Canadian Tire buys back Scotiabank's stake in financial arm, reviews options (updated)

Canadian Tire

31/10/2023 14:13

(Adds analyst comment in paragraph 7, details in 6 and 8)
       Oct 31 (Reuters) - Canadian Tire  CTCa.TO  has bought
back Bank of Nova Scotia's  BNS.TO  20% stake in its financial
services arm in a C$895 million ($647.14 million) cash
transaction and is reviewing alternatives for the unit, the
retailer said on Tuesday. 
    Bank of Nova Scotia had bought the stake in Canadian Tire
Financial Services (CTFS) for C$500 million in 2014 as it looked
to boost its share in the credit cards market and get access to
more customers.
    "Concluding this partnership (with Scotiabank) will give us
much greater control and flexibility in building out our loyalty
program," said Canadian Tire CEO Greg Hicks.
    Scotiabank said the deal would benefit its CET1 ratio, a key
gauge of a bank's financial strength, by about 16 basis points.
    The bank, Canada's fourth largest, cut 3% of its workforce
earlier this month, which it had said would be a 10 basis points
hit to its CET1 ratio.
    Analysts said the gain from the latest transaction will
partially offset the charges Scotiabank announced earlier.
    "This transaction provides more capital relief than the
charges previously announced and will likely help Scotiabank
achieve a 13% CET 1 ratio for Q4," RBC Capital Markets analyst
Darko Mihelic said, adding that the CTFS stake was not was
critical to Scotiabank's long-term strategy.
    The bank is also expected to lay out a fresh strategy at its
December investor day, the first such event after CEO Scott
Thomson tool charge in February. 
    Scotiabank said it will continue to provide a committed
credit facility of C$1.1 billion to CTFS for the next 18 months.
    CTFS plays a key role in the company's loyalty program, with
users who use it on average spending more than twice as much as
non-members, the retailer said. 
    Canadian Tire (CTC) said it would evaluate strategic
alternatives for CTFS, which will be undertaken with Goldman
Sachs as the company's financial adviser during 2024. 
    CTC will record a charge of C$328 million related to the
transaction, amounting to C$5.88 per share, which will be
reflected in its third-quarter 2023 results.   
 ($1 = 1.3830 Canadian dollars)

 (Reporting by Granth Vanaik in Bengaluru and Nivedita Balu in
Toronto; Editing by Shinjini Ganguli and Jonathan Oatis)
 ((Granth.Vanaik@thomsonreuters.com | X : https://twitter.com/Vanaik_Granth;))