CI Financial looks to Scotiabank for critical mass

Published: Friday September 5, 2008

Canadian mutual fund company CI, which Raymond Chang serves as chairman, is engaged in negotiations with the Bank of Scotia with a view to acquiring its mutual funds arm. The deal will likely see a swap of Scotia Bank funds for CI equity, thus making CI the biggest mutual fund player in Canada.

At present, CI with Sun Life Financial as a minority stakeholder, has mutual fund assets of Cdn$63 billion. Scotiabank's 48 funds are placed at around Cdn$22 billion. What makes this deal so appealing to CI is Scotia's distribution network which would be a considerable feather in CI's cap.

The question is that, will Scotiabank relinquish 100 per cent control of its mutual fund division, and if it does so, will it insist on wetting its beak with a minority stake in what would be Canada's largest mutual fund entity?

For some time now, Scotia has been reluctant to cede 100 per cent ownership of its mutual fund division. However, it is on a mission to drive up profits more specifically via its wealth management division.

Commenting on this strategic move, Scotiabank's CEO, Rick Waugh ,is reported to have told Canada's Globe and Mail: "Wealth management, as we've said time again, is a significant priority for us. We're very comfortable with our organic growth, but in Canada and even international we've got to get more scale. Whatever we do will be on strategy and will move us forward on that strategy, in particular in earnings. If that is less than 100 per cent, or whatever the percentage is, it will have to meet a lot of other tests. So one formula doesn't fit all".

If this deal were to come off, it would give CI a considerable shot in the arm - one analyst estimates it would boost its distributable cash flow per unit by 10 per cent. Scotia may well sell its mutual fund arm for anywhere between Cdn$1.2 billion to Cdn$1.5 billion. Royal Bank of Canada, which recently bought RBTT's assets in the Caribbean for US$2 billion, is a bigger mutual fund player than CI.

Ci's mercurial CEO, Bill Holland, is playing down this potential deal pointing out that his company is in talks with many other financial players with a view to brokering mutually beneficial deals.

CI Financial made failed attempts to acquire DundeeWealth Inc for Cdn$2.6 billion as well as Clarington Corp. and Invesco Pic in 2005.

For the second quarter ended June 30, 2008, CI saw its profit fall 11 per cent as revenues and fee-earning assets declined. Net income for the period under review came in at Cdn$134.7 million, or 48 Canadian cents . That compared with profit of Cdn$151.6 million, or 54 Canadian cents a unit, in the same period last year. Total revenues fell 7 per cent to Cdn$408.7 million. Fee-earning assets fell 5 per cent to Cdn$102.2 billion due to declining markets.

For the second quarter CI saw strong sales of segregated funds (held within insurance contracts).

"July was by a considerable margin our best month of segregated fund sales that we've had yet. It just seems that the momentum on this continues to pick up.

"My sense is these variable-annunity type of products will become much more popular over the next decade. I think we're probably pretty early in this game still," said Holland.
CI has had to make it clear that it is not interested in selling its Blackmont Capital investment dealer unit which it acquired last year.


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080904T220000-0500_139842_OBS_CI_FINANCIAL_LOOKS_TO_SCOTIABANK_FOR_CRITICAL_MASS.asp