future, maybe they’ll take a break and go to the Caribbean and enjoy a couple of weeks off,” he said.

But that hasn’t been happening enough lately and the tough economic environment has put pressure on all three Canadian banks with a presence in the region, starting with Royal Bank, which announced the sale of its Jamaican business in January of this year, after 100 years of doing business in the country.

In May, CIBC warned that it was taking a $420-million after-tax charge related to goodwill on its FirstCaribbean subsidiary because of “persistently challenging economic conditions.” At the same time, it said it would record $123-million after tax of new loan losses in the Caribbean.

Scotiabank’s impairment charge announcement Tuesday is just the latest hiccup in the region. Canada’s third-largest bank said it expects to record additional loan loss provisions of approximately $109-million, related primarily to three existing net impaired loans within the Caribbean region’s hospitality portfolio.

Scotia announced a number of additional charges, totaling $451-million all together, but it was the Caribbean charge that was most disconcerting for several analysts, including Mario Mendonca of TD Securities.

“There remains slightly less than $1-billion in hospitality exposure in the Caribbean that could be written down further,” he said. “We suspect however, that the company would err on the side of conservatism in this instance.”

In any event, investors may need to get used to further measures from the Canadian banks in the Caribbean, said Mr. Ellis, as they each deal with slow economic growth in the region and other issues impacting banking in the region, including the curtailment of offshore tax haven activity in countries such as the Bahamas and Cayman Islands in recent years.

“You have too many banks fighting for fewer dollars so you have to have some rationalization,” he said.

Even so, Mr. Ellis isn’t terribly concerned about the bank’s troubles in the Caribbean. He said the region is only a small percentage of the overall international footprint of the banks that should remain generally profitable going forward.

IMAGE: Scotiabank’s Caribbean writedown, which was part of a bigger package of impaired charges announced by the bank Tuesday, follows on the heels of an even bigger one suffered by Canadian Imperial Bank of Commerce’s First Caribbean subsidiary earlier this year and further underlines a persistent weak spot in the international growth prospects of the country’s Big 6 banks. Above, a woman walks past The Scotia Bank of Canada building in Toronto.

For more on this story go to: http://business.financialpost.com/2014/11/04/scotiabanks-caribbean-setback-signals-growing-sore-spot-for-canadas-big-banks/

Related story:

Scotiabank closing several branches in Caribbean, Mexico to cut costs

From Caribbean360

OTTAWA, Canada, Thursday November 6, 2014, CMC – Canada’s Scotiabank has announced plans to shut or shrink 120 branches, largely in Mexico and the Caribbean, in a bid to save CAN$120 million (One Canadian dollar =US$0.87 cents) annually.

The bank said it would close down 35 of its 200 branches in the Caribbean and would sever 1, 500 full-time employees, including 500 from its international operations.

“In some of these (Caribbean) countries, we are just overbranched and we have to size it to the economic realities of these economies,” said Scotiabank chief executive officer, Brian Porter.

Porter said that the bank’s revenue growth has been encouraging outside Canada, but profit has not jumped as much he would like.

“The frustration for us across the international footprint is we’ve had very solid asset growth over the last three or four years, and not all of that has dropped to the bottom line,” he said, adding that the bank still has plans to grow in the region.

Scotiabank said the closure of the Caribbean branches were due “to the prolonged economic recovery and continued uncertain outlook” and that it had started restructuring initiatives “in order to improve the speed and quality of service it provides its customers, to reduce costs in a sustainable manner, and to achieve greater operational efficiencies.

“The bank intends to record a restructuring provision of approximately CAN$148 million in the fourth quarter. The majority of the restructuring provision relates to employee severance charges in the bank’s Canadian banking and international banking divisions and will affect people at all levels of the organisation.”

The statement said “in international banking, the charges are primarily for closing or downsizing approximately 120 branches, which will allow us to focus on high-growth markets, minimise branch overlap, and realise synergies resulting from recent acquisitions.”

Scotiabank made a record CAN$6.7-billion net income in 2013.

For more on this story go to: http://www.caribbean360.com/business/scotiabank-closing-several-branches-in-caribbean-mexico-to-cut-costs#ixzz3IKqzeixp

EDITOR: Scotiabank officials in the Cayman Islands would make no comment on whether there would be a scaling down of operations here in the Cayman Islands