The job cuts illustrate the scope of CEO Thomson’s challenges in the face of sluggish revenue growth and rising deposit costs. — Bloomberg
Toronto: Bank of Nova Scotia will dismiss 3% of its employees and take a writedown on its investment in a Chinese bank in a broad restructuring that underscores new chief executive officer Scott Thomson’s focus on cutting costs.
It could also be sign that job cuts are coming at other Canadian lenders.
The reductions amount to about 2,700 jobs, based on the Canadian bank’s staff count as of July 31.
Toronto-based Scotiabank said it will take a C$590mil charge in its fiscal fourth quarter, equal to 49 Canadian cents a share.
The job cuts illustrate the scope of Thomson’s challenges in the face of sluggish revenue growth and rising deposit costs. Scotiabank has scheduled an investor day for Dec 13, when he’s expected to outline an updated strategy for the bank.
Thomson, previously the CEO of industrial equipment dealer Finning International Inc, said during an investor conference in September that he adopted a mantra of “better, faster and at a lower cost” in that role, and that he would bring “relentless discipline around cost management” to Scotiabank. He became CEO on Feb 1.
The CEO has said that changes to the bank’s operations may include “end-to-end digitisation” as well as centralisation of its international unit, rather than running it on a “country by country by country” basis.
The bank has operations in Mexico, Peru, Chile, Colombia and other Latin American economies.
Scotiabank’s job cuts can be seen as part of a wider industry phenomenon, and other Canadian lenders could follow suit when they report their fiscal fourth-quarter results in late November and early December.
The banks are facing slower loan growth, poor capital-markets prospects and macroeconomic headwinds that have raised the risk of credit defaults.
They all hired aggressively during the pandemic, “so it’s not a surprise that they’re reducing,” Laura Lau, chief investment officer at Brompton Corp, said on BNN Bloomberg television.
“In general for banks it makes sense for them to get rid of 1% to 3% every year of their bottom performers.”
The job cuts at Scotiabank come two months after Royal Bank of Canada said it already eliminated 1% of staff in the quarter and would cut up to 2% of its full-time equivalent staff in coming months as it tries to reduce expense growth.
Bank of Montreal said last quarter that it had incurred restructuring charges after cutting 2.5% of workers in the period.
It has trimmed staff in investment banking, research and other areas.
The banks have all promised to boost their operating leverage ratios in 2024, Bloomberg Intelligence analyst Paul Gulberg said in an interview.
He said he expects to see more restructurings from others as the lenders likely see the last quarter of this year as an opportunity to take charges on job cuts and move ahead with cleaner balance sheets.
Scotiabank’s restructuring charges also include the cost of exiting real estate and other contracts.
Included in the announcement are impairment charges of C$280mil, after taxes, related to the bank’s investment in Bank of Xi’an Co, “whose market value has remained below the bank’s carrying value for a prolonged period”, as well as impairment of intangible assets including software.
In its fiscal third quarter report in late August, Scotiabank said the market value of its 18% investment in the Chinese bank, based on Bank of Xi’an’s share price, was C$581mil.
That was below the carrying value of just over C$1bil, but the bank said at the time that it had performed an impairment test and concluded there was no impairment as of July 31. — Bloomberg
