Scotiabank agrees to buy BBVA's stake in BBVA Chile

LONDON/TORONTO (Reuters) - Bank Of Nova Scotia BNS.TO has agreed to buy Spanish lender Banco Bilbao Vizcaya Argentaria SA's BBVA.MC stake in BBVA Chile BHI.SN for $2.2 billion in a move that would make it Chile's third largest privately-owned bank.

FILE PHOTO: A woman leaves a Bank of Nova Scotia (Scotiabank) branch in Ottawa, Ontario, Canada, on May 31, 2016. REUTERS/Chris Wattie/File Photo

Scotiabank, Canada’s third-biggest lender, has the biggest foreign presence of any Canadian bank and has focused its international strategy on the Pacific Alliance, a Latin American trading bloc comprising Mexico, Peru, Chile and Colombia which it expects will generate strong growth in the next few years.

Chief Executive Brian Porter said in September that the potential acquisition of BBVA’s retail business in Chile was a “once in a lifetime opportunity.”

Despite weak growth in the world’s No. 1 copper producer, Chile’s banking industry surged nearly 9 percent in the first three quarters of 2017, boosted by growth in consumer loans and commissions.

Scotiabank said on Tuesday its acquisition of BBVA Chile would double its share of the Chilean market, worth around C$390 billion, to 14 percent.

BBVA owns 68 percent of BBVA Chile, while the Said family of Chile owns another 29 percent of the listed retail bank, which had a total market capitalization of $2.2 billion on Tuesday.

BBVA said it would accept the offer, which values BBVA Chile at around $3.2 billion, if it was approved by the Said family. The family has the right to sell its shares to Scotiabank under the same terms.

Porter told analysts on a conference call he expected to complete the purchase, which will be the biggest ever acquisition outside of North America by a Canadian bank, next summer.

The bank said the deal would impact its core tier 1 capital by 135 basis points. However, Chief Financial Officer Sean McGuckin said he expects its core tier 1 ratio, a key measure of its financial strength to stay above 10.5 percent.

Scotiabank also reported fourth-quarter earnings below analyst forecasts on Tuesday. Earnings per share for the quarter ended Oct. 31 were C$1.64, up from C$1.57 a year ago. Analysts had on average forecast earnings of C$1.66 per share, Thomson Reuters I/B/E/S data showed.

Shares in Scotiabank were down 2.6 percent at 1510 GMT. Shares in BBVA, Spain’s second-biggest lender, were up 0.5 percent.

BBVA said the sale would result in a net capital gain of 640 million euros ($760 million) and would improve its core tier 1 capital adequacy ratio by 0.5 percentage points.

Several brokers, including Alantra, Keefe Bruyette & Woods and UBS, said the deal would be positive for BBVA.

BBVA relies heavily on its subsidiary in Mexico to boost earnings and offset the squeeze on its margins at home in Spain, where it is suffering from ultra low interest rates.

The Spanish bank said in August it was looking at the possible sale of its Chilean retail bank after Scotiabank expressed an interest in buying it, although it had no plans to quit Chile altogether. The offer from Scotiabank does not include its consumer finance unit in Chile.

Reporting by Emma Rumney in London, Matt Scuffham in Toronto, Jesús Aguado in Madrid, David Sherwood in Santiago and Rishika Chatterjee in Bengaluru; Editing by Greg Mahlich and Nick Zieminski