BNS has released its Fourth Quarter 2008 Investor Presentation and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to! Note that it’s also time to update old installations of Adobe Acrobat … I had to update mine, because version 5.0 said the supplementary data file was damaged; verion 9.0 (has it been that long?) was fine.
Step One is to analyze their Tier 1 Capital, reproducing the prior format:
| BNS Capital Structure October, 2007 & October, 2008 |
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| 4Q07 | 4Q08 | |
| Total Tier 1 Capital | 20,225 | 23,263 |
| Common Shareholders’ Equity | 81.5% | 86.8% |
| Preferred Shares | 8.1% | 12.3% |
| Innovative Tier 1 Capital Instruments | 13.6% | 11.8% |
| Non-Controlling Interests in Subsidiaries | 2.5% | 2.2% |
| Goodwill | -5.6% | -9.8% |
| Miscellaneous | NA | -3.3% |
Next, the issuance capacity (from Part 3 of the introductory series):
| BNS Tier 1 Issuance Capacity October 2007 & October 2008 |
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| 4Q07 | 4Q08 | ||
| Equity Capital | (A) | 15,840 | 17,653 |
| Non-Equity Tier 1 Limit | (B=A/3), 4Q07 (B=0.666*A), 4Q08 |
5,280 | 11,757 |
| Innovative Tier 1 Capital | (C) | 2,750 | 2,750 |
| Preferred Limit | (D=B-C) | 2,530 | 9,007 |
| Preferred Actual | (E) | 1,635 | 2,860 |
| New Issuance Capacity | (F=D-E) | 895 | 6,147 |
| Items A, C & E are taken from the table “Regulatory Capital” of the supplementary information; Note that Item A includes Goodwill, FX losses, “Other Capital Deductions” and non-controlling interest Item B is as per OSFI Guidelines; the limit was recently increased. Items D & F are my calculations |
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and the all important Risk-Weighted Asset Ratios!
| BNS Risk-Weighted Asset Ratios October 2007 & October 2008 |
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| Note | 2007 | 4Q08 | |
| Equity Capital | A | 15,840 | 17,653 |
| Risk-Weighted Assets | B | 218,300 | 250,600 |
| Equity/RWA | C=A/B | 7.26% | 7.04% |
| Tier 1 Ratio | D | 9.3% | 9.3% |
| Capital Ratio | E | 10.5% | 11.1% |
| Assets to Capital Multiple | F | 18.22x | 18.23x |
| A is taken from the table “Issuance Capacity”, above B, D & E are taken from BNS’s Supplementary Report C is my calculation. F is from OSFI (4Q07) and BNS’s Supplementary Report (4Q08) of total assets ($507.6-billion) divided by total capital ($27.847-billion) (see below) |
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The calculations for the Assets-to-Capital multiple are not comparable; the OSFI figure will include an allowance for off-balance-sheet exposure.
It is apparent from the Quarterly Trend in the Basel I data that Scotia has been bulking up on its Risk Weighted Assets big-time, largely through “Loans and Acceptances” (which includes Securities Purchased under Resale Agreements”. This has been financed largely through deposits. To some extent, this reflects Scotia’s acquisition of Banco del Desarrollo in 2Q08:
The Bank completed the acquisition of Chile’s Banco del Desarrollo on November 26, 2007, through the acquisition of 99.5 per cent of the outstanding shares for $1.0 billion Canadian dollar equivalent (CDE). Total assets at acquisition were approximately CDE $5.6 billion, mainly comprised of loans. The Bank will combine the operations of Banco del Desarrollo with its existing Scotiabank Sud Americano banking operations. Based on acquisition date fair values, approximately CDE $797 million has been allocated to the estimated value of goodwill acquired. The purchase price allocation may be refined as the Bank completes its valuation of the assets acquired and liabilities assumed.
Risk-Weighted assets grew by $25-billion in the fourth quarter. On the Asset side of the average balance sheet (page 12), this was due to increases in Deposits with Other Banks ($4-billion), loans to retail & business ($15-billion) and the always popular “Other Assets” ($6-billion). This was financed by an increase in Business & Government Deposits ($10-billion), “Other Liabilities” ($12-billion) [which appear, via page 11, to be amounts owing on Derivatives]
Now let’s see if they announce another preferred share issue this afternoon!