By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) — Shares of Canadian banks weighed on the broader Toronto market, with Bank of Nova Scotia exerting the most pressure following its announcement that it is buying ING Bank of Canada.
The S&P/TSX Composite Index /zigman2/quotes/210598478/delayed CA:GSPTSE -0.08% declined 130 points, or 1.1%, to 11,879 in recent activity.
Shares of Bank of Nova Scotia /zigman2/quotes/206642548/delayed CA:BNS +0.44% /zigman2/quotes/207954556/composite BNS +0.57% , the third-largest cap company on the Toronto Stock Exchange behind Royal Bank of Canada /zigman2/quotes/200638870/delayed CA:RY +0.24% /zigman2/quotes/206088494/composite RY +0.35% and Toronto-Dominion Bank /zigman2/quotes/209283160/delayed CA:TD -0.62% /zigman2/quotes/202133558/composite TD -0.55% , were down 2.7% in recent activity.
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Late Wednesday, Bank of Nova Scotia announced it would buy ING Bank of Canada from Dutch parent ING Groep NV for C$3.13 billion, or about $3.16 billion, in cash. Read more on deal to buy ING Bank of Canada.
Keefe, Bruyette & Woods analyst Brian Klock said in a note it was an expensive deal for Bank of Nova Scotia, but that it needs the deposits.
“While ING Direct most likely represents the last bank for sale in Canada, we believe that low profitability of this broker-like mortgage business may not have deserved as high a purchase price as BNS paid,” said Klock.
Klock said that while the bank will only generate about a 50-basis point return on assets on the deal it will be able to “use a significant amount of leverage given that most of these assets are insured Canadian mortgages.”
The bank was also downgraded to neutral from outperform by CreditSuisse on Wednesday after it reporting a weaker-than-expected outlook for international loan growth. CreditSuisse also lowered its price target on Bank of Nova Scotia to C$57 from C$61. Bank of Nova Scotia reported higher quarterly earnings on Tuesday. Read more on BNS earnings.
Shares of Royal Bank of Canada were up only 0.4% and Toronto-Dominion shares were down 1.5% despite reporting significantly higher profits and boosting dividends on Thursday. Read more on T-D, RBC.
Shares of Bank of Montreal /zigman2/quotes/203180563/delayed CA:BMO -0.09% /zigman2/quotes/206428109/composite BMO +0.04% , which also reported higher earnings and boosted its dividend earlier in the week, were down 1.2%. Read more on BMO earnings.
The S&P/TSX Capped Financial Index /zigman2/quotes/210598468/delayed XX:TORGC189 +0.07% declined 1.1% for the day and is barely hanging on to positive territory for the week with a 0.1% gain. Of the four Canadian banks, only Royal Bank of Canada is in positive territory for the week.
Energy and mining stocks also weighed heavily on the TSX as gold and oil prices declined.
On the New York Mercantile Exchange, crude oil for October delivery fell 1% to $94.51 a barrel and gold for December delivery settled down 0.4% to $1,657.10 an ounce.
Other large-cap decliners included Teck Resources Ltd. , Suncor Energy Inc. /zigman2/quotes/204570600/delayed CA:SU -1.21% , Imperial Oil Ltd. /zigman2/quotes/203145852/delayed CA:IMO -3.29% , Potash Corp. of Saskatchewan , Canadian Natural Resources Ltd. /zigman2/quotes/203742161/delayed CA:CNQ -3.64% , and Goldcorp Inc. /zigman2/quotes/225792379/delayed CA:G +4.32%