The Bank Of Nova Scotia's CEO Discusses F3Q12 Results - Earnings Call Transcript

The Bank of Nova Scotia (BNS)

F3Q12 Earnings Call

August 28, 2012 3:15 p.m. ET

Executives

Rick Waugh - President and Chief Executive Officer

Sean McGuckin – Executive Vice President and Chief Financial Officer

Rob Pitfield - Group Head and Chief Risk Officer

Anatol von Hahn - Group Head, Canadian banking

Brian Porter - Group Head, International banking

Chris Hodgson - Group Head, Global Wealth Management

Mike Durland - Group Head, Global Capital Markets & Co-CEO, Global banking & Markets

Stephen Hart - Executive Vice-President, Chief Credit Officer

Analysts

Cheryl Pate - Morgan Stanley

Steve Theriault - Bank of America Merrill Lynch

Gabriel Dechaine - Credit Suisse

Rob Sedran - CIBC World Markets

Peter Routledge - National bank Financial

Brad Smith - Stonecap Capital

Michael Goldberg - Desjardins Securities

John Reucassel - BMO Capital Markets

Mario Mendonca - Canaccord Genuity

Sumit Malhotra - Macquarie Capital Markets

Presentation

Sean McGuckin

Good afternoon and welcome to the presentation of Scotiabank’s third quarter results. I am Sean McGuckin, Chief Financial Officer. Rick Waugh, our CEO will lead off with the highlights of the third quarter. Next, I will go over the third quarter financial results including a review of business line performance. Rob Pitfield, our Chief Risk Officer, will then discuss credit quality and market risk. Rob will be followed by our business line heads, each of whom will provide an outlook for their business for the remainder of 2012. We will then be glad to take your questions.

Before we start, I would like to refer you to slide number two of our presentation which contains Scotiabank’s caution regarding forward-looking statements. Rick, over to you.

Rick Waugh

Thank you very much, Sean. Well, we are pleased to announce our third quarter with very strong contributions from all our business lines. Scotiabank generated net income of $2.05 billion. Earnings per share were $1.69 for the quarter. That included the $0.53 gain from the sale of Scotia Plaza. But excluding this item, earnings per share increased 5% year-over-year and return on equity remained strong at 24.6%.

Importantly, revenue was strong this quarter, growing by more than 11% excluding the real estate gain and this performance this quarter demonstrates the diversification we always talk about in our business model which continues to drive sustainable growth at high profitability levels.

Now, in light of weakening economic forecasts and continued global uncertainty, the bank increased its collective allowance for credit losses on performing loans this year. This results in a coverage ratio among the highest of our peers. And this reserve is based on conservative provisioning methodology which provides for the possibility of unidentified problems in our portfolio.

Notwithstanding this general provision, the bank’s credit portfolios continued to perform well both in Canada and internationally and well within our expected ranges and risk appetite even under very stressed scenarios that we perform. And this is truly a reflection of our well recognized risk management throughout the whole bank.

Our industry leading productivity ratio remained stable at 53.9%, again excluding that gain in real estate and expense management remains obviously an ongoing priority. Our capital ratios remain strong by international standards. Our tangible common equity ratio now exceeds 10% at pre-crisis level and has been achieved while making more than 20 strategic acquisitions which have totaled over $8 billion since the crisis began.

This has been accomplished by very disciplined capital management and acquisition metrics as well as a very strong internal capital generation due to our consistently high return on equity. We are also currently within the bank’s target of common equity tier one ratio under Basel III three of our range of seven to 7% to 7.5%. And this includes of course the strict regulatory definitions of regulatory capital which under Basel III isn’t required until 2019.

Now, let’s turn to slide five. Our performance this quarter is a result, as I’ve said, of this diversification in our business model and strong contributions from each of our businesses. Corporate banking had a record year with very good asset and deposit growth reinforced by disciplined expense control and lower provisions. Year-to-date revenues are up a solid 4.6% with net income of 16.5% as a result of very good expense management, lower loan losses, continued focus on deposits, payments and wealth management products distribution. And of course these numbers don’t reflect the sale of our building which is recognized in the other category.

International banking continued its strong contributions to earnings this quarter as a result of its diversified loan and deposit growth. Year-to-date revenues are up strongly at 22%, net income was up 20%, reflecting our investments in the higher growth markets in Latin America and Asia. In global wealth management, earnings this quarter were driven by strong insurance results and higher assets under management and assets under administration, notwithstanding the challenging financial markets.

Year-to-date revenues increased 13%, net income up 19%, albeit due in part to one fewer quarter of DundeeWealth contribution in 2011 as well as some non-recurring expenses last year related to the DundeeWealth acquisition. But, again, our numbers demonstrate the continued strength in both our Wealth Management and Insurance business.

And finally, global banking and markets had an excellent quarter across the diversified client driven platform, particularly in the areas that we’ve been invested in recently, such as fixed income and the equities business. What was very encouraging was its growth was broadly-based across several products, markets, and geographies. And importantly in today’s volatile markets, well within our conservative risk appetite.

Year-to-date revenues and net income have both increased 8% and continue to show the strength of the diversification and focus on the relationship driven products in markets where we’re building up special and focused expertise. This was indeed a very satisfying quarter and we anticipate achieving our full-year 2012 financial objectives and well positioned for continued growth next year. And of course, I’m very pleased to reward our shareholders with our second dividend increase this year, a further indication of the quality and sustainability of our earnings and our strategy.

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