Scotiabank buying investment manager Jarislowsky Fraser for $950M

A man leaves Scotiabank in Toronto on Thursday, April 9, 2015. (THE CANADIAN PRESS/Nathan Denette)

TORONTO -- The Bank of Nova Scotia's purchase of Montreal's renowned Jarislowsky Fraser investment firm for $950 million will create the third-largest active money manager in Canada amid growing consolidation in the wealth management industry.

The agreement announced Monday gives Scotiabank more than $40 billion in assets under management and comes after the Canadian lender told shareholders at its investor day earlier this month that it is interested in acquiring more institutional and private wealth assets, as it moves to generate more earnings from its wealth division.

Glen Gowland, Scotiabank's senior vice-president and head of asset management, said the deal arose out of a long-standing working relationship with Jarislowsky Fraser. The iconic firm's business is "complimentary," and a formal tie-up will help Scotiabank diversify the mix of its wealth business, where earnings come primarily from retail, he added.

"That for us was really the key driver behind it. Scotia currently has a small institutional footprint, and certainly relative to our size ... That's something we wanted to bolster," he said.

At Scotiabank's latest investor day on Feb. 1, the lender said it was aiming to ramp up the proportion of its global earnings from wealth from 12 per cent to 15 per cent or higher.

The deal with Jarislowsky Fraser delivers a respected franchise to Scotia, Canada's third-biggest lender and "improves its relative positioning and diversification in Canada," CIBC Capital Markets analyst Robert Sedran said in a note to clients. The manager's more than $40 billion in assets is comprised of roughly 70 per cent institutional and 30 per cent private wealth, he noted.

John Aiken, an analyst with Barclays in Toronto, said the wealth management space in the country continues to consolidate and this deal "takes another important piece off the board."

"We view the transaction favourably as the high net worth clients of JF are exactly the clientele that the banks are pursuing and the deal provides upside in terms of cross-sale potential," he said to clients.

This is the latest acquisition for Scotiabank in recent months, after announcing two deals aimed at expanding its reach in Latin America. Last month, the lender announced an agreement to buy Citibank's consumer and small- and medium-enterprise operations in Colombia for an undisclosed amount. In December, Scotiabank said it had secured a deal to buy a 68 per cent stake in a Chilean banking operation, BBVA Chile, for $2.9 billion.

Under the Jarislowsky Fraser deal, Scotiabank will pay $950 million for the Montreal-based firm, mostly by issuing shares in the bank. An earn-out of up to $56 million in additional Scotiabank common shares may also be paid based on certain growth targets.

The management team of Jarislowsky Fraser, which was founded in 1955 as a research boutique, will continue to lead its existing business and its head office will remain in Montreal.

The deal received unanimous support from all partners including founder Stephen Jarislowsky, who will also continue his association with the business that will continue to carry his name and retain investment autonomy, the release said.

"With its existing distribution footprint, Scotiabank is uniquely positioned to preserve the legacy of our firm and enable the next generation of growth," Jarislowsky said in a statement.

"We look forward to continuing to serve our clients and to enhancing our investment capabilities to meet their needs today and in the future."

German-born Jarislowsky, one of Canada's best-known and most outspoken investment managers, retired as chief executive of his namesake firm in 2012 at age 87.

The deal is expected to close in the bank's third quarter this year, subject to regulatory approvals.