Scotiabank (TSX:BNS), the third-largest lender in Canada, has revealed plans for a comprehensive restructuring under CEO Scott Thomson. The bank announced that it would lay off approximately 2,700 employees, accounting for 3% of its total workforce. The move is part of cost-cutting measures that will result in a C$590 million ($432 million) charge in the fiscal fourth quarter and has already led to a 1.6% drop in share value.
The bank's restructuring strategy also includes exiting real estate and other contracts, which will lead to additional charges. Scotiabank will take a C$280 million impairment charge on its investment in Bank of Xi'an Co., an investment persistently valued below the bank's carrying value. The investment was valued at C$581 million based on Bank of Xi'an's share price.
These charges will affect Scotiabank's common equity tier 1 ratio by about 10 basis points. Nevertheless, the ratio remains well above the regulatory minimum. RBC Capital Markets views these actions as beneficial balance sheet clean-up measures.
In addition to these changes, Scotiabank plans to introduce a revised strategy on December 13, which may involve comprehensive digitization and centralization of its international unit operating in economies like Mexico, Peru, Chile, Colombia, among others.
This trend of job cuts extends to other Canadian banks due to slower loan growth and poor capital market prospects. The Royal Bank of Canada (TSX:RY) and Bank of Montreal (TSX:BMO) have already initiated staff reductions.
The broader banking sector faces challenges such as rising expenses amid inflation and borrowing costs outpacing revenue growth. Despite this, investors see potential due to low stock prices and high dividend yields.
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