(Add Scotiabank, analyst comments, CI response, background)
By Cameron French
TORONTO May 14 Bank of Nova Scotia said on Wednesday it will explore options to divest itself of some or all of its 37 percent stake in asset manager CI Financial and redeploy the capital elsewhere.
The bank, which acquired the CI stake from insurer Sun Life Financial Inc in late 2008, said in a statement it would pursue any divestitures "in one, or a series of transactions."
Scotiabank , Canada's No. 3 bank, estimated the value of the CI stake at C$3.8 billion ($3.5 billion), and offered no assurances that any transaction will be completed. It said the capital associated with the investment will be redeployed to elsewhere in the bank.
Toronto-based CI is a diversified wealth management firm and one of Canada's largest investment fund companies. It operates under banners such as CI Investments, United Financial, Assante Wealth Management and Stonegate Private Counsel and had C$97.3 billion ($89.2 billion) in assets under management as of April 30.
CI, whose shares have risen 64 percent since Scotiabank agreed to buy the stake October 2008, said in a statement it "intends to review its capital structure and dividend policy to ensure that it has the appropriate resources available to respond to any monetization plan Scotiabank seeks to implement."
The question of whether Scotiabank would eventually sell its investment in CI or buy the rest of the company has been a point of discussion among analysts and investors, with many leaning toward the divestment side in the wake of Scotiabank's acquisition of wealth manager DundeeWealth in 2011.
"They don't need CI to be a major wealth manager in Canada. They already have that between their old asset management business and the one they got when they bought Dundee," said Peter Routledge, an analyst at National Bank Financial.
"And what would be the premium to buy the whole thing out? It would probably have been pretty high."
Scotiabank and CI have at times had a frosty relationship, including a 2011 dispute over a shareholder rights plan that restricted Scotiabank's ability to buy and sell CI shares.
"We've had strong momentum in our wealth management platform and we've had a lot of success in our investment in Dundee ... so we are confident that we have built a solid wealth management platform," Scotiabank Chief Operating Officer Sabi Marwah said in an interview.
Scotiabank shares ended down 1 Canadian cent at C$66.97 in Toronto, while those of CI declined 17 Canadian cents to C$36.13. The news was released after markets closed.
Barclays Capital analyst John Aiken said in a note that the news could push CI shares higher because of speculation that another financial institution could move in to take the company private.
Scotiabank is being advised by Goldman Sachs and also by its own capital markets subsidiary, Scotia Capital. ($1 = 1.0906 Canadian Dollars) (Reporting by Cameron French, additional reporting by Euan Rocha; Editing by Lisa Shumaker, Diane Craft and Steve Orlofsky)