Canadian Tire buys back Scotiabank’s stake in financial arm, reviews options

(Reuters) – Canadian Tire has bought back Bank of Nova Scotia’s 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)