Ashford W. Meikle, Business Reporter

Bill Clarke(right), president of Scotiabank Jamaica. - File

Restricted by banking regulations, which limit the investments of commercial banks in a single entity, Scotiabank announced on Monday that it plans to reshape its business model by establishing and listing a new holding company, Scotia Group Jamaica Limited.

A meeting is set for February 28 for BNS shareholders to consider and approve the proposal.

The company's stock advanced 15 cents to $25.50 on the news, during trading on the Jamaica Stock Exchange on Tuesday.

The new entity will hold the shares in Scotiabank Jamaica and its recently acquired subsidiary, Dehring, Bunting & Golding.

The Bill Clarke-led bank says the move is designed to "more fully align the interests of Scotiabank Jamaica and DB&G Limited under a single corporate umbrella," but analysts say its likely that Scotiabank has a dual objective - to position itself to take on the challenge of its main competitor, National Commercial Bank.

Wholly-owned subsidiary

The plan, if approved by the requisite majority of shareholders at the extraordinary general meeting, will see Scotiabank Jamaica becoming a wholly-owned subsidiary of the new Scotia Group.

BNS is proposing a delisting of its stock, and converting common stockholdings to preference shares for redistribution to current shareholders.

Those preference shares would then be re-listed.

As an enticement, existing shareholders will also receive by way of a bonus issue an additional preference share for every 30 ordinary shares they held in Scotiabank Jamaica.

The preference shares will pay dividends semi-annually at the GOJ six-month weighted average treasury bill yield or WATBY, fixed at the start of each six month period.

The January WATBY was 11.99 per cent.

BNS last year paid dividends of $1.03, representing a dividend yield of about four per cent.

According to the bank's chief financial officer, Stacie-Ann Wright, the restructuring - which also requires the approval of the Supreme Court - "will allow shareholders in Scotiabank Jamaica to participate fully in the investment in DB&G via Scotia Group which would not have been possible otherwise by reason of the limitations imposed on banks in the Banking Act."

Specifically, the act prohibits banks from investing more than 10 per cent of its capital base in any one entity.

The court will be asked to sanction a 'Scheme of Reconstruction'.

At the time of the joint bid with Scotiabank Canada, 10 per cent of the local bank's capital base was just over $1 billion and, essentially, that amount enabled BNSJ to acquire 15.80 per cent of DB&G's shareholding while its Canadian parent company acquired 52.74 per cent - for a total holding of 68.54 per cent.

Analysts with whom Wednesday Business spoke supported the bank's decision, noting that it pointed to a pre-emptive move by BNS to maintain its pole position in the market.

Change in management

The plan, said market watchers, reflects a change in management structure that would be more flexible in countering competition and capable of exploiting opportunities that arise in the market — read new acquisitions.

"The only concern I have is the cost of having two listed companies, but by going that route it frees them up to be more aggressive" said publisher and economist John Jackson.

Added analyst Orville Johnson: "I think it is a strategic move," he said.

"The immediate objective may be to ensure that the investment in DB&G is maximised, but it appears to me as if they are creating a structure for some expansion ... and Bill Clarke has said in the past that they are in an acquisition mode."

The holding company, Scotia Group, was incorporated last December.

Reacting to the concerns of the timing of the share swops, Wright told Wednesday Business: "We are hoping to do it simultaneously since it will be almost like an exchange. The share capital will be the same as BNSJ is now and we don't have intentions of changing our dividend policy."

ashford.meikle@gleanerjm.com

Scotiabank Centre, downtown Kingston, corporate headquarters of the Bank of Nova Scotia Jamaica. Shareholders will be asked on February 28 to sign off on a new plan to remodel the banking group and to exchange their common stock for preference shares. - File