(Bloomberg) -- National Bank of Canada shares are being punished too harshly after announcing its intent to buy Canadian Western Bank, according to Bank of Nova Scotia, which called the deal a “strategic winner.”
Last week, Canada’s sixth-largest lender said it agreed to acquire Canadian Western for C$5 billion, or C$52.24 a share — a 26% premium over the target’s closing price Friday. Since the tie-up was announced after the market close on June 11, National Bank stock has slipped nearly 9%.
“Overall we have a very positive view of this transaction,” Scotiabank analyst Meny Grauman said in a note Monday. “We tend to view in-market transactions as relatively low risk for large Canadian banks.”
Proceeds from the transaction will be used to build up Montreal-based National Bank’s capital levels, Grauman said. Its common equity tier 1, or CET 1, ratio is expected to be 12.75% or more after closing the deal. Grauman viewed this as “conservative” given that regulatory minimum levels stands at 11.5% and is not expected to change.
While the deal needs to be approved by the Canadian government and two-thirds of Canadian Western’s shareholders, it could come under scrutiny amid competition concerns as regional banks across the country have been consolidating.
Grauman believes the deal has “a high chance” of getting approved. And said in a separate Monday note that he doesn’t “see any competing offers coming over the top.”
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