fixed income investor presentation - scotiabank...kingdom united states japan source: imf (2013...

Fixed Income Investor Presentation

Third Quarter, 2014

1

Our public communications often include oral or written forward-looking statements. Statements of this type are included in this document, and may be included in other

filings with Canadian securities regulators or the United States Securities and Exchange Commission, or in other communications. All such statements are made

pursuant to the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation.

Forward-looking statements include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2013 Annual

Report under the headings “Overview – Outlook”, for Group Financial Performance “Outlook”, for each business segment “Outlook” and in other statements regarding

the Bank’s objectives, strategies to achieve those objectives, expected financial results (including those in the area of risk management), and the outlook for the Bank’s

businesses and for the Canadian, United States and global economies. Such statements are typically identified by words or phrases such as “believe”, “expect”,

“anticipate”, “intent”, “estimate”, “plan”, “may increase”, “may fluctuate”, and similar expressions of future or conditional verbs, such as “will”, “should”, “would” and

“could”. By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that

predictions and other forward-looking statements will not prove to be accurate. Do not unduly rely on forward looking statements, as a number of important factors, many

of which are beyond our control, could cause actual results to differ materially from the estimates and intentions expressed in such forward-looking statements. These

factors include, but are not limited to: the economic and financial conditions in Canada and globally; fluctuations in interest rates and currency values; liquidity; significant

market volatility and interruptions; the failure of third parties to comply with their obligations to us and our affiliates; the effect of changes in monetary policy; legislative

and regulatory developments in Canada and elsewhere, including changes in tax laws; the effect of changes to our credit ratings; amendments to, and interpretations of,

risk-based capital guidelines and reporting instructions and liquidity regulatory guidance; operational and reputational risks; the risk that the Bank’s risk management

models may not take into account all relevant factors; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely

development and introduction of new products and services in receptive markets; the Bank’s ability to expand existing distribution channels and to develop and realize

revenues from new distribution channels; the Bank’s ability to complete and integrate acquisitions and its other growth strategies; changes in accounting policies and

methods the Bank uses to report its financial condition and financial performance, including uncertainties associated with critical accounting assumptions and estimates

(see “Controls and Accounting Policies – Critical accounting estimates” in the Bank’s 2013 Annual Report); the effect of applying future accounting changes (see

“Controls and Accounting Policies – Future accounting developments” in the Bank’s 2013 Annual Report); global capital markets activity; the Bank’s ability to attract and

retain key executives; reliance on third parties to provide components of the Bank’s business infrastructure; unexpected changes in consumer spending and saving

habits; technological developments; fraud by internal or external parties, including the use of new technologies in unprecedented ways to defraud the Bank or its

customers; consolidation in the Canadian financial services sector; competition, both from new entrants and established competitors; judicial and regulatory

proceedings; acts of God, such as earthquakes and hurricanes; the possible impact of international conflicts and other developments, including terrorist acts and war on

terrorism; the effects of disease or illness on local, national or international economies; disruptions to public infrastructure, including transportation, communication,

power and water; and the Bank’s anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank’s business involves

making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries

could have a material adverse effect on the Bank’s financial results, businesses, financial condition or liquidity. These and other factors may cause the Bank’s actual

performance to differ materially from that contemplated by forward-looking statements. For more information, see the “Risk Management” section starting on page 60 of

the Bank’s 2013 Annual Report. Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2013 Annual

Report under the headings “Overview – Outlook”, and for each business segment “Outlook”. These “Outlook” sections are based on the Bank’s views and the actual

outcome is uncertain. Readers should consider the above-noted factors when reviewing these sections. The preceding list of important factors is not exhaustive. When

relying on forward-looking statements to make decisions with respect to the Bank and its securities, investors and others should carefully consider the preceding factors,

other uncertainties and potential events. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to

time by or on its behalf. Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at

www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.

Caution Regarding Forward-Looking Statements

2

Agenda

• Canadian Economy

• Scotiabank Overview

• Risk

• Mortgage Market

• Funding

Canadian Economy

4

Canada Well Positioned Among G7 Despite Slower Growth

Canada

• 13th largest economy in the world with a growing 35 million population, driven mainly by immigration

• Consistent record of meeting or exceeding average G7 GDP trends

• Manageable Canadian government deficits, strong fiscal position among G7

Real GDP Growth

General Government Net Financial Liabilities Government Financial Deficits as % of GDP

0

1

2

3

U.S. U.K. Canada Japan Euro zone

2000-2012

2013-2015F

Annual %

change

Forecasts as at July 31, 2014. Source: Scotiabank Economics.

0.0

-3.0 -3.0

-4.2

-5.8

-7.3

-8.4-10

-8

-6

-4

-2

0

2

Germany Canada Italy France United

Kingdom

United

States

Japan

Source: IMF (2013 estimates);

Scotiabank Economics. As at August 22, 2014.

40.449.1

65.4 69.1 73.681.2

116.5

137.5

0

20

40

60

80

100

120

140

160

Canada Germany U.K. OECD France U.S. Italy Japan

% o

f nom

inal G

DP

Source: OECD (2013 estimates); Scotiabank Economics. As at August 22, 2014.

5

Strength of the Canadian Financial System

Relative bank share price performance Strengths

• Effective regulatory framework

o Single regulator for major banks

o Conservative capital requirements

o Proactive policies and programs

• Risk management practices

o Few sub-prime mortgages

o Relatively little securitization

o Primarily originate to hold model

• Canadian banks well capitalized and

profitable

-10

-5

0

5

10

15

Canadian

Banks

Australian

Banks

Japanese

Banks

U.S. Banks U.K. Banks Swiss

Banks

5 year

10 year

% c

hange

Source: Bloomberg; as at August 22, 2014.

Canadian Banking System ranked World’s Soundest by World Economic Forum for 6th consecutive year

Global Competitiveness Report (2013 – 2014)

Scotiabank Overview

7

Scotiabank – Canada’s Most International Bank

As at Q3, 2014 (C$) Scotiabank

Total Assets $792B

Risk-Weighted Assets $308B

Market Capitalization $87B

Q3/14 Net Income1 $1.8B

YTD Q3/14 Net Income1 $5.3B ($6.6B in full F2013)

ROE

20.6%

Productivity Ratio1, 2

52.9%

Capital Ratio3

10.9%

Geographic Footprint >55 countries

# of Employees 86,949

Scotiabank Credit Ratings4

Moody’s Fitch DBRS S&P

Senior Rating Aa2 AA- AA A+

Outstanding Covered Bonds Aaa AAA AAA Not Rated

Outlook Negative Stable Stable Negative (1) Excludes notable CI gain in Q3/14

(2) Taxable Equivalent basis

(3) Basel III “all-in” Common Equity Tier 1 Ratio

(4) A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revisions or withdrawals at any time

8

Strong Canadian Base Presence in High Growth Markets

19%

34%

22%

24%

Global Wealth & Insurance

Canadian Banking

International Banking

28% 72%

57%

43%

Wholesale

International Canada

Diversification creates stability and

lowers risk

Central America Asia

Latin America

Business Line Diversification of earnings Focus on Lower Risk P&C

Personal & Commercial

Global Banking & Markets

Target: 70/30

Target: 50/50

Four Diversified and Growing Platforms

* All figures based on YTD Q3, 2014 net income (excludes notable CI gain in Q3/14)

9

Canadian Banking

Strong Core Canadian Base

Total Revenue (YTD 2014)

As at Q3 2014 In C$

Total Assets (avg.) $281B

Total Deposits (avg.) $188B

Q3/14 Net Income1

$565MM

Productivity Ratio 51.4%

Branches 1,038


23% 77% Retail & Small

Business Banking

Commercial Banking

Net Income1

As at Q3 2014 In C$



Q3/14 Net Income1 $410MM


Branches2 1,954

# of Employees2

47,022

Latin America3


C$ millions

Asia

$1,558$1,726

$1,227

2012 2013 YTD 2014

Net Income1

Presence in Higher Growth Markets

(1) Attributable to equity holders

(2) Excludes affiliates

(3) Includes Mexico

Caribbean & Central America

International Banking

C$ millions

$1,798

$2,151

$1,705

2012 2013 YTD 2014

26%

64%

10%

10

$1,132

$1,455$1,443

2012 2013 YTD 2014

$984

$1,207$1,095

2012 2013 YTD 2014

Global Wealth & Insurance

Significant Growth in GWI

Total Revenue2

(YTD 2014)

C$ millions Net Income1, 2

Insurance Wealth

Management 14% 86%

Niche Focus in GBM


C$ millions Net Income1

51% 49%

Global Corporate & Investment

Banking

Global Capital Markets

Global Banking & Markets

As at Q3 2014 In C$

AUM $165B

AUA $365B

Q3/14 Net Income1, 2 $312MM

Productivity Ratio2 63.5%

# of Employees

7,546

As at Q3 2014 In C$



Q3/14 Net Income1 $408MM



(1) Attributable to equity holders

(2) Excludes notable CI gain in Q3/14

12

Strong Focus on Risk Management

Strengths

PCL Ratio as a % of Average Loans & BAs

Loans & Acceptances by Borrower as at July 31, 2014

• Business model is to originate

and hold assets

• Minimal off-balance sheet assets

• High proportion of on-balance

sheet assets are “low risk”

residential mortgages

• Corporate loan book is

diversified with a focus on

Investment Grade clients

49%

19%

32%

Residential

Mortgages

Business &

Government

Personal &

Credit Cards

0.54%

0.48%

0.34% 0.36%

0.32% 0.36%

0.00%

0.15%

0.30%

0.45%

0.60%

2009 2010 2011 2012 2013 Q3/14 YTD

Mortgage Market

14

Canadian Mortgage Market

Strengths

Canadian Residential Mortgages in Arrears

Mortgage Debt Service Ratio

• Canadians have a significant and stable amount of

equity in their homes

• Mortgage interest is not tax deductible thus reducing

the incentive to borrow

• Residential mortgages in arrears remain low

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

90 92 94 96 98 00 02 04 06 08 10 12 14

%

35

40

45

50

55

60

65

70

75

80

90 92 94 96 98 00 02 04 06 08 10 12 14

Real estate equity as % of

Total Real estate assets

Source:CBA. Source: Statistics Canada & Federal Reserve.

High Percentage of Equity

United States

Canada

Source:Statistics Canada.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

% of disposable income

Mortgage Interest Payments

15

Scotiabank’s Mortgage Strategy

Total portfolio: $189B at Q3/14

• Mortgages are a core banking product and are integral to the Canadian Banking

group’s profitability and customer acquisition capability

• With intense competition in a moderating housing market, managing profitability and

maintaining a high level of quality originations is key

• Build customer relationships for retention and cross-sell additional products and services.

All customers are serviced by domestic branches. Current mortgage retention is 94%

• Business model is originate to hold

Average LTV of uninsured

mortgages is 55%

Freehold Condominium

$20 B

$ 169 B

Uninsured 48%

Insured 52%

Funding

17

Scotiabank Funding Strategy and Programs

Diversified Funding Programs

Short-Term Funding

• USD 20 billion Bank CP program

• USD 3 billion Subsidiary CP program

• CD Programs (Yankee/USD, EUR, GBP, AUD, HKD)

Term Funding & Capital

• CAD 7 billion ABS shelf (unsecured lines of credit)

• CAD 8 billion capital shelf (preferred shares, subordinated debt, common equity)

• Canada Mortgage Bonds and Mortgage Back Securities

• USD 1 billion Singapore MTN program

• USD 15 billion global registered covered bond program (uninsured mortgages)

• USD 18 billion shelf (preferred shares, subordinated debt, common equity)

• USD 20 billion global public covered bond shelf (in run-off, CMHC insured mortgages)

• USD 20 billion EMTN shelf (includes subordinated debt)

Funding Strategy

• Build core deposits in all of our key markets

• Diversification of funding by currency, program, tenor and markets

• Maintain pricing relative to peers

18

Contact Information

For additional public information, including our Annual Report and Quarterly Results please visit:

http://www.scotiabank.com/investorrelations

Michael Lomas

Managing Director, Treasury Sales & Market Development, Group Treasury

416 866 5734 | [email protected]

Mark Michalski

Director, Strategy & Market Development, Group Treasury


Peter Slan

Senior Vice President & Head, Investor Relations


fixed income investor presentation - scotiabank...kingdom united states japan source: imf (2013...

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