By James Langton

(January 8 – 12:20 ET) – Merrill Lynch has upgraded its rating on Bank of Nova Scotia stock from “Accumulate” to “Buy”.

Merrill is raising the stock’s rating as it also ups its target price to $54 from $44. The brokerage firm is also raising the 2001 EPS estimate for Scotiabank by 4% to $4.02, and its 2002 estimate by 3.5% to $4.50.

Merrill says it is upgrading the stock thanks in part to the aggressive 0.5% rate cut announced by the U.S. Federal Reserve Board last week, a decision that should normalize the yield curve. It says the cut produces, “An environment, among Canadian banks, probably most favourable to BNS.”

Scotiabank is most dependent on its loan book, with about 60% of its revenue coming from the net interest margin on the loan book, compared with 40-50% for other Canadian banks. With the greatest leverage to rates, Merrill sees it benefiting most from declining rates. Most of the earnings acceleration is expected in the second half of 2001.

Merrill also notes that Scotia, “has also typically been more aggressive at trading and enhancing spread profits in falling rate environments. For this we have increased our trading revenue estimates by $20 million in 2001.”