Scotia CEO appointment 'surprising' but no major strategy shift expected: Analysts

Bank of Nova Scotia announced Finning International CEO Scott Thomson will succeed Brian Porter as president and chief executive officer as of February 1, 2023. (CNW Group/Scotiabank)
Bank of Nova Scotia announced Finning International CEO Scott Thomson will succeed Brian Porter as president and chief executive officer as of February 1, 2023. (CNW Group/Scotiabank)

Bank of Nova Scotia’s decision to name a new chief executive officer from outside its senior ranks is unusual, according to analysts, but many do not expect that to lead to a major shift in the Canadian bank’s business strategy.

On Monday, Bank of Nova Scotia (BNS) (BNS.TO) announced Brian Porter will retire as president and chief executive as of January 31, 2023 after nearly ten years at the helm. He will be succeeded by Finning International’s Scott Thomson, who already sits on the lender’s board of directors.

“The appointment of a Canadian bank CEO from outside of the organization/industry is surprising,” said John Aiken, head of research in Canada and senior analyst at Barclays, in a note to clients Monday. Aiken has an equal weight rating on the company and a 12-month price target of $86.00 per share.

“That said, with Mr. Thomson’s involvement in the board (and several committees), we do not expect the transition to be jarring and the move leads us to believe that there should not be an immediate shift in Scotia’s strategy as Mr. Thomson has been involved in developing it at the board level.”

Thomson has held a board seat at the bank since 2016 and will leave his role at Finning, which is the world’s largest dealer in Caterpillar equipment, in mid-November.

“I am confident that Scott Thomson will guide the bank through the next phase of its growth and development. He is a results-driven and proven leader who executes with purpose and shares values that are aligned with those of the bank,” Brian Porter said in a release Monday.

The timing of the transition is less than ideal, according to Nigel D’Souza, a financial services analyst at Veritas Investment Research.

“The timing of the announcement seems sub-optimal given current macroeconomic uncertainty and market volatility,” D’Souza said in an email to Yahoo Finance Canada. He also called the decision to promote an external candidate “atypical.”

The CEO transition comes amid a downturn in financial markets and during a time of heightened concerns about a looming recession brought on by high inflation and soaring interest rates.

Bank of Nova Scotia shares traded at a 52-week low on Monday. The stock price has also significantly underperformed its big bank peers over five years. As of early Monday, Bank of Nova Scotia shares were down about 15 per cent over that time span, while its four rivals were up by an average of 22 per cent.

Part of the issue has been concerns over the company's relatively large international banking exposure. In recent years, Bank of Nova Scotia has sold assets to narrow its focus on specific Latin American regions.

However, Thomson’s expertise in Latin America could stand to benefit the bank.

“During his tenure as CEO of Finning, Mr. Thomson has led the company through challenging market conditions, and managed to significantly improve the company’s earnings capacity, driving increased return on invested capital, particularly in Latin America,” Aiken said.

Despite the issues in Latin America, the bank is likely to largely stay the course on its strategy, analysts said.

“Based on our initial discussion with management, investors should not expect any material changes to BNS current strategy, with the LatAm region remaining a heavy focus for future growth,” said Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, in a client note on Monday.

“While the broad strategy is likely to stay intact, we believe the new CEO will look to improve the bank’s execution, particularly with BNS' share price having materially underperformed its Big Six peer group over the past five-year period.”

Rizvanovic has a market perform rating on the stock and a 12-month price target of $86.00 per share.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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