Bank of Nova Scotia says it will cut 1,500 jobs — two-thirds of them in Canada — and also write down its investment in Venezuela, while setting aside more funds for loan losses in the Caribbean.
The country’s third largest and most international bank said the moves will cut its fourth quarter after-tax profit by $341 million.
The job cuts will take place in its Toronto head office as well as in branches across Canada, the bank said in a statement.
Despite the magnitude of the announcement, the bank said it remains on track to meet its 2014 financial objectives.
Like Canada’s other major banks, Scotiabank has been extremely profitable, reporting $5.57 billion of net profit in the first three quarters of 2014.
That prompted some critical comments on Twitter from observers asking why the bank, whose slogan is “you’re richer than you think,” needs to cut jobs.
“These are good, relatively qualified, middle-class jobs that will be eliminated in Canada,” said David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives.
Canada’s banks received $112 billion in government support at the height of the 2008 financial crisis, Macdonald noted. Perhaps those loans, which have all been repaid, should have been tied to some form of commitment to preserving jobs in Canada.
“Today’s announcement is a result of making some difficult but necessary decisions to support our long-term goals,” said Brian Porter, who became Scotiabank’s president and chief executive officer a year ago.
“We are confident that these initiatives will allow us to continue investing in high-growth areas of the bank. Notwithstanding these unusual charges, we remain confident that our 2014 reported results will be within our financial objectives for the full year.”
The announcement did little to boost Scotiabank’s share price. After an initial spike, the stock dropped by 77 cents to $68.01 in mid-morning trading on the Toronto Stock Exchange.
“We do not believe that the charges will be well received by investors, particularly the credit provisions associated with the Caribbean hospitality portfolio, which have raised significant questions in the past,” John Aiken, an analyst with Barclays Capital, wrote in a note to clients.
“That said, after lagging the group for the past year and significantly underperforming since the third quarter was reported, we would anticipate that the relative downside for Scotia is limited and, after the initial disappointment passes, putting these issues behind may help improve the market’s outlook towards its growth,” Aiken wrote.
In total, Scotiabank expects to recognize $341 million of items in the fourth quarter ended Oct. 31 that will reduce its diluted earnings by 28 cents per share. The full financial report will be issued in December but the company scheduled a morning conference call on Tuesday to discuss the announcement.
About $148 million of the fourth-quarter provisions will be related to severance or restructuring costs.
Porter, who has been Scotiabank’s top executive since Rich Waugh retired last November after a decade in the role, said “everyone impacted by these changes will be treated with fairness and respect and deserves our thanks for their important contributions to Scotiabank.”
Scotiabank says the downsizing will affect people at all levels of the organization and include the closure of about 120 branches in its international division.
In Canada, no branch closures were announced but Scotiabank will centralize and automate several branch functions and reduce operational support for its wealth-management activities — which typically assist clients with investment and savings.
It expects to reduce annual costs by $120 million through the exercise but the full benefits won’t be seen until its 2016 financial year, which begins next November.
Scotiabank is also taking a number of other steps that will reduce profit in the fourth quarter of its 2014 financial year, which ended Oct. 31, including an additional $109 million of loan loss provisions related to loans in the Caribbean region.
It will also write down the value of its investment in a Venezuelan bank by $129 million and take a $47 million charge related to unremitted dividends from Banco del Caribe in Venezuela, due to a change in currency exchange rates.
With files from Canadian Press