All right, perfect. Well, let's get started. I am going to start with a little quote, A resilient financial system is one of the cornerstones of prosperity. Those words from Mark Carney capture why gatherings like this matter the most. The banking system is simply not part of the economy. It is one of the foundations upon which economic growth, investments, innovation, and opportunity are built. Good morning, everyone. Welcome to the 27th Annual Scotiabank Financial Summit. I am Travis Machen, CEO and Group Head of Global Banking and Markets. On behalf of our entire team, I want to thank you for joining us today, and thank you for your continued partnership and trust. We are meeting at a critical moment for our industry. AI is transforming the way we work, how we serve our clients, and how we create value.
At the same time, businesses and investors are navigating a very complex market volatility, geopolitical uncertainty, and rapid technological change. But through all of this, three things continue to matter the most: trust, resilience, and innovation. Despite the challenges, there is real reason for optimism. Canada's financial system remains very strong, and our banking sector continues to demonstrate resilience and momentum. Investor confidence reflects that strength, with Canadian banks outperforming many of their global peers this year. Over the next two days, you will hear from many of the industry's leading CEOs and executives. I hope these conversations challenge perspectives, generate new ideas, and provide valuable insights into the opportunities ahead. Thank you for being here, and it is now my pleasure to welcome Scott Thomson, President, CEO of Scotiabank, and Mike Rizvanovic , our Canadian Research Services Research Analyst at Scotiabank. Please join me in welcoming Scott and Mike to the stage.
Thanks, Travis.
Thanks, Travis.
Hey, Mike.
Hi.
Good to see you.
Good to see you as well. Awesome. I guess I'd love to start, Scott, with sort of some big-picture questions here. I do have to say, I have a sense of déjà vu here, because last year we talked about how Q3 was so well-received and the stock being up 7%. Here we are again a year later, same reaction, 7% upside on that day. Not to fixate on the quarter, but maybe just talking about the ROE and the big step-up that we've seen here, which has come in relatively gradually. Now you're basically two years ahead of your scheduled targeted 14%. You got there two years early. Maybe talk a bit about what's driven that and how you've gone from that Investor Day target to actually doing it so much earlier than expected.
Great. Okay. Thanks, Mike, and thanks, everyone, for being here today. Back- to- conference season and kids back- to- school. Thanks for your time. We've been at this for three and a half years, right? When you think about where we started, there was a definite initial focus on the balance sheet, making sure the balance sheet was in great shape, and we had a balanced view of deposits and loan growth. If you think about that period of three years, capital ratio is obvious, but LDR 116% to 103%, wholesale funding improved by 200 basis points. Performing allowances, CAD 5 billion now, a CAD 1 billion increase over that three-year period. Margin expansion along the way on the back of positive operating leverage. This is the exact plan we laid out three years ago.
It's gone a little bit quicker than we had projected, which is great. It's because of all business lines, right? As you look at all four of those business lines, international improvement of 300 basis points on ROE over a three-year period. Our wealth business has been growing at 17% CAGR. That's on the back of a lot of investment, so it wasn't a one quarter thing. We've added, I think, 800 salesforce frontline folks to that division and gained market share, going from sixth to third. In our Global Banking and Markets group, you just look at the fee income. Lower capital, higher ROE, more fees, on the back of a three-year capability build. We can talk more about Global Banking and Markets, which Travis runs. What was really pleasing was the Canadian bank.
It had a great quarter, but it's had a great last four quarters. That whole business mix move away from mortgage monoline and auto, where we were very good, to mid-market commercial small business. Using Mortgage + as an anchor that drives deposits day-to-day and seeing the improvement in the day-to-day in savings, which allows you to see that ROE improvement in Canada, which contributes to the overall banking results. That's a two-minute synopsis of the last three years, but I'm feeling really good about where the bank's heading.
Great. I think you did mention on the quarterly call that 14% was not necessarily a ceiling for Scotia on the ROE. Just curious, what are you confident about that maybe that can, over time, get to an even better place?
Yeah. What we said a year ago is a lot of this is driven by the Canadian bank. The Canadian bank is gap relative to our peers on ROE. Year-over-year, we're up 200 basis points. I suspect when we're sitting here next year, we'll look back, we'll be up another 200 basis points. When you look at that progression to 14.2% in the quarter, we told you a year ago the path to get there, half of it was Canadian banking and half of it was the other three businesses. In this quarter, we obviously saw a very constructive market backdrop in GBM, which allowed us to increase our NIAT in that group a little higher than what we'd historically done. A big part of the drive was Canadian banking.
As we look forward, continuing that progress in Canadian banking is going to be job one.
Awesome. Maybe sticking to Canadian banking, I got a bunch of questions on the segments. Just in terms of the Q1 bridge that you showed on the ROE and how Canadian banking would contribute to a big part of that movement. Now you're sitting at a much higher level. You're 19%+ this past quarter, which is a much better spot than the segment was a couple of years ago. Just wondering, what's the next leg for Canadian banking?
Yeah. Well, three things are driving the improved performance in the Canadian bank and will continue to drive performance. One is risk-adjusted margin, two is business mix, and three is efficiency. Let's start with risk-adjusted margin, and this comes to the business mix, bringing on assets that actually have a higher RAM, right? Small business that comes to mid-market, which we're starting to see growth at 5%, 7%, 10% in the case of small business. When you look at the impaired performance, that impaired performance has done pretty well. We're going to be at the high end of our target at the start of the year, but per quarter. The RAM performance, I think we're up 10 basis points year-over-year. We're going to continue to see continued margin expansion quarter- by- quarter and into next year as well.
On the business mix, it comes back to credit cards, 45% now premium acquisition up from 35%. Fee income which has been insurance now growing, which was not a part of the business three years ago. It's now growing at around 10%. We're just getting started on that. Then again, some of these areas like small business and mid-market, which are now growing at 5%, 7%, 10%. That's the business mix component. Lastly is efficiency. We've been laser-focused on cost and capital discipline over the last three and a half years. You've seen now four quarters in a row of positive operating leverage. You're going to continue to see positive operating leverage in our Canadian P&C bank. But we're actually taking the investments of the restructuring charges and actually investing in frontline salespeople and technology.
You've seen a big increase in our technology spend year-over-year, which has allowed us to create the capacity on things like AI, which I'm sure we'll talk about, but also allowed us to drive, at the same time, positive operating leverage.
That improvement in the risk-adjusted margin as you look to build out the credit card book in a more meaningful way with the mass affluent targeted crowd, it sounds like there's a bit more upside potential in that.
Well, I think the margin story, it's interesting because for some of the banks, they had margin expansion. Some didn't have margin expansion this past quarter. For us, it's been a pretty continual improvement in margin. Part of that is the philosophy's changed from volume to value, but part of that is you look at what we're putting on from an asset perspective, comes to this business mix that have higher returning products. Then in our portfolio with mortgages and autos, where we've been historically strong, we're repricing into a higher margin as well. Mortgage + has been a home run for this bank, right? Mortgage +, which three years ago we put in, there was some skepticism around it. 95% of our originations are Mortgage + right now. 70% of our Mortgage + customers have a day-to-day account. I think we're having like 85% renewals on Mortgage +.
We've gone from 20% single monoline mortgage holders to now 15% over the last three years. This is the anchor product where we get people in. Multi-product allows them to then have more products with the bank. So that's on the asset side. On the deposit side, we've been adding more day-to-day and savings accounts. That deposit mix is changing, which is allowing the deposit margin to expand. When you look forward, I think next quarter you'll see one or two basis points of margin expansion in Canada. Next year you'll see continued margin expansion in Canada. That again contributes to the ROE uptick that I'm expecting for next year.
That sort of dovetails well into my next question. Just wanted to touch on the value versus volume. Obviously, something that you've been very clear on to investors, that it is all about getting that primacy with the client. Maybe talk about where you see that trending. It sounds like you have gotten a lot of traction already, and there seems to be still a decent amount of upside there.
Yeah, I mean, the value versus volume, it started where we had historically been a bank that was concentrated using the balance sheet and in relationships that were not necessarily primary and therefore did not have ancillary revenue around it. So in each business line, we have been pursuing this to different degrees. But look at the international bank where we have optimized that Global Banking and Markets portfolio, the corporate portfolio in our IB franchise. That is actually going to start to grow in the fourth quarter and into next year now that it is optimized. So we will be on a growth curve. You see non-mortgages growing faster than mortgages in our international bank. You see commercial now starting to improve from a loan growth perspective. Leading with cash. Cash management as the kind of the entry product into commercial in our international bank.
Then increasingly, we are also introducing a capital market solution in our international bank, which we did not have before. So we have got all this expertise in New York and Toronto on capital markets. We have got all this balance sheet deployed in international, yet we were not using capital markets as a core competency in our international bank. Now we are doing that. So frankly, over the last two months, I will pick Jamaica. We just led a CAD 1 billion sovereign deal for Jamaica last week. We had not done that in our 134-year history of the bank. That was the first one we had ever done. So growing out that expertise we have in the U.S. into clients where we already have great relationships, balance sheet deployed, that actually drives a pretty significant outcome.
So for our international bank right now, about 50% of it is actually GBM, Global Banking and Markets in that IB business line. In our Global Banking and Markets group run by Travis, look at over the last three years, significant investment in product capabilities, whether it is mortgage capital markets, securitization, debt capital markets, levered lending. And you see capital down, fees up, ROE up. And interestingly, deposits in Global Banking and Markets was up 12% last year on the back of Global Transaction Banking and that connection between Global Transaction Banking and GBM. And underwriting fees, I think, are three times higher on a quarterly basis than they would have been three or four years ago on a kind of normalized. We had a great quarter on underwriting fees, but just if you look at normalized relative to three years ago underwriting fees.
That was one area where we were a little bit behind. That is, again, business mix changes. In Canada, we talked a lot about business mix changes that we are driving. That is all coming together to drive a better ROE with capital that is actually aligned with the type of deposits we can drive in the business.
Okay. Thanks for that color. Maybe just one more on now with the trade negotiations and the tariff issue. How do you sort of see that playing out? Are you hearing anything from clients that is of concern, or is it just sort of steady state right now?
Yeah. To put it in perspective, I think we said at the start of the year, high 40s basis points to mid-50s basis points in terms of our impaired. We started the year a little bit higher than mid-50s basis points, which was our expectations. Then last quarter we are below, I think we are 53 basis points, right? Our expectations, that continues to track down. From our commercial and small business book and auto book, it feels pretty good. There does not seem to be any significant issues. There is a little bit of stress in the mortgage portfolio in Toronto and Vancouver, but nothing material. Our expectation is we will continue to see that impaired performance improve, now subject to what happens in the macro. What happens in the macro to date has not been that significant. You saw the announcement yesterday.
It is still a relatively small amount of trade as tariffs, so I do not think that is going to have a huge impact on the credit performance. But obviously we will have to stay tuned for what transpires over the next year or so from a credit, a macro perspective and the relationship with the U.S. will be important. I think from a Bank of Nova Scotia perspective, as you think back to Liberation Day, we took an 18 basis point performing build at that time. You look at our pessimistic scenario and our very pessimistic scenario and our models, they are pretty significantly different and worse than where we are today. Things would have to erode pretty significantly to see significant performing build. Overall I feel pretty good about the credit performance and in line what we said at the start of the year.
Okay. Thanks for that. Maybe switching over to the wealth business. You did allude to the improvement in the ranking number three in long-term mutual fund sales in Canada year-to- date. So it is not just one quarter, it has been something that has been building over some time. Maybe just remind investors how you got there and what has really worked here, and is a potential number two spot within sight?
Yeah. The wealth is a great story and I think it has been somewhat missed just because of the constructive backdrop. People, all wealth businesses are doing well, so you really have to get under the covers and look at market share in my view. I think the fortunate thing we had with wealth, we had actually a great wealth franchise to begin with. Glen Gowland, who ran this business, had ran a very strong wealth business. When Jacqui came in, I think she took it to the next level, particularly as it relates to growth in terms of growing the sales force and growing our aspirations, particularly as it related to international and the ability to connect our international client base to the overall wealth franchise. Then particularly as it relates to connection with the Canadian bank.
If you look at the Canadian bank, I think our referrals are CAD 14 billion this year, which is up from CAD 11 billion last year. Our commercial referrals are CAD 4.5 billion this year, which is up 33% to last year. We have added, as I said, 800 FTE kind of on the frontline sales force to allow us to generate net inflows. So not just market growth, but actually net assets coming in. Year to date, we have already achieved what we have last year. So by the third quarter, we are already where we were last year. As you mentioned, when we started this journey, we were sixth and I thought we were going to get second this quarter. We were right on the cusp of second. We actually ended up third, but this has been like quarter by quarter, just closing the gap with our competitors.
Wealth is a great story. CAGR of wealth for the last three years, 17% earnings. As I think forward, this is a 10%-15%, 20% ROE business. That becomes more and more of the overall bank from an earnings perspective. That also helps the ROE significantly.
Thanks for that. Maybe switching to international banking. Obviously, this segment has had some really good traction the last couple of years, and I think excluding the one-off file in Brazil, it would have been a 16.5% ROE in the quarter. I think what's been clear is that it's the expenses and the optimization—
Yeah
that have driven that. The question I get from a lot of investors is what's the next leg of room?
Yeah.
I know it's not going to be a focus on volume, so we're not just going to focus on balance sheet, but what sort of drives that next leg for international
Yeah
is what a lot of investors would want.
Yeah. When we started, all these countries were operated separately. There was a volume-based approach. It was not necessarily focused on high value and affluent. The first step was just getting a hold of it and optimizing it. Our view is we had enough capital in the business. We now needed to drive better returns on that capital. Francisco and the team have just done a fantastic job. The cost reduction that has come out of that international bank on the back of regionalization, it is amazing. I think he committed on an Investor Day, CAD 800 million. I would be shocked if we were not at that number already, which has driven 13% ROE to 16% ROE. We talked a year ago about the pivot to growth. How do you actually start growing that business? That is harder, by the way, than cost reductions.
But if you look at this last quarter, you saw 11% revenue growth, 11% earnings growth. You saw non-mortgages growing at twice the rate of mortgages. You saw deposit growth of 6%. You saw primary client growth of 10%. We are just getting started on this global capital markets opportunity. I just told you about the Jamaica opportunity. That is our first ever, right? You think about deploying that type of capability into our international bank. My expectation is that we can continue to improve the ROE. I think it is going to be step by step, so I would not expect big changes necessarily next year. We are also dealing with a little bit more capital deployed because of the transition from standardized to AIRB from a models perspective. But I think this business over time can be 18% ROE. That should be our kind of objective.
If you have this business growing at 7% or 8%, expenses growing at 4%, earnings growing at 10%, and ROE going from 16% to 18%, I think that now becomes a much more compelling proposition for our investors as a part of the portfolio. The other thing we need to keep in mind is relative to when we started or the last 10 years, the whole backdrop has become much more constructive. This was all left-leaning governments. They now have mostly transitioned into pro-growth governments. Kast in Chile, Peru new government, Colombia probably a new government. You are starting to see growth in these countries as well. A couple of things that we have done on the portfolio side have been really helpful.
The Davivienda trade that we did has, I think, taken what was a drag from a Colombia, Central America perspective and made it additive from a growth perspective. That has been helpful. Now we just need to get Mexico growing. When we can get Mexico growing, and we can get comfortable with USMCA as it relates to Mexico, then I think we can deploy more capital into Mexico. We have been hesitant to do too much of that until we get more certainty on the overall macro, but that would be the objective over time.
Okay. You did give us a lot of good color here on the capital markets opportunity within international.
Yeah.
Can you talk about that a little bit more just in terms of what you're building? I think what a lot of investors are also wondering is how does this sort of tie into the commercial franchise? Is this level sustainable? I think you noted close to half of earnings in international came from that part of the business. You mentioned the big opportunity in the Caribbean. What are you sort of building here?
Yeah
How do you see the sustainability of that business?
Well, if you think about the product capabilities that Travis has built in New York, you can go through the gamut, but securitization, levered lending, DCM, mortgage capital markets, real estate lending now. We've developed essentially a whole suite of capital markets capabilities, which are contributing to the outcome in GBM, which you saw last quarter. We haven't deployed any of those historically into our international bank, and that international bank has a lot of capital deployed, but no significant relationships on that side of the house. For me, the penny kind of dropped when I was in the Caribbean, and we have 30% of the deposits in the country, in the region. I asked the Jamaican finance minister, I said, why aren't we included in your sovereign issuances? He said, you've never asked.
That kind of went, hit me like, holy smokes. Why do not we deploy that into some of these areas where we literally have primacy with all of these countries, right? That has started. We did our first DCM transaction in Brazil. Brazil has historically been a lending-heavy operation, so how do you move that to a more markets, high capital velocity, originate to distribute type capital mentality? The Caribbean, we have hired some new capabilities that will help from an investment banking perspective. Mexico, we just did a, actually last week, just did a big bond offering where we were the lead arranger from a sovereign perspective. I think there are massive, significant opportunities, and this is all low capital, high fee type business. I think that will help transition and push that ROE higher in our international bank.
Okay. Maybe switching over to GBM, the segment. I have to ask because I get asked this question very often. Obviously, when you see a big step up on the earnings, CAD 647 million was well above the previous quarter's sort of CAD 475 million -CAD 500 million guided range. Obviously, good backdrop in the markets helped. Investors are wondering, is there any sort of sustainability that is beyond that CAD 475 million - CAD 500 million? Should they think of this as a step up to maybe a slightly higher run- rate going forward? Any color would be.
Yeah. Here is how I think about it. I think that what Travis and the team have done over the last three years is build out all the product capabilities so that when the markets are constructive, we can take advantage of it. That is what happened in the last quarter. If you look at every product, every service, every region, it was all kind of working. We had diversified the revenue over the last three years, so we can take advantage of that. If you look at that business over four years, we have taken it from our kind of CAD 350 million business. Next year was a CAD 400 million business, then it was a CAD 450 million, then it was a CAD 500 million. Now we had a CAD 650 million, right?
Step by step, we have been adding these capabilities and global capital markets is the perfect example of where we now, I think, have a great franchise. There is more work to do. There is more work to do definitely around investment banking, particularly in the U.S.. Also in Canada. Let us start with Canada, then we will go to the U.S.. In Canada, we are fully deployed. We have got all the capabilities, but we do not yet have our fair share of the wallet that we should have with the capital that is out, the balance sheet out. You can see, and there has been some announcements, we are building out those capabilities. We need to win in our home market if we want to win in the U.S.. When you look at the U.S., the fee pool is 13 times bigger than Canada.
We are just getting started adding those banking capabilities. We are going to pick the segments where we know we can win or we know we can compete so that we do not compete across the board. When you think about energy, when you think about mining, when you think about power and utilities, we have got world-class franchises in those regards on the back of what we have built in Canada, so we should be able to win in the U.S. in those areas. That is kind of the next stage of this. What was really interesting this last quarter, we had our first lead left levered lending deal, which was great with Valvoline. We had our first lead left ECM deal in the real estate side, which was great. Our underwriting fees in the quarter were at an all-time high.
I think we did have a little bit of benefit of constructive markets in that regard. Again, I think if you go back to three years, it is three times bigger from an underwriting perspective than we would have been on a quarterly run-r ate basis. Is it sustainable? Probably not at CAD 650 million, quarter after quarter after quarter. When markets are constructive, we are now able to deliver for our clients. That is the big difference from where we were three years ago.
That increased diversification, is it fair for investors to think that it provides a bit more stability to that business?
The whole point here is high capital velocity, so originate to distribute model and lower volatility. You get that by being diversified across a lot of products, across a lot of regions, and that is the strategies that we have been pursuing.
Okay. Maybe if you could touch on a little bit more on the U.S. opportunity. Obviously, it has been a big focus for Travis, yourself as well, obviously. Is there still a lot of low-hanging fruit there when you think about deploying more capital into the U.S. within GBM?
Listen, I start with we need to win in our home market, so there is a lot of opportunity in Canada to continue to capture our fair share of the wallet. As I said, the fee pools in the U.S. are 13 times bigger. As you think about growth, there is a significant amount of growth, organic growth in our U.S. business. You saw really significant growth quarter-over-quarter. That is again, we have been building this over the last three or four years. In terms of inorganic growth, we may do some things for Travis and Jacqui that allow them to have more capabilities in the U.S.. MapleMark Bank was an example of that.
We bought a small commercial bank in Texas, which gave us the ability to offer FDIC insurance to our clients, which then allows us to optimize our mortgage capital markets business and actually bring in more deposits. Things like that, we may continue to do. I could see us doing a small tuck-in with Jacqui to help her connect our Canadian clients to the U.S., connect our Mexican clients to the U.S.. Primarily, it is going to be an organic strategy because I think we are just getting started in terms of rolling this out. When I talk about new capabilities, we could use more equity capabilities in the U.S. for sure. Just think about equity derivatives as an example. We could use more investment banking capabilities in the U.S.. We are under-penetrated in that regard. I have already talked about that.
Lots of organic things to do in Travis's world.
Okay. Clearly, it is organic growth first and foremost, and then tuck-ins is an option. But I do have to ask, again, because this is something that is on top of investors' minds. In terms of larger M&A, just given where the banks sit, the whole group sits right now on valuation multiples, the DSB range coming down, OSFI reducing the actual DSB level by 50 basis points. It seems like capital has quickly become a lot more abundant in terms of the excess that is sitting on the balance sheet. Does that at all impact, I guess, the potential for a larger
No. We have gone through a period here where we have optimized, and now we are pivoting to growth, and you see that across all of the business lines. There is actually a need for capital, which we can deploy at the type of returns that we want to deploy. There is a significant organic growth opportunity. Frankly, there is a significant share repurchase opportunity. We are still trading at a two-turn discount, and we have repurchased less shares than our peers, in an environment where we started with a drip on, we have moved to now repurchasing shares on 13% capital. But as we accumulate capital here, organic growth first, share repurchase second.
Okay. Then maybe one final one on expenses before I turn it over to you for some key comments to leave behind with investors. But just on the expense side, obviously it has been a very good environment for revenue. Operating leverage has been positive for many consecutive quarters now. How does AI come into that? How does that help you continue that trend
Yeah
if you do start to see revenue, maybe in the market sensitive businesses slow down to some degree?
Yeah, AI is a big opportunity for us, a transformational opportunity, both from an effectiveness and an efficiency perspective. We've made great strides in the last year. I think our Scotia Navigator platform now has 95% of Bank of Nova Scotia employees on it. We're seeing great progress. 5,000 of our coders, our engineers in our tech department are actually using AI pretty significantly. In wealth, which is probably the furthest ahead from a business unit perspective, you'd expect that given obviously the use cases, something like 24,000 workdays have been saved in the last quarter and a half from the deployment of AI. So there's an example of being able to scale more FTEs, frontline sales force, without having to scale the back office to support them as one example. I do think AI will be helpful.
As I think about operating leverage, though, you have to be careful about operating leverage. I do think we have a significant continued cost opportunity and efficiency opportunity in the P&C businesses. In wealth, we have been running positive operating leverage, but I'm actually encouraging Jacqui to go faster, right, in terms of adding frontline sales force because it's just such a great business at a high ROE. If she doesn't drive positive operating leverage, I'm not sure that's the end of the world. Similar with Travis and his organization, we're adding all these capabilities, and you have to be thoughtful about making sure the revenue comes along with the costs. But I think we've proven to date that that actually is going to happen. You have to be thoughtful about the different business lines.
Overall, I think it leads to positive operating leverage because there's a lot of opportunity in our back office and our P&C businesses. We'll continue to drive that as an important part of the strategy going forward.
Okay. Awesome. Thanks for that. Any final messages for investors?
Well, just business mix. I think we're now 13 quarters into this. We're going to come back now that we've made our medium-term targets in a large regard. We'll come back probably at the end of next year with a new Investor Day that will set out the next four or five years. But this whole strategy has been about business mix, right? That's what we've been trying to do. You're seeing it now in every single business line, and that is so encouraging. You're seeing it in day-to-day in savings. You're seeing it in global transaction banking, driving deposits. You're seeing it in IB, which we talked about, global banking and markets. Importantly, because people were really looking at this, was Canada.
That Canadian business where we were lagging in all of these product areas that actually had a high RAM, we're now quarter by quarter closing that gap. I am pretty confident as we look forward, 14% is not the ceiling, right? I am pretty confident we're going to be sitting here next year and we're going to continue to see another step up in our Canadian banking ROE. Another four quarters of continued credibility build, The Bank of no surprises. I think that's helpful for you, our shareholders. Thanks for the support.
Awesome. Well, that we'll stop here. Thank you very much, Scott. Pleasure having you on stage, and thank you for all the insights.
Great. Thanks, Mike.
Thank you