Bank of Nova Scotia, Toronto, On

Bank of Nova Scotia’s acquisition of MD Financial Management will bolster the bank’s position in the Canadian wealth management business and enhance its status with high-net worth investors, says Moody’s Investors Service in a report published on Monday.

The deal allocates capital to expand Scotia’s wealth-management business and helps it move from the “mass affluent” segment further into the lucrative high-net-worth market, the report says.

The report says the MD deal also builds on Scotia’s recent acquisition of Jarislowsky Frazer, adding “substantial scale and cross-selling opportunities” to the bank’s domestic wealth- management business, which will have $230 billion in total assets under management (AUM) after the deal closes.

Scotiabank to acquire MD Financial Management
Scotiabank completes acquisition of Jarislowsky Fraser

MD’s senior management team will continue to run the day-to-day operations of the firm, Moody’s says, as MD will operate as a standalone operation within Scotia Wealth Management, to avoid disrupting its advisors.

In addition, MD advisors will gain access to a full range of Scotia’s banking products and services for their clients.

Additionally, MD currently has subadvisors for all of its funds, “so there will be an opportunity for [Scotia] to bring some of those mandates in-house over time,” Moody’s adds.

Scotia is paying “a full price” for MD, according to Moody’s, but this is “a premium franchise in Canadian wealth management.”

With $49 billion in AUM and assets under administration (AUA), the firm says that MD is the largest non-bank private investment counsel in Canada.

“From a valuation perspective, the purchase price equals 5.3% of MD’s total AUM and AUA,” Moody’s says, adding that Scotia expects the deal to be accretive to earnings in year three, excluding integration and amortization costs.

“The transaction allows [Scotia] to increase its reliance on wealth management as a source of earnings, an area where it has lagged the other Big Five Canadian banks. In addition, the acquisition financing is conservatively structured with a substantial equity component,” Moody’s concludes.