We'll get back into our fireside chats now. I think I'll just quickly read this intro remark. Before you begin, I've been asked to tell you that Scott Thomson's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections, or conclusions in these statements. Listeners can find additional details in the public filings of Scotiabank. So I'm sitting here with Scott Thomson, CEO of Scotiabank. Thank you for coming to the conference.
Thanks for having me, Darko.
We've had broad-ranging discussions all day, and a lot of it going to ROE. Maybe we'll touch on your ROE aspirations as well, but one of the things that separates your bank, I think, from the others is you came in as the CEO, had a big Investor Day, you laid out a plan, and this year you can pick this up from a lot of different places, but this year you can really, if you read the annual report, you'll pick up on what seems to be like a pivot to growth for 2026, and I want to just start there and maybe just ask you, where do you expect the growth to come from? As you pivot to growth, one of the things that I'm really interested in is one of the big differentiating factors, your international banking business.
And what are your expectations for growth there as well for 2026? So unlike ROE, we're going to focus on growth for Scotiabank here with the first question.
Okay, we'll come back to ROE.
We will, for sure.
Listen, we entered 2026 with a lot of momentum on the back of 2025. You go back to that Investor Day comment you made, which was two years ago. We laid out a plan and we're exceeding that plan. We talked about 5%-7% growth in 2025. We had 10% earnings growth, positive operating leverage, a 13% CET1 ratio, and bought back 11 million shares. Entering 2026, we feel like we have a lot of momentum. As you think about where that 2026 growth is going to come, which we've telegraphed double-digit earnings growth again in 2026, we see the international bank with mid-single-digit PTPP growth, but modest NIAT growth. We'll come back to that. We see our GBM business, again, probably modest NIAT growth on the back of what was a record quarter for us.
Interestingly, in the first couple of months of the year, that momentum has continued. I want to be thoughtful about not overcommitting in our GBM business. I think flat-ish or modest NIAT growth in 2026 as an objective is appropriate. High single-digit NIAT growth in wealth. We've got a lot of momentum in our wealth business, and we can come back to that. Jacqui and the team have done exactly what we said we were going to do two years ago in a very high ROE business. High single-digit NIAT growth there. Our Canadian bank is going to see double-digit NIAT growth in 2026. We spent 2025 setting the foundations in place. Around our Canadian bank, we had some sequential improvement in the third and fourth quarter.
As we look at double-digit earnings growth in Canada, it's going to be a combination of yield improvement, both asset yields and also from deposit mix, which we're making a lot of progress on, productivity improvements on the back of the restructuring charge that we took. We're going to drive positive operating leverage next year, and then fee income, and we've seen some good fee income growth, 8% year-over-year. That's going to continue into 2026, and so when you combine all of that, that leads to double-digit earnings growth for the bank, and we'll continue to repurchase shares as well, and so I think that's a good constructive backdrop to 2026, and then thinking about 2027 and how we keep that momentum going into 2027.
So you started off with the commentary. It's a good place to start. So you exceeded your targets in 2025. You had a lot of growth. What was it that surprised you in 2025?
Yeah, I mean.
Number, and then we'll talk about kind of how that's going to work out in 2026.
I mean, I think the two areas of the bank that have exceeded expectations relative to Investor Day would be our international bank. That international bank, lower capital deployed, improvement in ROE of 250 basis points, and a setting of a foundation through capital and cost discipline that will allow us to pivot to growth going forward, and so we've regionalized the regionalization initiatives, which has reduced costs, the implementation of a segmented retail strategy with a value proposition, and leading with GTB, our global transaction banking, which obviously helps us from a funding perspective, will all allow us to continue to see high ROE growth in that business, so that was one, not a positive surprise because we said we were going to do it, but that was one kind of checkmark relative to the Investor Day.
I think our global banking and markets business, which we've been in the process of building up over the last few years, did really well in 2025. And so you think about the new product capabilities that we've added, CLOs, levered lending, securitization, DCM capabilities, investment banking capabilities, all led us to a 300 basis point improvement in ROE year-over-year with 14% lower capital deployed and 20% improvement in fee income. Now, I think we benefited definitely from a constructive market backdrop, but I do think the sustainable high capital velocity approach that Travis is putting into place there is going to continue to result in 14% type ROE with lower volatility as we look forward.
I'm not willing to commit to higher earnings in 2026 because the fourth quarter of 2025 was a record quarter, but I would say the first couple of months of the year have started out as well as the fourth quarter of last year, so that bodes well for 2026.
So, let's step back then and just think about the IB segment because that's the one where if I think about, I mean, it's fair to have modest growth expectations from GBM because a lot of things can happen. You say record fourth quarter, but you have higher expectations in wealth and in Canada versus IB. So maybe flesh out for us the growth expectations from IB in 2026. And should we see it accelerating into 2027? And maybe I'll leave it open-ended there. Maybe I'll just.
I mean, so one, we need to make sure what we put out there as a marker. We do, right? We execute against. Last year we exceeded expectations. I suspect this year we're being a little bit conservative in terms of what we're telegraphing to the market, but we've said mid-single-digit PTPP growth and then modest NIAT growth. That modest NIAT growth comes because of impaired PCLs, which we're still dealing with a difficult macro environment in some of our areas like Mexico and in Chile in one or two segments. What I would say is we have got the foundations in place from a regionalization perspective, from a value prop perspective in the retail side, and then from a GBM optimization of the client base to actually grow when the GDP allows us to grow.
I don't want to get ahead of what the market will allow. So when you have 1% growth in GDP in Mexico, that's not something that you're going to accelerate into. But I do think as you model modest NIAT growth in 2026, continuing with a higher growth into 2027 on the back of 15% ROE, that's a pretty good value proposition for shareholders.
And maybe just before we leave the international banking segment, we've had some recent events in Venezuela. I don't think you have direct exposure to Venezuela, but maybe you can give us a sense of what the feeling is on the ground with your operations in LATAM and sort of what the client feedback has been and what does it possibly mean for your business?
We got out of Venezuela in 2014, so we don't have any exposure to Venezuela direct. What I would say, though, is I actually think this is potentially a medium-term, long-term positive for the region. You think about the last 10 years; it's been a little bit of a lost decade in terms of growth in LATAM, partly because the political environment moved left and partly because the U.S. moved away from the region and China came into the region. I think with the Trump doctrine and the Monroe Doctrine of increasing emphasis in the Western Hemisphere, I think that's good for growth. You look at the political environment; it's moving right already. As you look at Kast, the new president of Chile, you look at what's probably going to happen with Petro in Colombia. You look at a very business-friendly administration in Mexico.
You look at Peru's political environment that probably moves center-right. You're moving all of these governments from left to right or center-right, and then you're seeing more U.S. influence, which plays very well to our Western Hemisphere strategy, and so I think there should be or could be some bumps along the way here, particularly as you think about Mexico in terms of navigating rule of law, but longer term, this is a good thing for the Western Hemisphere. It's a good thing for the U.S. It's a good thing for the Bank of Nova Scotia. The one area that I do think we need to be thoughtful about as a Canadian bank is what does this mean for energy in Western Canada? That whole U.S. Gulf refinery complex was made for heavy oil. Heavy oil is Venezuelan, and heavy oil is also Western Canadian Select.
And so as the Venezuelan crude reenters the system over the next five to 10 years, having another pipeline here for Canada, I think is really important. And so hopefully that provides more impetus to the Build Canada program that the Prime Minister is trying to implement as well. So I think that's longer-term good news for the Bank of Nova Scotia.
And shorter term, just FX spreads, volatility in the marketplace, are we seeing any kind of?
The market's taken it in stride. You haven't seen a big impact. There's a lot of confusion on the ground in Venezuela. I think the transition to a new government without boots on the ground from the U.S. is going to be really important. But from a credit perspective, there's not an issue for the Bank of Nova Scotia.
Okay. So maybe we can now shift gears and think about Canada because I think you're targeting double-digit growth in the segment. And it's a tough competitive environment from what I understand. So maybe you can just chat a little bit about the way you see it sort of progressing in a world where we have less immigration in Canada, fairly competitive marketplace, low growth, housing doesn't seem to be reviving anytime soon. What do you see in 2026 that gives you so much confidence in a high growth rate for Canada?
We think about the three pillars of our strategy. So one is primacy, two is the business mix, and three is operational excellence or productivity. From a primacy perspective, we've been making a lot of progress. We've added 275,000 primary clients since Investor Day. We've rolled out the Mortgage + offering, which has gotten a lot of traction. 95% of our originations now are Mortgage+ . We're starting to see business mix changes in some of the areas like small business where we're growing at twice the market rate. We've improved our deposit positioning significantly since Investor Day, over CAD 55 billion of new deposits. Our day-to-day deposits and our savings accounts have increased by 7% and 6% respectively year-over-year. If you just look at the Red Bank, it's around 11%. And we've made massive progress in driving wealth through our branches.
When you think of Investor Day, we were sixth out of six in terms of retail mutual fund sales. At this time last year, we were fifth. Halfway through last year, we were fourth. At the end of last year, we were third. In October, we were second across the industry. This business mix, which is the real opportunity here for us in terms of increasing ROE, is going to start to transition into higher ROE across the Canadian bank. I was really pleased with the third quarter results. I was pleased with the fourth quarter results. I think we have a lot of momentum on the back of the restructuring charge that we took in the fourth quarter to both invest in this business, to achieve the primacy objectives, and drive positive operating leverage.
And so when you think about the ROE objectives for the bank, we increased year-over-year significantly. By fourth quarter, we were at 12.5%. We're probably a year in advance of our target that we set at Investor Day. We're going to be over 13% by this time next year. And I would say more than 50% of that is going to come from the Canadian bank. And it's not going to come from leverage. It's going to come from business mix and return on assets. That's where the improvement's going to come from. And so we're starting off strong in Canada with a new team. We've got opportunities for improvement for sure in cards where we're lagging relative to the competition. We're fifth, and we've invested in a new technology and a new team to help move us forward there.
We're going to harvest a lot of the competitive advantage of Scotia to drive that cards position. And we've got a lot of opportunity in commercial mid-market as well where we're relatively underpenetrated. We've been really good at real estate and agriculture, less so in commercial. We've spent the last year making sure we have a real handle on our primary clients. Despite not increasing loan growth in commercial, we actually increased PTPP by 20% last year on the back of GTB, pricing discipline, etc. But we do have an opportunity in mid-market to accelerate loan growth into that area as well.
And so there's a lot to unpack there. You rattled off a lot of trying to write it all down. So thank you for that. It's really always helpful to the mosaic. I picked up on a couple of things there. I just wanted to sort of go back and revisit. One of the things you mentioned was strong deposits in the Red Bank. So I'm assuming that excludes the Orange Bank, Tangerine. So maybe can you talk about that a little bit? I mean, you've had a lot of success in the Red Bank. What about the Orange Bank?
Yeah. And listen, what we're trying to do with Tangerine, we're repositioning that to be more of a challenger bank in the overall landscape. And so you've seen a partnership that we've struck with Engine by Starling Bank of the U.K. And so we'll have more to say over that the next year. But there has been historically, I mean, it was a very good deposit gatherer, but we're being thoughtful about what we pay for deposits and making sure we're not getting deposits on price, getting them more on value. And so there was a little bit of a runoff in deposits in Tangerine as we set that business up for success going forward. But in the Red Bank, our day-to-day and savings accounts, and a lot of this was on the back of Mortgage+, by the way, were up 11% and 10% respectively.
I think the market was up 7% or 8%. And so it is competitive for sure. But the grind, the kind of the quarter-in, quarter-in grind of making sure we have the organization focused on deposits in addition to assets, we've got the right incentives in place, we've got the wealth business working in conjunction with the retail business is allowing us to capture market share. And that will continue. And as you continue on that deposit mix perspective, it helps on the yield perspective. And so you get a higher yield because of a better deposit mix, and you get a higher yield because of a better asset yield as well. And so that contributes to NIM expansion in 2026 relative to 2025.
And then you gave us a lot of little data points there on the sales of funds all the way up to second as you exited the year. What's driving that momentum?
It’s coordination between the Canadian bank and the Wealth Division. And I think historically, I’ve talked about this a lot up here. It’s a very siloed organization. What Aris, our head of Canadian banking, and Jacqui have done so effectively is just bring these two organizations together. And so at our Investor Day, we said one of the biggest opportunities in wealth was retail mutual fund sales. We said it was a CAD 400 million NIAT opportunity if we could close the gap from us to best in class. And to see that progression, our referrals are up 18% year-over-year between those two organizations. And so that starts to drive a better retail mutual fund performance. And second was the last month. So we’ve got to continue that progression, but it’s a big move from sixth to second.
Okay. And then maybe we'll just go back to the GBM total. And there, too, what we're hearing consistently all morning long is a couple of things. One, constructive markets for 2026. Two, strengthen the U.S. And three, strengthen deposits. And I know deposit gathering is important to you and your U.S. cash management platform. Can you talk about that a little bit? And do you see it as the same sort of construct for you?
Yeah. So we'll start with global transaction banking, and then we'll come to strengthen the U.S. I mean, I think global transaction banking is one of the biggest opportunities for us across the bank. We have a good proposition in Canada, and we capture our fair share in Canada. We didn't have a proposition in Mexico two years ago. We now have a proposition, and we're migrating all of our clients to Scotia Connect 2.0. And we're building out our proposition in the U.S. And we've actually spent CAD 250 million on it last year. We're going to spend another CAD 250 million on it this year. We've got five, six pilot clients helping us do this in the U.S. right now. By the end of the year, we'll have 50-100 clients.
This is a significant opportunity in strengthening the U.S. franchise because then you get the sticky deposits that allow you to grow the asset side of the business. So big opportunity for us. We're going to continue to invest behind it. And I think it's actually one of the drivers of our Canadian commercial success this year. A lot of people have been asking, how do you grow PTPP by 20% when your loans actually aren't growing in commercial? A big part of that is the focus on global transaction banking in Canada. So that is definitely a high priority for us going forward. In terms of your view on the U.S., we're on a journey in our global banking and markets franchise to move from beyond the balance sheet to fee-based revenue.
If you CLO, securitization, leveraged lending, DCM capabilities, all of these we've invested more in capital markets. All of these we've invested in the last two or three years. The result is the best result we've ever had. Now, yes, it benefited from constructive markets, but I think it's also benefited a lot from the fee increase that we've seen. Capital deployed down 14%, but fee income up 25%. ROE up 300 basis points. Continuing that consistent low volatility diversified approach is going to be the objective. We can do that at a 14%-15% ROE. I think we'll be very successful. Now, there's more work to do. We have to continue to add talent, particularly on the IB side, the investment banking side.
We've got great verticals like mining and oil and gas that have really helped us this year in terms of our advisory income. We've got to continue to expand that in the U.S. And if we can focus on adding talent in very defined verticals, we'll continue to see investment banking and advisory income increase as well.
Just to go back to the GTB and the increased investment in the offering into the U.S., is that going to be ready for the end of 2026?
By the end of the year, we'll have probably 50-100 clients on it. But the full capabilities will be 2027.
Okay. Great, and so what is the end goal? I mean, the U.S. is growing well. You've made some investments there. 50% of earnings. Where does it go? Do you think that that's reasonable to expect it to be bigger than Canada?
I don't have a target for percentage of the business. What I would say is we've got a U.S. capability set that is resonating with clients and high capital velocity and growing at a decent clip. We are fully deployed in Canada, and I think we've had a lot of success in Canada as well. But it's a bigger market in the U.S. And so from a GBM perspective, you'll continue to see probably growth there that's a little bit higher than in the Canadian business. From a wealth perspective, I really like what we're doing in Canada. I really like what we're doing in LATAM. We've got to find a way to connect for our Canadian clients, the U.S. proposition, and for our LATAM clients, the U.S. proposition. So there's the work to do there as well. But it's an organic strategy. It's an organic buildout.
Frankly, it's not a technology buildout beyond GTB. It's a people buildout. We'll be thoughtful about how we add expense. I'm not judging Travis and Jacqui on operating leverage. I think there is investment that you're going to have to make to get the returns. I'm managing them on ROE. Whereas in our P&C businesses, I think we have a big expense opportunity as well. So driving positive operating leverage through those pieces of the business is really important.
Okay. So you touched on ROE. Let's go back to ROE and talk about it. What's driving it from here? I mean, you did 14 in GBM. The overall target is 14 in development plus, I guess. And you mentioned it wasn't really leverage. So let's.
It wasn't leverage, yeah.
Yeah. So let's talk about that. We've seen one bank with an ROE target that's out there. So A, are you interested in upping your ROE target because your ROA is improving, your return on assets is improving? And then B, where do you see this ultimately going? What can we do without pushing the common equity tier one ratio down? Is it possible to see 15%-16% sort of ROEs? And I think a lot of people are saying 2027 is the year where you're going to see a real lift. So over to you on.
So as you think about the strategy that we're deploying, it's a value versus volume strategy. And we're trying to grow the deposit base through GTB and primary clients and align that with the asset base. And I think we're making a lot of progress. We talked about deposits, we talked about GTB, but our wholesale funding has reduced like 500 basis points from like 23% to 18.5% over the last two and a half years. And so you can continue to assume that we're going to be thoughtful about growing deposits and assets at the same time. Loan to deposit ratios come down from 115% to 104%. The real opportunity for us is business mix. And that real opportunity for business mix is in the Canadian business, where we've historically been really strong in mortgages and autos and underpenetrated in the other areas.
And so when you think about small business, why we're spending so much time on small business comes with deposits, but it's also a higher return proposition. And we're fifth in small business. The last year, we actually grew at two times the market rate, but it's off of a small base. So we've got opportunity there. In cards, that's a great fee return proposition. Commercial mid-market, a great return proposition. Deposits and day-to-day and savings, a great return proposition. So the ROE benefits we are going to get are not because of leverage. It's going to be because of business mix and ROA. In terms of a target, I mean, I don't want to come out with a target, but if you think about ROA in our Canadian business right now, it's 0.74. I think by 2028, we should have that at one, right?
If we have that at one, that's 50%-60% of the contribution of getting to 14% plus. And then in terms of your question on 14% plus, we're at 12.5%. And we're in 2025 versus 2028. By the end of next year, we're going to be over 13%, right? And so I do think we're tracking a year ahead of what we said two years ago in terms of ROE. But as I've been pretty consistent on, let's do what we say we're going to do. We're eight quarters into this strategy. We've met expectations or exceeded expectations. And so we'll continue to do that, and you'll see ROE improvements along the way.
So I guess that leads to the next question, which is, there's actually sort of two questions embedded in the next part, so maybe we can talk about this. We'll do it piecemeal. Every bank says that they prefer organic deployment of capital to buybacks or even inorganic. How do you determine the right balance? And what kind of RWA growth are you contemplating? And should we be thinking about Scotia being in a position to really create a lot of capital in 2026 and into 2027, or really deploying and pushing out the RWA growth?
Yeah. So again, we're moving the philosophy from volume to value. And we're really focused on fee income to drive a higher capital return. That all being said, we have done and gone through a period of optimization, and we are ready for continued deployment of organic capital. And I use commercial mid-market as an example. Are you going to see a big increase in commercial mid-market capital deployment in the first half of the year? Probably not. We're building up the sales force. We're building up the technology to make sure we can do that. But are you going to see more RWA into that business as an example? For sure. I think across the company, we have so many organic opportunities for growth. We have all these assets that we haven't fully optimized.
And so whether it's GTB, whether it's data, whether it's cloud, we have an opportunity here to deploy capital in a very cost-effective, high-return perspective. Our technology spend is going to go from CAD 5.3 billion-CAD 5.8 billion this year. We're going to do that and continue to drive positive operating leverage. And I think we can do all of that from an investment perspective and continue to buy back shares at a reasonable clip. We bought back 11 million shares in 2025. There's a valuation disparity between us and the other banks, so we should be continuing to buy back shares. And I think we can do those two things and keep CET1 at 13%. And if we get capital relief to push CET1 down further, then so long as the other banks do that, I think I'd be prepared to do that as well.
What about inorganic deployment? We know you've purchased Key. The question I've been getting from some people is, there's a lot of things going on at Key now. Potentially they're acquiring. How do you view your position, and what do you do if you can buy more, or what if Key decides to make an acquisition? What is your initial stance on that?
Yeah. So we're pretty happy with the Key investment. It's a $350 million of NIAT that's coming into us at a 15%-20% return on capital. And the stock's up 25% from where we bought it. So in general, I think we're happy. We're also very supportive of what that team is doing in terms of prioritizing share repurchases as opposed to acquisitions. And as I think about our objectives in the U.S., what we need to do is organically continue to build out some product gaps in Travis's organization and help Jacqui get that U.S. offshore booking point. And that's the priorities as opposed to anything larger scale. And so first, organic deployment of capital, two, share buybacks, and three, if we can close some of these product gaps with small tuck-in type acquisitions for Jacqui and Travis, that would be something we should think about.
Okay. I think we're going to take a look at these questions that are coming in, or hopefully they have been coming in. I have to switch this. Sorry about that.
It's working for you now.
Yeah. Well, yeah. Okay. So there's lots here, so maybe we'll just go in order. Scotia took restructuring charges, but full benefits won't accrete to earnings due to product frontline investments. Can you elaborate on the investments?
Yeah. One of the things that we talk a lot to Aris, who runs our Canadian bank around, about is continuing the strategy, but self-funding the strategy. And the restructuring charge, which was a multi-month, I think multi-quarter effort to make sure that we did this the right way, was significant. I mean, 3,000 people ended up leaving the building. And it was in areas that I think we had the opportunity to rationalize given the focus going forward. So it was a lot of back office. It was a lot of in areas that are not going to grow at outsized rates. And it creates the capacity then to reinvest in frontline sales force and technology. And so what we've talked about is, yes, make those reinvestments, and that's the technology budget increase that we talked about, but also run the Canadian bank at positive operating leverage.
That's what you're going to see from us in 2026.
Okay. I think I got time to ask one more of these questions. Fiscal 2026 impaired PCL ratio guidance is mostly similar to 2025. What is needed for more significant credit normalization or a drop in credit losses?
Yeah. So I think we ended the year around 49 or 50 basis points of impaired. And what we've guided to for next year is high 40s to mid-50s. So essentially consistent in the first half of the year with where we ended last year, and then hopefully getting better through the third and fourth quarters. There are some pockets of weakness in IB that we've talked about a little bit in our monoline credit card operation in Chile and then also in Mexico that is going to impact that or offset that PTPP growth. But in Canada, I'm feeling actually pretty good. I'm feeling pretty good about the impaired outlook. And I do think that will contribute also. I didn't mention this, but that will also contribute to the double digits earning growth in 2026. And so if CUSMA doesn't get signed, does that change your view?
Maybe, but probably not. I mean, we took an 18 basis point performing build in the second quarter with a view that CUSMA wouldn't get signed and tariffs would be a problem. And as you think about ACLs overall for this bank, since I've become the CEO, we've added CAD 2 billion of ACL, of which CAD 1.3 billion has been performing. We've added 35% to our overall ACL since I've been the CEO. So I'm feeling really good about the kind of resiliency of the balance sheet and where we stand going into 2026.
Those issues in Chile and Mexico, you think we just grind through it in 2026?
Just going to grind through them.
Chances that they go down in 2027 kind of thing?
Yeah. No, I think they do. I mean, I think we're peaking and coming down. And this comes back to your Venezuela question. I mean, Latin America is moving to the right, right? And when you move to the right or center right, you get more growth. And so when you look at Chile or Colombia, Peru, Mexico, they're all much more business-friendly macro environments. And so I do think that's going to be beneficial for us as we think about the next three or four years as well.
Okay, Scott, we're at the time where I hand the floor over for some final remarks and key messages. So what would you like to leave for?
Yeah. I mean, listen, I've said consistently when I've been up here for the last three years is do what you say you're going to do and be the bank of no surprises. And I hope now, after eight quarters of doing what we say we're going to do and exceeding expectations, we're starting to build the credibility that when we say we're going to do something, we are going to do it. And when we look at next year, we see double-digit growth. We see double-digit growth on the back of very strong Canadian banking performance, continued performance in wealth. And then GBM and IB were actually, I think, being relatively conservative in terms of the outlook because those were market-driven constructive backdrops that we had in 2025. So you combine that with a commitment to continue to repurchase shares when there's a valuation disparity.
I think that creates a good backdrop for the bank as we go into 2026. Frankly, I'm starting to focus a lot on 2027. That's what you would expect me to do. But how do we keep the momentum from 2026 into 2027 and allow us to continue this kind of track record of ROE enhancements and EPS growth? If we can do that, then I think the share price will take care of itself.
Excellent. So thank you very much for joining today.
Great. Thanks a lot, Darko.
Cheers.