The Bank of Nova Scotia (BNS) receives Old York Operational Quality (BBB) Rating for fiscal year 2025
(BBB) | Financials | Banking
By: Old York Financial
A Private Principal Research Report
the verdict
Old York Financial has assigned Scotiabank (BNS) an Operational Quality (BBB) Rating. Scotiabank is currently navigating a high-stakes transition from "Global Sprawl" to "Corridor Focus." It earns a (BBB) because, while it successfully offloaded low-return assets in Colombia and Central America, it is still digesting the friction of that transition. With a $9.5 Billion adjusted net income for 2025, the machine is profitable, but its 11.9% Return on Tangible Common Equity (ROTCE) lags behind the "A" rated heavyweights. For a principal, Scotiabank is the "North American Corridor Play." It is a bet that CEO Scott Thomson can successfully rewire the bank to prioritize high-value connectivity between Canada, the U.S., and Mexico while abandoning the "Growth at any Cost" model of the previous decade.
the old york analysis
owner earnings: the capital reallocation In the Scotiabank model, we analyze a machine that is trading "Volume" for "Value" by exiting secondary markets.
2025 Net Income (Reported): $7.8 Billion
(-) Adjustment for Divestitures/Restructuring (Est.): ($1.4 Billion)
(+) Non-Cash Provisions (PCL): $4.7 Billion
OLD YORK OWNER EARNINGS: $11.1 Billion
Analyst Note: Scotiabank’s "Owner Earnings" are stronger than the reported net income suggests, primarily because they’ve been cleaning the kitchen. The $1.4B impairment related to the sale of Colombian operations is a one-time "Friction Tax." In 2025, they remained disciplined, maintaining a 13.2% CET1 ratio while returning capital to shareholders through 10.8 million share repurchases.
growth & market dominance
International Banking Adjusted Earnings: $2.8 Billion (Up 2% y/y).
Canadian Banking Revenue: $3.4 Billion (Primarily mortgage and retail driven).
Pricing Power: THE NAFTA BRIDGE. Scotiabank is the only bank with a dominant, integrated footprint across Canada, the U.S., and Mexico. This is a "Structural Moat" for corporate clients who need seamless cross-border liquidity.
Moats: THE WEALTH ACCELERANT. Global Wealth Management earnings grew 17% in 2025. Scotiabank is effectively using its retail branches as a "top-of-funnel" lead generator for high-margin wealth services.
operational efficiency
Operating Leverage: +3.0% (Adjusted). This is a massive improvement from the negative leverage of years past.
Productivity Ratio: 59.7%. This remains their "Friction Point." While BNY Mellon operates in the 30s-40s, Scotiabank still spends nearly 60 cents to make a dollar.
The "Mortgage+" Strategy: 89% of new originations now come through bundled programs, reducing the "Cost per Acquisition" for new clients.
Analyst Note: The (BBB) rating reflects a "Work in Progress." The strategy to exit Colombia and Central America is the right move for "Friction Reduction," but the bank hasn't yet reached the "Frictionless" state required for an (A) rating.
the fortress check
CET1 Ratio: 13.2% (Solidly above the 11.5% regulatory floor).
Liquidity: 104% Loan-to-Deposit ratio. They have improved their deposit mix, reducing reliance on expensive wholesale funding.
Dividends: Maintained a high yield (~6%+), showing confidence in the cash-generation of the "New Core."
Capital Allocation: Disciplined. They are no longer chasing "trophy" acquisitions in emerging markets.
Solvency: HIGH. As a Canadian D-SIB (Domestic Systemically Important Bank), the sovereign backstop is implicit.
final determination
Rating: Old York Quality (BBB)
Classification: The Corridor Architect.
Scotiabank is a "Sovereign Utility" that is finally acting like one. It receives a (BBB) because the execution of its new strategy is still in its early innings. If they can bring the Productivity Ratio down toward 55% and maintain positive operating leverage through 2026, a move to (A) is likely. For a principal, Scotiabank is the "Income and Discipline" play in the Canadian sector.
Disclaimer: Old York Financial operates privately as a principal and sells corporate advisory. Old York Financial is not an accountant, a financial advisor, a broker, an agent, a lawyer, or a portfolio manager. This report is for informational purposes only.
