Earnings Call: Q1 2021

Feb 23, 2021

Good morning, and welcome to Scotiabank's 2021 First Quarter Results Presentation. My name is Philip Smith, Scotiabank's Senior Vice President of Investor Relations. Presenting to you this morning are Brian Porter, Scotiabank's President and Chief Executive Officer Biraj Viswanathan, our Chief Financial Officer and Daniel Moore, our Chief Risk Officer. Following our comments, we will be glad to take your questions. Also present to take questions today are the following Scotiabank executives: Dan Reeves from Canadian Banking Nacho Deschamps from International Banking Jake Lawrence and James Meade from Global Banking and Markets and Glenn Gowen from Global Wealth Management. Before we start and on behalf of those speaking today, I will refer you to Slide 2 of our presentation, which contains Scotiabank's caution regarding forward looking statements. With that, I will now turn the call over to Brian Porter. Thank you, Phil. Good morning, everyone. I'd like to start today's call by stating that I am very pleased with the bank's performance this quarter. With strong contributions from all four business lines, Solid growth in fee income, continued growth in digital banking and disciplined expense management. We have delivered significantly better financial performance for our shareholders. Our results reflect the significant investments we have made over the past several years in key areas such as global wealth management, enhancing the bank's digital capabilities and improving our competitive position in core markets. We are well positioned to continue this positive earnings momentum in the future and we have even greater flexibility for capital deployment to build on these results. I will now turn the call over to Raj to discuss our results in more detail and I will return after Daniel's remarks with some closing thoughts. Thank you, Brian, and good morning, everyone. Before I begin, I'd like to note that all my comments are on an adjusted basis for the bank and our business lines. My comments refer to quarter over quarter changes in many places, which we believe is the most relevant basis for comparison at the present time given the economic impact of the pandemic. I'll begin with a review of the All Bank performance for the quarter on Slide 5. The bank carries a positive momentum from the strong finish in 20 Twente, into Q1 and delivered strong results this quarter. The bank reported earnings of $2,400,000,000 and diluted EPS of $1.88 for the quarter, an increase in EPS of 30% from the last quarter and 3% year over year with strong contributions from all four business lines. Return on equity for the quarter also improved significantly to in 0.4% from 11.3% in Q4. Revenue was up 8% from last quarter and pretax fee provision earnings increased 11%. Net interest income include 1%, Excluding the impact of divestitures and 2% compared to the last quarter, the core banking margin improved 5 basis points over Q4 to 2.27 percent marking the 2nd consecutive quarter of NIM expansion. Non interest income increased a strong 15% over Q4, driven by higher wealth management fees, from banking and trading revenues. The PPO ratio declined significantly to 49 basis points for the quarter. This represents a decline of 24 basis points quarter over quarter and 2 basis points year over year. Daniel will discuss details in more detail shortly. We continue to manage expenses prudently. On a year over year basis, Exensus declined 1% excluding the impact of divestitures. This decrease was driven by lower personnel costs, Benefits from foreign currency translation and business development costs with offsets such as higher performance based compensation on our payment to reorganize the fee loyalty program this quarter. The product and fee ratio improved to 51.8% compared to 53.4 percent a year ago and the bank generated strong operating leverage of 3%. On Slide 6, we provide an evolution of our common equity Tier 1 capital ratio over the quarter. The bank reported a strong common equity to your own ratio of 12.2%, improving 40 basis points from Q4 and 80 basis points from a year ago. This was due primarily to strong internal capital generation, Additional benefits from pension re measurement and book quality improvements in retail and partially offset by the impact from the transitional Eiselt of Allstate's partial inclusion of Stage 1 and 2 ECL and foreign currency translation. Jones. Turning now to the business line results beginning on Slide 7. Canadian Banking had a strong quarter as the rebound in earnings continued with adjusted net income of $915,000,000 up 17% quarter over quarter. Both net interest income and non interest revenue grew, expenses remained contained and PCLs continued to normalize. Free tax pre provision earnings grew 5% quarter over quarter driven by 3% growth in revenue. The net interest margin was stable at 2.26 percent in line with our outlook for this year. Residential mortgages grew 7% and business lending grew 5%. Current management of discretionary expenses such as advertising and travel resulted in a 2% decline in non interest expense year over year and the PCL ratio decreased to 23 basis points. Turning now to Global Wealth Management on Slide 8. Earnings of $425,000,000 was up a strong 34% year over year, driven by solid future comp sales, momentum, strong contributions from iTrade and performance fees. The performance fees of $62,000,000 after tax were driven by substantial benchmark outperformance by Curtin Dynamic Funds in calendar 2020. Less than 3% of our assets under management are eligible for such performance fees. Excluding these performance fees, the division still reported very strong year over year earnings growth of 14%. Revenue grew a strong 9%, while expenses grew only 6%, generating a positive operating leverage of 3%. Canadian Wealth Management earnings were up 49% or 25% excluding the higher performance fees with 6 of our businesses seeing double digit growth. Assets under management and assets under administration increased 5% to $314,000,000,000 and 10% to $546,000,000 from the prior year respectively with record asset levels achieved in Canadian Asset Management, Jaroslavsky Frazer, MD Financial and Private Investment Counsel as we continue to win customer mandates across our wealth platform. B. Moving to Slide 9, Global Banking and Markets. Net income of $543,000,000 was up 20% year over year and 18% quarter over quarter. The year over year improvement was driven by Higher net interest income, non interest income and lower non interest expenses, partly offset by higher provision for credit losses. Capital Markets was also benefited from continuous strong performance in fixed income, complemented by improved performance in equities and foreign exchange. Our Equity Capital Markets and M and A businesses were very active in the quarter and our pipeline is robust, which bodes well for the balance of the year. Our corporate loan portfolio continues to perform very well in terms of credit risk and we expect to see good asset growth across the division in 2021. Expenses decreased 6% year over year, primarily due to lower personnel costs as well as lower advertising and Business Development Expenses. With earnings of $174,000,000 in Q1, GB and LATAM posted 32% growth in earnings from Q4 continuing to reflect investments made to grow our wholesale banking operations in Latin America. B. Turning to the next slide on International Banking. My comments that follow are based on adjusted and constant dollar basis and normalizing for the impact of divestitures. International Banking reported net income of 398,000,000 and I'm pleased to report that our results are in the quarter. This is up 47% quarter over quarter. Improving business conditions support our increasingly optimistic outlook for the division on our expectation of achieving $500,000,000 of earnings by Q4 2021. Earnings increased in all Alliance Countries over the previous quarter and were above pre pandemic levels in both Chile and Colombia and in Mexico, and I'm now on the line of reporting period last year. Pretax pre provision earnings increased 3% from the prior quarter for the business line overall, while the Pacific Alliance countries grew 6%. Total loans grew 2% year over year as commercial lending grew 4%, while retail lending was Table. Net interest margin of 403 basis points improved 6 basis points compared to Q4 as we paid down higher cost borrowings. Non interest income improved 2% compared to Q4, mainly driven by net fees and commissions that was up 4%, reflecting improving retail customer activity. Excluding the impact of the elimination of the 1 month Bodiglag. In Mexico, last year, non interest income decreased a modest 7% year over year. Provision for credit loss ratio declined quarter over quarter to 149 basis points as the economic outlook continues to improve. Expenses declined 4% year over year and 2% compared to Q4, driven by digital acceleration, distribution optimization and other efficiency initiatives. P. Now turning to the other segment. We reported earnings of $47,000,000 driven by better results from asset liability management activities and from prior securities gains. We expect the other segment to have a positive earnings for the balance of the year, benefiting primarily from lower funding costs. P. I will now turn the call over to Daniel to discuss for us. Thank you, Raj, and good morning, everyone. I will begin my remarks on Slide 13. To sum up the quarter in one sentence, we ended Q1 with stable credit quality, with strong credit performance and improving credit trends. Our customer assistance programs are complete and the credit performance of customers exiting these programs remains very strong. At the end of Q1, the bank reported total allowances was $7,800,000,000 in line with Q4. Our AGR bill is complete and we are well reserved for estimated net write offs, which are expected to begin in Q2. Our total provisions for credit loans or PCL declined to $764,000,000 by 24 basis points in Q4, that's 2 basis points below Q1 of last year. The impaired TCO ratio fell by 5 basis points quarter over quarter to 49 basis points and we continue to expect the total PTO ratio to decline through 2021. This is consistent with our guidance we provided last quarter. Moving to Slide 14. I want to briefly discuss our performing and impaired PCLs. Beginning with our Ontario DCLs, we reported $762,000,000 in Q1. That's down from $835,000,000 last quarter. The improvements came from lower commercial provisions across Canadian Banking, International Banking and GBM, with some increase in international retail. This reflects stable overall delinquencies in line with our expectations. Our performing PCLs were a modest $2,000,000 in Q1, down from $296,000,000 in Q4. This decline was across all business lines due to good asset quality and performance. This conference is being recorded. And more favorable macroeconomic outlook. Straight to asset quality. Our portfolio remains strong as you can see on Slide 15. Our deal ratio of 84 basis points was up only 3 basis points last quarter and 7 basis points year over year. The primary reason was higher formations in international retail as we expected. Formations in GBM improved from last quarter last year, driven by lower formations in energy, real estate and construction. On the bottom of Slide 15, you can see the all bank net write off ratio. It increased slightly to 43 basis points, but remained 11 basis points lower and a year ago, a slight increase over Q4 is primarily driven by international retail. This was partially offset Our improvement in Canadian and International Commercial Banking. We expect migration of loans are performing 2 impaired in Q2 and Q3 Tree of this year, in line with the expected write offs and of course, we've got allowances for that. So So let me conclude with a few takeaways. First of all, our asset quality remains high and our credit trends are better than expected. Secondly, our allowances are more than sufficient to cover estimated future write offs. Thirdly, Improving macroeconomic trends support our positive credit outlook for the remainder of the year. And finally, the total TCL ratio will improve gradually through 2021. I will now turn the call over to Brian for closing remarks. Thank you, Daniel. On our last quarterly earnings call, I highlighted the resilience of the bank during times of economic uncertainty. The resilience is rooted in our highly diversified business model, high quality assets and a strong risk management culture. I am particularly proud of our ROE exceeding the medium term target of 14% and our common equity Tier 1 ratio increasing to 12.2%. This provides greater flexibility for capital deployment. As I have mentioned previously, We have multiple avenues for organic growth across all our business lines and we look forward to increased flexibility in the future, and I'm also pleased to report that the power of diversification in driving these results cannot be overstated. As a leading bank in the Americas, we are highly diversified with 4 major business lines across 6 core markets. Our diversification and competitive strength provides stability during times of economic stress and is now showing us earnings power during economic recovery. Importantly, all four business lines contributed to our results this Quarter. Global Wealth Management and Global Banking and Markets demonstrated very strong year over year growth, While Canadian Banking and International Banking showed marked improvement over the previous quarter and are demonstrating positive momentum to return to normal earnings levels as business conditions improve. I believe this provides a clear indication of the direction of our earnings in an improving economic environment. In addition to resilience, we have also demonstrated flexibility with strong expense management. While low interest rates and lower levels of economic activity have proven challenging to revenue growth, We have adjusted quickly by reducing expenses by 2% over the past year, while still making critical investments in Technology and Regulatory Initiatives. The result is a positive operating leverage of 3% and an industry leading productivity ratio of 51.8%. The bank also continues to make significant progress in digital banking. This quarter, we have expanded our digital metrics to include and I don't want active digital users, active mobile users and self serve transactions. This demonstrates the bank's Continued progress with active digital and mobile users up almost 20% in the past year. Digital sales accounting for over 40% of retail banking sales and self serve transactions Nearing 90% of all banking transactions. The pandemic has accelerated Ashift of customers to digital and mobile channels for day to day banking. Our leading digital innovation, highly rated mobile apps and consistent digital investments position us well to realize greater customer satisfaction and improved productivity from the shift of digital and mobile. Finally, we believe strongly in the importance of high standards in banking and making a difference and the communities in which we live and work. We continue to raise the bar in ESG with investments and commitments, which will improve environmental standards, We continue to make steady progress towards our goal to mobilize $100,000,000,000 in lending, financing and advisory services by 2025 to reduce the impacts of climate change. We also launched ScotiaRise, a 10 year $500,000,000 community investment program designed to promote economic resilience among disadvantaged people. These efforts will continue to gain momentum. In closing, I would like to highlight that economic conditions continue to improve across our Americas footprint. Forecast for economic growth have been revised higher since Q4 as re inflation takes hold. This bodes very well for asset growth in our core markets, including the United States, which is our 2nd largest market in terms of earnings, where we have a significant wholesale business, which will benefit from a strong U. S. Economic recovery. In addition, our Pacific Alliance countries, notably Mexico, I have strong trading relationships with the United States that provides leverage to U. S. Economic growth. With strong performance across all four business lines, improving margins, well managed expenses, High levels of allowances for potential write offs and growing capital levels, I am greatly encouraged by our Q1 results. It reflects the significant efforts we have made to reposition the bank and the investments we have made over from the past several years and I look forward to continued positive momentum over the course of 2021 beyond. With that, that concludes my formal remarks, and I'll turn it over to Phil for the Q and A. Thank you, Brian. We will now be pleased to take your questions. Please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call. Operator, can we have the first question on the phone, please? Certainly. The first question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead. Good morning. Yes, if you could just spend some time on the International Banking segment, Raj and maybe not sure. Give us a sense of I think Raja heard you say that you still feel good about getting to the $500,000,000 net income by At some point, I guess, by the end of 2021. But give us a sense of, if you don't mind breaking down your expectations around customer activity recovering And do we see the fees going back all the way to where we were a year ago, I think, about $640,000,000 And then also on the credit outlook, is there anything around with International Bank credit metrics that could lead to a little bit more of a lag credit recovery in IB versus the rest of the bank. Thank you. Good morning, Ibrahim. This is Nacho. Thank you for your question. Before answering specifically the drivers to get to the €500,000,000 by Q4, Let me tell you that I'm very pleased with our Q1 results and still giving greater confidence to achieve a R500 $1,000,000 or more by the end of the year. A Q overview, our revenues were up 1%, PTP was up 3% and PCLs went down 30% and this was even stronger in the Pacific Alliance countries where PPP was up 6% Q over Q and earnings were only 11% below pre COVID levels showing high resiliency. And yes, we are seeing better business momentum both in our commercial and retail segments, and I see a combination of different drivers to reach the gap from where we are today, the 398, to get to €500,000,000 by Q4. First, I expect our loan book to resume growth sequentially starting in Q2 and to grow around 6% from Q1 to the end of the year. Secrum, as commercial activity, particularly retail in the second half of the year accelerates, we still have EUR 80,000,000 GAP in fees and commissions to compared to pre COVID levels that I expect that gradually will increase. Then I will also highlight Ebrahim expenses. Expenses have been positive to our results. Last quarter, and we reduced $20,000,000 our expenses and we will continue to go down sequentially. And finally, At constant FX, our PCLs are still €50,000,000 above recovery levels. And due to business mix and asset quality, we expect PCLs to continue to go down. So I have increased the confidence also supported by the strong economic recovery and I'm on the way with Pacific Alliance Countries. And everyone might probably just add one comment to Nacho's wholesome response. If the net interest margin has started improving and as retail growth starts coming back, their NIM should improve as well as we should add on the net interest income momentum from Q1. And if I could just follow-up, it was a wholesome response, so thank you. Is there anything and sorry, we are not as intimately familiar with Day to day in that specific Alliance markets, but anything around the vaccine front that concerns you or anything negative on the 22% nature That we should be looking out for? No, not really. Actually, let's put things in context first, Ebrahim. The number of new cases are trending down in the 4 Pacific Alliance Countries and per 100,000 population the infection rates are similar to the U. S. And Canada. And at these levels, hospitals and the health systems are manageable. 2nd, while there have been some COVID Friction Measures. In most countries similar to the rest of the world, there has been no impact in the economic recovery, which has been strong and GDP is expected to grow in average 6% in 2021. The governments have been actively securing vaccines. For instance, Peru, Chile and Mexico have Zines. For instance, Peru, Chile and Mexico have purchased enough doses to cover 100% of their populations and Colombia 50%. And the 4 Pacific Alliance countries have already started vaccination. Actually, Let me highlight Chile because it is one of the leading countries worldwide doing better even than Canada with above 15% of the population already vaccinated. So in summary, while managing COVID, the economic recovery of the region is underway. Roger, thanks for taking my question. Okay. Operator, can we have the next question, please? The next question is from John Aitken from Barclays. Please go ahead. Good morning. Daniel, you've highlighted international retail a couple of times in your prepared commentary. And while I'm fully aware that there is Mix and some offsets due to the diversification. We did see a step up on impaired loans in terms of Mexico, Peru and Colombia. Was hoping that you might be able to dive in and give us a little more detail in terms of what was happening in those particular countries and whether or not it's symptomatic across These 3 or if they are differences in terms of what's been developing? No. Thanks, This was completely anticipated if you looked at how this was going to evolve going forward. And really what we're seeing here is the impact of the expiring of the defro programs, which happened In many of our markets in the fall and also trending through now the late stage delinquency, you can also see that effect by the way on the non date past due charge on page 34. There's a bit of a domino effect there as the demand for unsecured credit have come down, but really what we're seeing is what we call the picking the pipeline as those early stage delinquencies make the way to late stage, and of course that manifests itself somewhat in our operations as well. So fully anticipated, John and part of our allowances. Okay. Thank you, Daniel. Operator, for the next question please. Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Hi, good morning. Just on the regulatory capital ratio, it looked like improved book Quality, impact or the positive impact of CET1 ratio about 18 basis points. Hoping you can just maybe elaborate with what you're seeing from a migration perspective and from a capital or CET1 organic CET1 generation over the next year, Can you kind of remind us what you think you can generate for the CET1 ratio? Thank you. Sure. I'm happy to do that, it's Raj. So as far as this quarter goes, the RWA declined by about $10,000,000,000 declined from $470,000,000 to $407,000,000 By excluding FX, it declined about 6 basis sorry, dollars 6,000,000,000 primarily relating to book quality improvements like you pointed out. There's been minimal migration impact. Business Banking migration was up about $1,500,000,000 retail was down by $1,500,000,000 You can see it on Page 77 of the Suttlak, the regulatory Suttlak that is. And that reflects actually the asset quality that we have. If you look at our Business Banking, I disclosed that 85 percent of our exposures are in the top 3 TD bands and our retail exposures are 94% in the top 4 Ciedeban, which is 75 basis points and less. So that's something that we expect to see reflects the asset quality. Daniel just referred to it in his prepared remarks as well. Specifically, when you're talking about RWA flow, we update our regulatory capital metrics and details we use in Q1 of each year. And this quarter there's an improvement in the credit risk book quality, primarily in uninsured retail mortgages, which you'll see once again the sub pattern on Page 36, 38 if you look at. Our PDs improved from 63 basis points to 53 basis points, some lower delinquencies, historical default data, all that stuff that happens annually, frankly, in Q1. And then there's also improvement in LGD, again in the same category, which is retail mortgages, because our projected loss experience data is expected to get better. All of it to say that portfolio quality is very good. Migration has been fairly muted and it's on migration we expect will come in Q2 and Q3 through the capital numbers as I've indicated before. Then I want to say that strong internal capital generation will continue. This quarter was 27 basis points. We think it will continue at these levels. Earnings are going to be really strong and we're very confident about our capital ratio will remain around these levels, as you reported at 12.2%, which is really a good outcome as earnings went through, and I'll ask the quality to maintain stable on getting better and our asset growth is going to come in the future quarters in 2021 that should help us generate better earnings going forward as well. Great. Thank you very much. Okay. Operator, can we have the next question please? The next question The next question is from Lamar Persaud from BMO Capital Markets. Please go ahead. BMO, no, Quamarc Securities. Yes, sorry. That's okay. I just have a quick clarification question for Dan. Dan, I think you mentioned you expect PCLs to decline as we move through 2021. Is that Relative to 2020 or relative to Q1 2021? Yes. So thanks for the question, Lamar. Good to hear from you. Let me just say that as I look at the PCL and the allowances that we have in credit losses right now, we're very happy with where we are. In fact, we're more confident than we have been, more confident than ever about the adequacy of our reserves and the potential for future announced releases going forward. So to be clear, in line with the outlook provided in Q4 previously, we expect our TCL ratio to be moderately lower in 2021 than in 2019. And that's really down to 3 things, change in our footprint, after quality and macroeconomic headstock. As you recall, we've had changes in our geographic footprint and exited from the lower rated higher credit risk markets. But again, that was also had within our core markets, a shift to higher asset quality, a shift to secure across our footprint, which has driven the analysis to be much more than sufficient. And finally, we've got a strong macroeconomic backdrop as Nacho indicated, strong outlook for Canada, 5.3% growth, strong outlook for Pacific Alliance and 6% growth. So that all leads to strong tailwind for us. So we're more than that as we provided. And again, we expect our PCL ratio to be moderately lower in 2021 than 2019. Great. Thank you. Operator, can we have the next question please? The next question is from Mike Ryszvanovich from Credit Suisse. Please go ahead. Hi, good morning. I want to go back to Nacho on the Peru business. And I'm guessing that most of the weakness that we've seen lately has been related to the microfinance business. And so I'm just wondering about a business that is part of your recovery story, is there a lot of torque during the economic recovery or is that something that maybe gets You emphasized, basically, just given its volatility. Well, I would say Firstly, in general, the way I look to Peru is that there is a delay in the recovery compared to the other countries for several reasons, to the other Pacific Alliance Countries for several reasons. I would say first, the recession was stronger in Peru. The balance sheet structure in the market is weighted more towards unsecured and that includes the business you were referring to. And COVID lockdowns were stricter and longer. And therefore we have increased our PCL significantly in line with the system to build allowances for potential credit losses. As Daniel just said, we expect TCL to go down significantly starting in Q2. And in addition, the PPP of Peru, who has been down 7%. It's going to have an important rebound in the second half of the year because GDP growth expectations are 9% for the year. Actually, the Central Bank has more than 10% forecast for GDP growth in Peru. So in summary, this is a delay relative to the other countries. And actually, the recovery is well underway from an from a perspective. In December, for example, GDP was already slightly above year over year. And infrastructure, construction projects I driving a 20% increase year over year in cement sales, 80% of the employment has been recovered already. So we expect a strong rebound in the second part of 2021. So there are no change in the strategy with respect to the microfinance Business Improvement? No, no change in the strategy. This is a this business is more vulnerable. It Adebir impact from COVID, but it has been historically a very profitable business and it will take a little bit more time, but we'll return to strong profitability. Okay. That's very helpful. And then just one real quick numbers clarification. So your NCI as a percentage of earnings in international, I think it was running at about 10% pre COVID levels and it's been about 20% the last two quarters. Is that the new run rate we should use to model international, with approximately 20%, the NCI. Hi, Mike. It's Raj. I think the NCI is a difficult one to give you an absolute estimate because it depends on Our Chile earnings and Columbia earnings, which are the big contributor to NCI in that business, the way you could think about it is we've done expanded disclosures in our geographic highlights table in the MD and A this quarter. You can look at it. You can see that Chile's earnings have recovered. So we lose about 22%, 23% of NCI and Columbia is almost fifty-fifty. Columbia had a great quarter, dollars 39,000,000 of earnings, which is one of the higher quarters we've had in Columbia. Sajed, that will hold the increase of the NPI, but that's a number that's hard to predict. It depends on these two countries particularly. Going forward with normal earnings, You could use those percentages. I think it will be anywhere between 10% 20% to use your numbers. Okay. That's extremely helpful. Thank you. Okay. Operator, can we have the next question please? Thank you. The next question is from Miro Mandonka from TD Securities. Please go ahead. Good morning. Daniel, if we could get back to you for a moment. Listening to the guidance you've offered around credit for 2021 and What BMO offered earlier and what some of these U. S. Banks have said as well. It sounds to me like the government Port has essentially socialized all the losses that we would have otherwise expected. Is that your interpretation as well that the losses have been That we essentially we bridged commercial and retail borrowers to the vaccine or is it more your view that the losses will emerge in 2022? Yes. I think the number of effective play Mario, but I think the bottom line is that our customer systems programs did their job. On the bank side, we're complete. As you said, we've reached our customers' cash flow over the crisis and we've had in our portfolio a very high return to current status as a result of that. So that's reflected in our strong credit quality. For Canada, we have no accounts in deferral In Business Banking, 99% of accounts that were in the trough returned to current. On retail, 97% returned to current. In International Banking, 88% accounts returned to current. So these programs worked. We're seeing our customers get back on their feet. Customers' balance sheets are stronger than ever, We've seen increases in our deposit balances, reduction in unsecured borrowings and that's all thanks to our credit metrics. So we're very pleased with how this plays through and gives us reason for the ultimate account that went forward. You wouldn't endpoint me to higher losses in 2022 as a result? Snow. Thank you. Operator, can we have the next question please? The next question is from Gabriel Dechay from National Bank Financial. Please go ahead. Hi, good morning. I want to go back to Nacho on the international and You know that walking us through the $500,000,000 earnings number with a few elements behind that is very helpful. I want to know, do you have a number in mind for pre tax pre provision profit though, because getting back to 500,000,000 PPL is being lower. You've got to help a lot. If I look at PPPP, you're running at a 1,500,000,000 I know there's some divestitures, but what kind of number should I have In mind and timing thereof. Gabe, it's Rod. Let me see if I can help you with that and then Nasiv will obviously complement. If I have Amping. I think the way to think about it is sequential gain. So you think for Q1, we talked about our commercial growth Sauting in Q2 and retail following quickly thereafter, both of which should add to the revenue line on the tax provision. I commented on on NIM going to expand from here at least remain stable and then start expanding as retail comes in. So that should improve revenues. We still have between $80,000,000 to $100,000,000 of non interest revenue that's going to come back, primarily from the Caribbean as well as all the retail activity in the Latin American footprint. So that should help you get to some revenue number and how would you want to sequence it for the remainder of the year. Expenses, like we mentioned, expenses are always going to be a key factor to ID's results. We know how to manage expenses there. It's down $20,000,000 quarter over quarter. It was down quite a bit in Q4 compared to Q3. And you'll see the sequential decline in expenses going forward. So all of which to say that the pre tax fee provision is going to continually improve when you compare Sequentially Q1 to Q2 and Q2 to Q3 and so on. The PCLs will also decline like Nacho said and Daniel confirmed from the elevated levels, frankly, that we are even in Q1 compared to our pre COVID levels. Hopefully, that gives you an idea. And 3 countries are already back with their normal earnings levels as Nacho indicated in his previous comments and if Peru follows, that's going to be a huge lift in the quarter that it happened to pre tax pre provisioned earnings. Okay. I mean, is Nacho adding in or can you do a quick follow-up? And I think that's the answer. Maybe the only highlight to Rashtrauma is the Pacific Alliance countries that Philip. It's coming faster. And in terms of PTPP, we are already 3% above year over year. So I expect the Pacific Alliance countries to continue delivering strong PPP performance gradually. Okay, great. And just from a quick margin standpoint in that segment, Because commercial is way on the loan growth recovery, we shouldn't see too much NIM expansion because those kind of be lower spread in that Regent, right? Yes, I think, Gabe, if you think about even sorry, I don't know if I cut you off, I'm sorry. If you look at Q1 NIM expansion in IB, lower cost sorry, higher cost funding we paid down during the quarter. We We continue to manage our liquidity prudently not just in IB, but for the rest of the banks, so that should help their margins. Commercial margin should Certainly help in maintaining it at the current levels, perhaps expanding depending on how the commercial rates play out in Q2 and certainly when the retail Gross comes back that margin will start expanding pretty quickly. Thanks for all the clarification. Okay, operator, can we have the next question please? Gould. Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets. Hey, thank you. Actually wanted to maybe ask a question of Jake and James. Obviously, very good quarter, Jake and James. The run rate ahead of what would have been implied out of 2020's quarterly results. I know capital markets tend to obviously be volatile. And all the work that has been done over the years, are you at a new run rate that could have a 5 tons of quarterly earnings or You still think in that low to mid 400s? Well, Saurabh, thanks for the question. James and I I've been getting dusty over recent quarters waiting for 1. So as you noted, we have been working hard to reposition the GBM business and we're coming off a record year in 2020 and Q1 was a very strong start to the year. We're now at a point where we have the 2nd largest wholesale business among Canadian banks when we include in our LAPTAND business. And it's obviously, as you noted, been an exceptional environment for GBM to capture revenue, and we believe we captured our fair share. So looking ahead, we do feel the GBM platform is a stronger one. We've made progress towards our natural share in Canada. We've elevated our franchise and we've exhibited the strength of our credit culture and we continue to strengthen our balance sheet with good deposit growth. So looking out, we've got great M and A pipeline. The asset growth is starting to rebuild. The growth in our spot loans was better exiting the quarter than where the average showed. The ECM business continued to perform strong. And then you add in the international story. LATAM was up 30% quarter over quarter and our U. S. Balance sheet, which is at $150,000,000,000 almost is positioned well to grow with the economic recovery in the U. S. So So certainly, we think the structural advancements we've made in the business have improved the run rate of the business. And what we see this quarter is a reasonable outlook for how we perform, subject to obviously market conditions as you noticed. So we'll look to continue to win for our shareholders not only on an absolute basis, but also on a relative basis. Okay, that's helpful. And if I can just quickly sneak one in for Brian. I mean, Brian, you talked about obviously the ROE being back at the atoraslightlyabovethemediumtermtarget, but you're doing that actually, I mean last time you were at these levels, you had about 100 basis points lower CET1 ratio. So I guess, are you going to adjust that maybe medium term The target is higher. Once there are is there more flexibility around capital deployment, whether it's through share buybacks Well, thank you for the question, Saurabh. You've heard me say and the number of our shareholders that we think we're a 15 Phan, Plots ROE Bank, and we're well on our way to be there. And that's a function of all the repositioning we've done. Jake just commented about the structural repositioning of our GPM business, which is leads to higher profitability. The Global Wealth Management business is performing exceedingly well. Number 2 in terms of revenue growth, number 1 in terms of net income growth and obviously who provided great performance for our clients. So, and we think we've got lots of torque on our business. Saad. There's been lots of questions this morning about our international banking business that's coming back. Loan growth is coming back. I see it in the spot balances and margins are going to be stable here. If not improving, PCLs are trending down, you've heard from Daniel. So we like how we're positioned here and a 15% quarter, it will be in our eyesight here or in our line of sight here. So we feel very good about our business, both on the revenue side, and we manage expenses exceedingly well and we manage credit exceedingly well. So again, we think our numbers have a lot of torque in them we're looking forward to the balance of 2021. Thank you. Okay, operator, can we have the next question please? The next question is from Lamar Persaud from Cormark Securities. Please go ahead. Thanks for taking my question. I'm just going to continue along the lines of Saurabh's question here. So sticking with Jake and James, it's been a while since we've seen the Productivity ratio and GBM dip into the 40% range consistently. Despite the strong revenue growth, I guess, expenses were down again Year over year again this quarter, can you talk about some of the reasons for the decline in expenses? And secondly, does the mid-forty percent productivity ratio feel If we see some softening in revenue growth, I guess what I'm really trying to get at is understanding the elasticity of expenses If revenues do moderate from here. Thank you. Hey, Lamar, thanks for the question. It's Raj. Yes, It's a really good outcome productivity ratio as we pointed out in the factor of revenue and expenses and both have gone the right way for GBM and we expect it to continue. A 6% decline year over year on expenses is something that we're proud of. We work on it very closely, not just with GBM, but with all our business lines and Crossobank. So you're seeing the results of a lot of daily effort I would add, prioritization and our philosophy of having expense growth in line and taking its cue from revenue growth. So that's what you're seeing play out. GBM's quarter over quarter expenses We'll be flat to slightly elevated if you look forward because there's a lot of regulatory spend. Ivar is one project that I would call out. I think it's global. There's a lot of money to be spent over there, We'll be managing our expenses very prudently. It will be in line with like performance within the business, and I think you will see that continue as we look forward. Philip. I hate to give absolute guidance on productivity ratios and so on, but it's nice to be in the 40s. We think we will be no higher than 50 as we look forward in most quarters. Jake, anything to add? Yes. Lamar, all I'd add in is, when we look at the business, we do think about absolute expenses, where that growth is. The year over year number does have a bit of Haldi in it as well, higher expenses in Q1 every year, just around some performance comp. So We look at that, we look at operating leverage as well. And as Raj noted, we've got some investment to do, not only regulatory, we're adding bankers into our international market. There's a chance to feed the revenue pipeline. We're seeing some competitors in markets choose to be less active as they focus on their footprints back in Europe and back in Asia. Philip. So we're adding people in our footprint throughout the Americas that's going to drive better outcomes from our Canadian business all the way down to our LatAm business. So again, to Raj's point, it's tough to give you an exact number on productivity. We do focus on that along with operating leverage and absolute expenses. And when we have the revenue environment we have had, we're able to make those investments in the platform. Great. Thank you. Operator, can we have the next question please? The next question is from Paul Holden from CIBC. Please go ahead. Thank you. Good morning. Just want to continue with that same topic, the productivity ratio. You've talked about it for a number of the business segments, but maybe You can put it all together for us at the All Inc. Level and particularly in the context of the digital uptake trends you've shown in your slide deck. And I guess the bigger picture question is with the digital uptake and the pull forward of that through COVID, Is the lower bound on where you can take the productivity ratio significantly lower than you would have imagined pre COVID? And maybe you can give us from Santon. How much further you can go there, again on the Oil Bank level? Sure, Paul. Thank you and it's Raj. Expense management we think is a cornerstone of our operations. We have done it time and time again. We have done it quarter after quarter and we're doing it year after year. Pizzas. I indicated in prior calls, we always manage expense growth broken fee and we'll prioritize our spend across the bank and then take a skew from revenue growth. So that's the principle and we continue to follow that. So the 51.8% this quarter is kind of an expected result from our perspective. And a few years back we had given guidance saying we ideally like to be around the 50% productivity ratio level across the bank and we continue to have that as a target and we'll keep working towards that. The outlook for 2021 expenses when I spoke in November is pretty clear that the expense is going to be flat compared to 2020 in 2021. And that's going to require a lot of work and effort across our teams because we want to continue to invest in supporting business growth. Technology, of course, is a big component of the spend we've had in the last few years and we'll continue to do that and of course regulatory initiatives. The savings will come from efficiencies, not just talked before about the digital investments we have made, the level of efficiency we are able to pick up both in Canadian Banking as well as in the IBP and C dilution. When revenue is good like we have in Wealth Management as well as in GBM, It certainly feeds the productivity ratio quite nicely. I should point out to you Wealth Management's productivity ratio is industry leading has been for a very long time and it's now below 60%. So we're very proud of the efforts we make in managing our costs prudently. And of course, the revenue lift certainly helps in keeping the productivity Gutierrez Shoja. So that you should see is continued, Paul. It's difficult to give a path to 50%, but it's certainly our target to get to 50% and we continue working towards that. Philip. Okay, very clear on that. Thank you. Thanks. Operator, can we have the next question please? The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead. Hi, Hi, there. Just a follow-up on the credit question, I guess. And the PCL guidance is Pretty clear at this point your indication. I just want to know if you have a sense, Daniel, of where the impaired loan ratio could Trend, could this thing pop over 100 basis points or stay below that? You're talking about Q2, Q3, it sounds like those will be the peak Yes, I think the important thing that we're focused on here, Gabriel, is that we've built more than sufficient allowances for the anticipated increase in net write offs. It's going to happen, as you said, through to Q2 and likely peaking in Q3. And that's why we see this thoughtful, deliberate and diligent approach to any releases that we might have this quarter. So here's what I can say, against that backdrop of being confident that we're well provisioned to those write offs, we are seeing the portfolio, as I said, performing very well and in fact inside of our expectations. And so all of that leads us to believe that we're likely going to start seeing the leases from our performing allowances in Q2 to offset any increase that might happen in the or likely will happen in the non company allowances in the same quarters, and you'll see that continued going forward. So the way we think about this overall is that these allowances are on the balance sheet. And therefore a reason, we view Q1 as nothing to time to take the boards off the windows, but this is a balance sheet item and where we're focused on from here who is on top line revenue growth. Okay. I'm not belabor the point here and your impaired loans, I I think you were the only bank with them declining last year. I'm not going to sweat a little bit of an uptick this quarter. I'm just wondering if Q2, Q3 are these peak write off and Okay, my quarter is up. What does peak look like? Yes. So in future Our definition of peak has been wrong to date. Yes. I think the important thing here is that the Q2 Q2 will be up. The total increase will be fairly less than 100, let's say. But the important thing here is that because of the efficiency of allowances, the total PCL will be less than our 2019 numbers. Okay. All right. Well, thanks, Dan. And everybody else? Okay. Operator, can we have the next question please? The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead. I thought I'd get one more in on another follow-up. We don't usually hear much from Glenn. The Wealth business Obviously, I have a bit of, I think, a one time benefit in there. But We now have a couple of years worth of fact records since the acquisitions under our belt. Can you Hook. Just take a picture of how the acquisitions have gone relative to expectations. And secondarily, give us a sense of what we should be expecting as far as capital accretion out of the business in the next quarter 4 to 8 quarters. Thank you. Great. Thanks, Saurabh. It's Glenn. So on the acquisition piece, I think 1st and foremost, as you mentioned, we're coming into 3 years on those. They're very, very well integrated and that's gone exceedingly well, frankly, whether you look at it from a revenue standpoint, clients' From retention standpoint, staff retention standpoint, all equal or better than what we expected and those things are really fully integrated into our wealth Management Franchise Now and so you can see the growth in those coming in the overall numbers. I think specifically if I look at Jarislowsky Frazer, continuing to win institutional mandates and frankly a tough institutional market in Canada, but continuing to grow both on the institutional side as well as in the private wealth side, which is great and their assets are at a record level. I look at MD. Again, we're seeing client retention better than before we acquired them. We're seeing staff retention better than before we were Before they were acquired, strong net sales and record asset levels. So that's from any standpoint, That's nothing short of a home run. So but I think more importantly is the breadth to your point of success across the business, Swartz, whether it's the investment results, strong net flows within the mutual fund franchise, frankly net positive across the businesses and strong revenue growth. So we believe we're very, very well positioned for future, because even Outside of performance fees or some of the lumpiness, the underlying results are really, really strong. So I would say momentum for us is going to be good going Orrick. Thank you. This will conclude the question and answer session. Back to your host. Thank you, everyone, for participating in our call today. On behalf of Kantar's management team, I want to thank everyone for participating in our call. We look forward to speaking with you again at our Q2 2021 call in June. This concludes our Q1 results call. Have a great day. Thank you.