Canadian banks as a whole haven’t exactly been doing well these days. Yet above the rest, Bank of Nova Scotia (TSX:BNS), better known as Scotiabank stock, has seen a dramatic drop recently.
But does this mean there’s a deal? Or should investors run scared? Let’s look at what happened and what analysts are recommending investors do about it.
The drop
Shares of Scotiabank stock dropped after the company made an announcement regarding its fourth-quarter results. The company stated there would be several factors impacting the company’s results.
While more details will come during earnings on November 28, Scotiabank stock made a note of several items. A “restructuring” and severance provisions led to a $247 million charge, with a workforce reduction of 3% in its global operations. This comes as the bank has found more end-to-end digitization, automation, and changes in customers’ day-to-day banking preferences. Therefore, operations were “streamlined” to create more growth opportunities.
Moreover, Scotiabank stock announced the consolidation of real estate and contract costs. These amounted to $63 million after tax, with the exit of certain real estate locations and contracts. These items should achieve savings for fiscal 2024, with even more coming in 2025.
Why the drop?
The fact the bank had to drop 3% of its workforce speaks volumes, and that’s the lede here. It marks an overhaul strategy that’s marked to be unveiled in December. It will certainly allow for a better customer experience, but it also should mark an expansion in Canada and Latin America.
While the layoffs are a step in the right direction, others thought it was a small one. The bank needs more to clean up its balance sheet, in the words of one analyst. However, it’s also not that Scotiabank stock is alone in this. Several other Canadian banks have also gone through layoffs, and it’s likely we’re going to see more of this along with write-downs in real estate in the future.
There was also another key note ahead of fourth-quarter earnings that investors were interested in. That’s an impairment charge of $280 million by China-based Bank of Xi’an. This was related to Scotiabank’s 18% investment in the bank. The lender’s $581 million market value continues to be below the $1 billion carrying value. This means the company continues to experience a loss from its investment in the Chinese bank.
What now?
So, with its global investments down, a reduction in workforce, and management shaking things up, investors have the right to question whether they should invest in the stock. Now, as mentioned, other banks are likely to go through similar issues. This would include a reduction in workforce and a drop in global investments. However, it’s the “overhaul” that may scare investors.
Because of this, it’s likely best for investors to remain holding the stock for now. When shares drop, it’s certainly not the best time to panic. So, I certainly wouldn’t involve yourself in the panic selling that likely comes from institutions dropping Scotiabank stock.
But I wouldn’t buy up the stock right now, either. Scotiabank stock and its overhaul during fourth-quarter earnings could be massive. Even if it’s not, there’s bound to be a market reaction. So, I would wait until the dust settles before deciding to buy again.
For now, investors can look forward to a continued dividend yield of 7.23% as of writing. From there, Scotiabank stock is sure to climb back upwards in the future. The question will only be, “When?”
