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Scotia CEO appointment 'surprising' but no major strategy shift expected: Analysts – Yahoo Canada Finance

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Bank of Nova Scotia announced Finning International CEO Scott Thomson will succeed Brian Porter as president and chief executive officer as of February 1, 2023. (CNW Group/Scotiabank)

Bank of Nova Scotia announced Finning International CEO Scott Thomson will succeed Brian Porter as president and chief executive officer as of February 1, 2023. (CNW Group/Scotiabank)

Bank of Nova Scotia’s decision to name a new chief executive officer from outside its senior ranks is unusual, according to analysts, but many do not expect that to lead to a major shift in the Canadian bank’s business strategy.

On Monday, Bank of Nova Scotia (BNS) (BNS.TO) announced Brian Porter will retire as president and chief executive as of January 31, 2023 after nearly ten years at the helm. He will be succeeded by Finning International’s Scott Thomson, who already sits on the lender’s board of directors.

“The appointment of a Canadian bank CEO from outside of the organization/industry is surprising,” said John Aiken, head of research in Canada and senior analyst at Barclays, in a note to clients Monday. Aiken has an equal weight rating on the company and a 12-month price target of $86.00 per share.

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“That said, with Mr. Thomson’s involvement in the board (and several committees), we do not expect the transition to be jarring and the move leads us to believe that there should not be an immediate shift in Scotia’s strategy as Mr. Thomson has been involved in developing it at the board level.”

Thomson has held a board seat at the bank since 2016 and will leave his role at Finning, which is the world’s largest dealer in Caterpillar equipment, in mid-November.

“I am confident that Scott Thomson will guide the bank through the next phase of its growth and development. He is a results-driven and proven leader who executes with purpose and shares values that are aligned with those of the bank,” Brian Porter said in a release Monday.

The timing of the transition is less than ideal, according to Nigel D’Souza, a financial services analyst at Veritas Investment Research.

“The timing of the announcement seems sub-optimal given current macroeconomic uncertainty and market volatility,” D’Souza said in an email to Yahoo Finance Canada. He also called the decision to promote an external candidate “atypical.”

The CEO transition comes amid a downturn in financial markets and during a time of heightened concerns about a looming recession brought on by high inflation and soaring interest rates.

Bank of Nova Scotia shares traded at a 52-week low on Monday. The stock price has also significantly underperformed its big bank peers over five years. As of early Monday, Bank of Nova Scotia shares were down about 15 per cent over that time span, while its four rivals were up by an average of 22 per cent.

Part of the issue has been concerns over the company’s relatively large international banking exposure. In recent years, Bank of Nova Scotia has sold assets to narrow its focus on specific Latin American regions.

However, Thomson’s expertise in Latin America could stand to benefit the bank.

“During his tenure as CEO of Finning, Mr. Thomson has led the company through challenging market conditions, and managed to significantly improve the company’s earnings capacity, driving increased return on invested capital, particularly in Latin America,” Aiken said.

Despite the issues in Latin America, the bank is likely to largely stay the course on its strategy, analysts said.

“Based on our initial discussion with management, investors should not expect any material changes to BNS current strategy, with the LatAm region remaining a heavy focus for future growth,” said Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, in a client note on Monday.

“While the broad strategy is likely to stay intact, we believe the new CEO will look to improve the bank’s execution, particularly with BNS’ share price having materially underperformed its Big Six peer group over the past five-year period.”

Rizvanovic has a market perform rating on the stock and a 12-month price target of $86.00 per share.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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FTX founder speaks for 1st time since crypto company's collapse – CBC.ca

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  1. FTX founder speaks for 1st time since crypto company’s collapse  CBC.ca
  2. Here’s what an FTX investor thinks of Sam Bankman-Fried  Fox Business
  3. A journalist who interviewed Sam Bankman-Fried about FTX’s collapse said it ‘felt like a therapy session’ for the crypto mogul  Yahoo Canada Finance
  4. SBF Missed FTX’s Risks  Bloomberg
  5. View Full Coverage on Google News



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Blackstone limits withdrawals from its US$69-billion REIT – The Globe and Mail

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Blackstone Inc limited withdrawals from its $69 billion real estate income trust (REIT) on Thursday after receiving too many redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

The curbs in redemptions came because they hit pre-set limits, rather than Blackstone setting the redemption limits on the day. Nonetheless, they fuelled investor concerns about the future of the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended trading down 7.1% on the news.

Investors in the REIT, which is not publicly traded, have been growing concerned that Blackstone has been slow to adjust the vehicle’s valuation to that of publicly-traded REITs, which have taken a hit amid rising interest rates, a source close to the fund said. Rising interest rates weigh on real estate values because they make financing them more expensive.

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Blackstone has reported a 9.3% year-to-date return for its REIT, net of fees, while the publicly-traded REIT index is down 3.02% in the same period. This outperformance has some investors questioning how Blackstone comes up with the valuation of its REIT, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.

“People are taking profits at the value Blackstone says their Blackstone REIT shares are at,” said Snyder.

A Blackstone spokesperson declined to comment on how Blackstone values its REIT but said its portfolio was concentrated in rental housing and logistics and relied on a long-term fixed rate debt structure, making it resilient.

“Our business is built on performance, not fund flows, and performance is rock solid,” the spokesperson said.

Two sources familiar with the matter said turmoil in the Asian market, fuelled by concerns about China’s economic prospects and political stability, contributed to the redemptions. The majority of investors redeeming were from Asia and needed the liquidity, they said.

Blackstone said it would curb withdrawals from its REIT franchise after it received redemption requests in November greater than 2% of its monthly net asset value and 5% of its quarterly net asset value.

Analysts said that Blackstone’s REIT runs the risk of getting caught in a spiral of selling assets to meet redemptions if it cannot regain the trust of many of its investors. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.

“The impact on Blackstone depends on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off scenario, with significant asset sales and ongoing redemption backlog – too early to tell, in our view,” BMO Capital Markets analysts wrote in a note.

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Big Six bank earnings show mixed bag for Canadian economy – CTV News

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The most recent earnings reports from Canada’s big banks are showing signs that the Canadian economy is slowing down ahead of a potential recession, with some signs of optimism.

The Big Six banks – RBC, TD, CIBC, Scotiabank, BMO and National Bank – all released their Q4 2022 reports this week. Five out of the six saw their profits dip compared to last year and three fell short of their earnings expectations.

Michael Morrow, managing director of mergers and acquisitions and capital markets at financial firm BDO Canada, says high inflation, lower capital markets activity and rising loan-loss provisions are all putting pressure on the big banks.

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High inflation has meant higher operating costs – including higher staffing costs amid a tight labour market – that has cut into their margins, Morrow said. Meanwhile, rising interest rates and economic uncertainties have slowed investment and led to lower capital markets activity.

“Capital markets activity continues to be a drag on all of the banks, particularly those that have a higher concentration of capital markets activity versus regular retail-related activity,” Morrow said.

RBC CEO Dave McKay said on an earnings call on Wednesday the bank is bracing for a “brief and moderate recession.”

In anticipation of an economic downturn, the big banks are also increasing their loan-loss provisions, which refers to money set aside to cover bad loans.

“As the bank’s worry about the economic performance of the Canadian economy, what that might mean is more loan losses going forward. And so their provisions every quarter has been creeping up, including this quarter,” Morrow said.

“It’s definitely a leading indicator in terms of where we think the Canadian economy will be next year and where the where the risks lie.”

Loan-loss provisions especially weighed heavily on CIBC, which set provisions for credit losses for the three-month period of $436 million, up from $78 million in the same quarter last year. CIBC missed its earnings expectations by over 19 per cent.

“As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation,” said CIBC CEO Victor Dodig on an earnings call on Thursday.

“In response to these headwinds … we are going to continue to take actions to reposition our business to adjust to these new realities, but also continue to grow our client franchise and moderate our expense growth.”

But despite these so-called headwinds, Morrow believes there is still good news to be gleaned from these results. Most of the Big Six are increasing their dividend rates for shareholders, which Morrow says “provides us with a view of confidence in the stability of the banks and their earnings profile.”

“If they’re increasing dividend rates, then that’s certainly an indication that they feel that the business and their capital ratios are going to be able to not only withstand this downturn, but continue to thrive through the year, through the back half of next year,” he explained.

On top of that, RBC announced it would be taking over HSBC’s Canadian operations in a $13.5 billion deal, pending regulatory approval. Morrow says he sees the purchase as a “positive vote of confidence for the Canadian economy,” especially given the fact that RBC is paying a premium price for the acquisition. The bank is paying 9.4 times HSBC Canada’s 2024 adjusted earnings.

“Certainly, you know, it gleans to the confidence that RBC has within the within the Canadian lending market. And if there were certain doubts in the Canadian market, you wouldn’t see these participants paying premiums in the marketplace at this point in the cycle,” he said.

With files from The Canadian Press and Reuters

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