Q1 2020 Earnings Call
Good morning, and welcome to Scotiabanks 2021st quarter results presentation. My name is Phillips Smith Senior Vice President of Investor Relations presenting to you. This morning is Brian.
Orders, Scotiabanks, President and Chief Executive Officer.
This morning, and our Chief Financial Officer, Daniel Moore, our Chief Risk Officer. Following our comments, we'll be glad to take your questions also present to take questions. Today are the following Scotia Bank executives, Dan Reis from Canadian banking nontraditional from International banking, Jake Lawrence and James needs.
Global banking and markets and Glenn gallon from global wealth management.
Before we start and on behalf of those speaking today I'll refer you to slide two of our presentation, which contains scotiabanks caution regarding forward looking statements with that ill now turn the call over to Brian Porter.
Thank you Phil and good morning, everyone. Today, we announced first quarter earnings of $2.3 billion the quarter Mark a very good start to the year with adjusted earnings per share increasing 5% from a year ago and.
Return on equity increasing to 13.9%.
The bank also produce positive operating leverage with good revenue growth and prudent expense management.
The bank underlying performance, which excludes the impact of divestitures was even stronger with earnings growth over 7%.
Revenue growth was solid net interest margins remain stable credit quality is high and our capital position has improved.
Our performance reflects the strength of our diversified product mix and our geographic focus on the Americas, which we've been working tours or the past number of years I'm pleased with the results in the quarter, which highlights both the importance of diversification and scale in our six core markets.
Canadian banking produced solid earnings growth positive operating leverage and an improved productivity ratio.
We also saw significantly improved results in global banking on markets and global wealth management, which more than offset slightly weaker results in international banking.
I think it is important and put international banking results in the context going into this quarter. The business had posted 18 consecutive quarters of earnings growth.
This was due in part to the strong fundamentals of our core markets in the Pacific on it.
As we continue to see improvement in the outlook for both Mexico in Chile, We expect international banking have stronger results for the balance of the year.
We experienced strong growth and our fee based businesses with non interest revenue increasing in the high single digits year over year, which is important to driving growth in a low interest rate environment.
We demonstrated further progress against our strategy to simplify a de risks the bay with a reduction of our investment in TMB Bank in Thailand.
On the closing of the sale of our operations in Puerto Rico.
You asked Virgin Islands in El Salvador.
As I mentioned that our recent Investor day repositioning of the bank is substantially complete and our acquisitions have been successfully integrated going forward. Our operating performance will continue to benefit from a simpler more focus today.
Turning to the balance sheet asset growth was solid in the quarter and asset quality remains strong with a decrease in gross impaired loans, reflecting the impact of recent divestitures. The banks pcls in net formations ratio. We're also stable. In addition, the banks risk weighted asset dense.
The has declined this is further evidence of our efforts to de risk the bank, while increasing returns to our shareholders.
While there has been considerable media attention given to rising consumer insolvencies in Canada, our credit trends are stable with retail delinquencies in Canada unchanged year over year.
In addition, 93% of our loan portfolio in Canadian banking is secured Daniel will provide further comments later in the call in terms of capital management, our common equity tier one capital ratio.
Improved in the quarter, reflecting good internal capital generation and the positive impact of divestitures, which allowed us to invest in organic growth and maintain an active share buyback program. We will continue to be an active buyer of our shares.
Our efforts in digital banking continue to make steady progress.
Our leading levels of technology investments are continuing to drive growth in digital sales and digital adoption and branch transactions continue to decline as customers increasingly favour digital and mobile channels per day to day transactions, we are close to achieving our goal of less than 10% of try.
Transactions being completed in branch this will allow us to focus on delivering more value added advisory services throughout our branch network.
We remain focused on realizing the digital dividends for our technology investments in the form of higher digital adoption at a lower productivity ratio.
The banks commitment TSG advanced in the first quarter as we committed to mobilizing $100 billion by 2025 to reduce impacts of climate change and we have been recognized for climate change governance and greenhouse gas reduction initiatives I will now.
Turning the call over to rush will provide a more detailed summary of our results.
Thank you, Brian and good morning, everyone.
I'll start on slide five.
The bank, Delaware $2.3 billion earnings and the diluted earnings per share of $1.83 for the quarter up 2% and 5% respectively compared to last year.
Divested operations reduced net income by 109 million on a net basis and diluted earnings per share by approximately nine cents.
As disclosed in slide 18.
Revenue increased 5% from last year with strong growth in both net interest income and noninterest revenues.
Net interest income was up 3%, primarily driven by solid growth in assets and deposits in Canadian banking higher contributions from asset liability management activities and acquisitions.
These increases were partially offset by the negative impact of foreign currency translation the impact of.
16.
And divestitures that close as quota.
The core banking margin was inline with last year higher margins from asset liability management activities offset.
Slightly lower margins in the business lines.
Noninterest income grew a strong 8% compared to last year, reflecting higher trading related revenue.
Underwriting and advisory fees as well as higher banking and wealth management revenues.
These were partially offset by the impact of divestitures and lower investment gains.
Expenses were up 4% year over year.
Hi, and regulatory and technology costs, other employee costs and business growth initiatives, partially offset by lower professional and business development expenses.
Back to foreign currency translation.
I've asked to Cios and I FRS 16.
The all bank productivity ratio improved 70 basis points to 53.4% and operating leverage was positive 1.8%.
The total PCL ratio was 51 basis points.
Up one basis points quarter over quarter, and up four basis points year over year.
PCL ratio and impaired loans was 53 basis points up four basis points sequentially and up six basis points from last year.
The tax rate to remain in line with that outlook for 2020.
On slide six we provide an evolution of our cetone ratio over the quota.
The banks appointed a common equity tier one ratio of 11.4% up approximately 30 basis points, primarily due to the divestitures, which closed during the quarter and strong earnings growth.
This was partly offset by good growth in risk weighted assets regulatory changes.
Hey buybacks.
This 81 ratio was also impacted by the changes in pension liability, primarily driven by declining discount rates.
Internal capital generation was seven basis points as strong earnings growth was offset by good organic revenue growth.
That's great assets were flat quarter over quarter, but up 3% compared to last year.
We repurchased approximately 3.6 million common shares during the quarter at an average price of $74.63 per share.
Since May 2018, let me close at acquisition of Jarislowsky Fraser, The bank has repurchased and canceled approximately 25 million shares.
Turning now to the business lines results beginning on slide seven.
Canadian banking reported adjusted net income of 908 million up 5% year over year.
Loan growth was strong at 6%.
In retail lending residential mortgages grew 5% personal loans, 30% and credit cards, 5%.
Meanwhile, business lending grew 12%, but strong double digit growth in commercial lending.
Deposits grew 5%.
The net interest margin was down five basis points quarter over quarter, and don't see basis points year over year, primarily driven by competitive pressures in lending and the impact of I FRS 16.
Non interest income was up 7% driven by higher credit card and banking revenue.
Expenses increased 4%.
By personal and technology costs to support for revenue growth.
Canadian banking, Delaware positive operating leverage approximately 90 basis points.
Through prudent expense management that was guided by good revenue growth.
Productivity ratio improved 30 basis points to 45.4%.
The PCL ratio was flat compared to last year as higher impaired provisions were offset by lower performing loan pcls.
Primarily due to improved retail portfolio credit quality.
Turning to the next slide on international banking.
My comments that follow up based on results on an adjusted and constant dollar basis.
Earnings of $615 million were down 17% year over year, our 7% on pretax pre provision basis.
Recall that international banking had strong growth in the last 16 quarters.
Excluding the impact of divestitures earnings were down 4% year over year.
Last year benefited from tax benefits in Mexico that have not return to more normal tax rates.
Normalizing for these tax benefits International Banking's, NIAD grew 4% driven by strong growth in Peru.
The benefit of the alignment of reporting period of Mexico in the quarter was offset by the benefit from the alignment of reporting period of Peru, and the same quarter last year.
Revenue declined 2%.
Excluding divestitures revenue grew 4% year over year.
The Pacific Alliance countries grew revenues by 5% year over year.
Net interest margin declined 20 basis points year over year to 4.51% driven by margin compression due to central bank rate changes in Mexico loan spread compression in Chile, and the impact of Forest 16.
NIM was stable relative to last quarter as margin compression was offset by the benefit from divestitures that close this quarter.
The NIM and remain well within our guidance range of 4.5% plus or minus 10 basis points.
Excluding the impact of divestitures.
Non interest income was up 2% driven by higher capital markets revenue in Chile, partially offset by the gain on sale foreclosed asset in the prior year.
Expenses were up 3% year over year.
Excluding divestitures expenses are up 5% year over year, primarily driven by the acquisitions in Peru, and the Dominican Republic that goes in the second half of last year.
Operating leverage was negative 3.8% are negative 0.8%, excluding the impact of divestitures.
This was a transitional quarter for international banking as we've reduced our interest in TMB Bank closed the sale of operations in 30 countries and completed the integration of acquisitions and to others.
Turning now to our global wealth management segment on slide nine.
Earnings of 318 million, what up a strong 11% year over year.
News were up 5% year over year or 7%, excluding the impact of divestitures, reflecting strong.
Okay, and you haven't growth and brokerage revenues.
Assets under management increased 6% year over year and assets under administration increased 7% year over year, reflecting market appreciation and positive net sales and mutual funds.
Excluding the impact of divestitures assets under management and assets under administration yet over growth.
Was 13% and 11% respectively.
We are continuing to see strong asset growth and earnings momentum across our advisory and asset management businesses, including Joe's Laski Fraser and MB financial.
Beyond the impact of improved equity markets am growth benefited from net retail investment fund sales of 1.7 billion in the quarter and sustained superior investment results.
Over the last five years.
The percent of.
On the top two quartiles well performance.
Expenses grew 2%, primarily reflecting higher business volume.
The productivity ratio continues to be industry, leading and improved a further 180 basis points to 62.4%.
Moving to slide 10, global banking and markets.
Net income of 451 million was up a strong 35% year on year and up 11% quarter over quarter.
Due to a record revenue driven by strong performance in our trading businesses, primarily in fixed income as well as higher underwriting fees.
Despite a continued volatile environment M&A and advice any pipelines remained strong.
Corporate loans grew 6% year over year, reflecting continued growth in Canada with greater than 80% of this growth in investment grade loans.
On the other side of the balance sheet customer deposits were up a very strong 21%.
Net interest income was down 13% year over year due to deposit margin compression and lower low loan origination fees, partially offset by loan growth.
Non interest income was up a strong 34% year over year.
Driven by strong performance in fixed income trading and underwriting activity.
Expenses were up a modest 1% year over year due to higher performance based compensation, reflecting the strong revenue growth this year.
Recall that this is a seasonally high it expense quarter for the business.
The business expense growth will be guided by revenue growth.
And focused on generating positive operating leverage for the year.
Strong revenue growth combined with prudent expense management contributed to the productivity ratio improving by 850 basis points year over year.
I'll now turn to the other segment on Slide 11, which incorporates that has also group treasury smaller operating units and southern comfort adjustments.
The results also include the gains and losses on divestitures and asset liability management activities.
My comments that follow are on an adjusted basis.
The other segment reported a smaller loss compared to last year.
Due mainly to higher contributions from asset liability management activities.
Quarter over quarter. The other segment reported a lower loss due mainly to higher contributions from asset liability management activities that were partially offset by lower securities gains and Hyatt noninterest expenses.
The results from the other segment are in line with previous guidance.
I'll now turn it over to Daniel.
Discuss mismanagement.
Thank you Ross I will begin my remarks on slide 13.
But before I begin I'd like to draw your attention to the additional disclosure on page 23 of the Mdna highlighting certain key macroeconomic variables used to estimate the allowance for credit losses.
For the additional pessimistic scenario that we added this quarter.
As of Q1, our credit quality continues to be strong.
Our underlying credit performance remained stable.
As Brian mentioned, our delinquency rates remained stable in our Canadian retail portfolio.
And continue to improve our international retail portfolio.
Our Gil ratios continue to improve across the bank and are inline with our prior guidance. Following the closing of the divestitures and Puerto Rico and El Salvador.
Our net write off ratio has increased modestly to 54 basis points, driven by higher write offs and global banking markets.
End of two basis point impact, we aligned reporting period in Mexico, which was mentioned previously.
However, it remains well within our risk appetite.
We have strong loan loss provision coverage of over eight quarters.
The adjusted PCL ratio in Q1 was 51 basis points up one basis point quarter over quarter and up four basis points year over year.
Higher PCL ratio is year over year, largely due to business mix changes driven by acquisitions.
Moving now to slide 14.
All my comments exclude the impact of the additional pessimistic scenario.
On an all bank basis total pcls of 771 million rose, 12% year over year and up 2% from the last quarter, reflecting the impact of the higher impaired pcls, partly offset by lower performing loan pcls.
Provisions on impaired loans increased 18% year over year and were up 8% quarter over quarter.
Higher provisions on impaired loans compared to last year were primarily driven by higher Canadian international retail provisions.
This was driven by loan growth.
Provisions and global banking markets also contributed to the increase after seven consecutive quarters of recoveries over the last eight quarters.
Okay ones are performing loans declined by 40 million year over year and quarter over quarter.
Lower provisions are performing loans compared to last year, mainly reflect improvements and credit quality.
Fairly in international retail.
Driven in part by or divestitures.
This was partially offset by volume growth less favorable macroeconomic outlook and some migration from performing to impaired and global banking and markets.
Turning now to gross impaired loans are guilt on slide 15.
Sales declined 7% quarter over quarter.
The Gil ratio continues to trend lower across the bank and has improved both on a quarter over quarter and on a year over year basis.
As we previously discussed the guilt ratio declined seven basis points quarter over quarter, and 13 basis points year over year.
Primarily due to the impact of divestitures and international banking.
So we look back over the past three years, our gross impaired loan ratio has declined from over 100 basis points to 77 basis points today.
Next we see the net formations of 968 million were down 1% versus last quarter and up 3% year over year.
The increase compared to prior year relates mostly to portfolio growth as an explanations ratio.
Table.
And finally, turning to our net write off ratio.
We saw modest four basis point increase relative to last year, reflecting higher write offs and go back end markets and the alignment of reporting periods and international banking.
Excluding the impact to the alignment of reporting period effect.
They did write off from GBM, which we do not anticipate in future quarters.
Net loss ratio remained stable.
In closing.
We remain confident in the strong underlying credit quality of our portfolio.
I'll now turn the call back over to Brian for some closing remarks.
Thank you Daniel we are pleased with the balanced performance performance across our business lines to start the year strong performance by Canadian banking Global wealth management, and global banking markets was more than sufficient to offset the impact of divestitures in international banking. This reflect this.
Reflects the importance of our diversification both by product and by country across our footprint I am confident that our core markets in Latin America will again proved resilient and that international banking will achieve its growth targets are repositioning efforts well time consuming.
Have been substantially we are now a leading bank in the Americas with competitive scale and diversification in our six core markets, which represent over 85% of the banks earnings.
This was in many ways a transitional quarter for international banking.
As we closed our last major divestitures and completed importantly, integrations. Our management team is now focused on demonstrating the earnings power of the reposition bank to our shareholders I will now pass the call backs until.
Thank you, Brian we will now be pleased to take your question. Please.
Please limit yourself to one question and then rejoin the queue to allow everyone. The opportunity to participate in the call will return at the end to make a few closing remarks to after the Q and a session.
Operator can we have the first question on the phone please.
Thank you. The first question is from Doug Young with today's Chardan capital. Please go ahead.
Hi, Good morning. My My question, maybe is with not show and just on international banking on page 21 of the shareholder report gives us the our adjusted earnings from Mexico, Peru, Chile, and Colombia, and I think Theres a lot more that you can impact Derek because I think there is some onetime items last year that impacted Mexico.
In Peru.
So hoping you can give us what was the impact from the tax item in Mexico last year. The proof realignment and then talk a bit about the how things are going in Chile, and the outlook for Chile. Thank you.
Sure.
Well first let me say that international banking, putting things you perspective casket 18 come setting consecutive quarters of strong assets on revenue growth delivered positive operating leverage and we have improved by more than 500 beeps our productivity index.
As Brian mentioned DCC transition quarter for IB with many moving parts. For example, we are reporting wealth separately for the first time.
So it's also important tech to account for divestitures and fix.
So just trying to compare a dog apple to apples.
In constant FX VCC, a low acquiring in Q1 as high as high expected on mentioned in our mainly in our Investor day, mainly due to the developments in Chile.
Q1, 20, our earnings are 4% less than last year, but if you adjust for de Mexico tax benefits that I mentioned, we're growing 4% year over year and DC, our underlying growth of international banking in Q1 I.
I am confident our old performance will be stronger from here, particularly in the Pacific Alliance countries and let me explain you acquired.
First fail is very strong and we remained strong during the year this quarter, excluding the one month lag elimination of pay to last year beta is growing earnings by 20%. So what matters release to understand the trends in Mexico in Chile.
Going forward and I'm very pleased to see this sequential improvement in both countries, let's start with Chile.
Kelly was flat year over year at constant which is better than when I expected on indicated in Investor day.
And a DC is the main reason why international banking is below our 9% medium term targets.
However, if you look sequentially, Chile, Q over Q increased earnings 19% on loan growth was 2%. Despite the protest on the end of the year. I think this is very good news and I expect she led to improved gradually.
In the case mix equally excluding the tax benefits in the prior year next week, we sold so relatively flat, but Q over Q, earning see Mexico include increased by 6% and loan growth was very strong a 4% Q over Q. So over 2019, we have increased 50 basis points.
Make market share in Mexico, we expect now need to stop relies on volumes to translating to revenue growth in future quarters, Finally, Colombia caught a low quarter, mainly due to the integration that we just completed in November we expect Colombia to rebound to more normal levels in Q2.
And delivering on our growth commitments for this year.
The Caribbean in Central America.
After the divestitures also had a good quarter growing earnings 6%. So in summary, we expect our earnings to grow starting in Q2 and continued to improve gradually to achieve our twentytwenty outlook of high single digit growth on a constant dollar basis and delivered positive.
Operating leverage.
And your outlook for achieving your or 9% plus our high single digit growth, including Q1 for fiscal 2000.
I was unchanged.
No I'd on divestitures and excluding all the noise.
Moving divestiture cost on the fixed I'm confident we will be growing up high single digits in twentytwenty, including Q1.
Thank you.
Thank you. The next question is from Robert Sedran with CRT capital markets. Please go ahead.
Good morning, Brian unless I'm mistaken Ana, it's probably possible that I am.
You had previously suggested something in the area of 11, and a half or higher has a operating level for the cetone ratio and you're obviously comfortable you're buying back stock you're not quite at that level can does all the M&A being behind you suggest perhaps you can feel comfortable and that 11 to 11 and a half range or you still want to be above that 11, and a half overtime.
Right.
How would I stopped.
Problem that question. This is Raj yeah, we as we indicated in Investor day, we'd like to operate at around 11.5% plus or minus 10 basis points. As you know pension is one of those that seems to continue to say more gains says and this quarter, we lost what seven basis points.
Backstops annuity like we've said before we expect to continue to buyback our stock as you know we should about 34 million shares as part of the acquisition. So thats. Our first target we'd like to meet then obviously continue going as we generate strong and done on capital in this bank.
Internal capital generation, which is fairly out earnings minus our organic risk weighted asset growth I would say and it'll be in any quarter between five and 10 basis points. So we're going to accrete capital for sure. How do you deployed at five and 10 basis points, depending on how pension. Most for example, and how many shares we buyback will determine at what rate we'd like to operate.
But we certainly will not pay down to 11.5% range.
So Raj just to confirm so you're suggesting sort of run rate capital all else equal of something five to 10.5 to 10 basis point accretion on a quarterly basis.
Correct, Rob Okay. Thank you.
Club.
Thank you and the next question is from Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala. Your line is now open. Please proceed with your question.
Thank you.
Okay.
I was wondering Raj if you could just the outlook for the margin in the Canadian banking segment, we saw pretty decent falloff and this outlook.
As you expect on a go forward basis, and if the bank of Brandon and cutting into say, it's what the sensitivity to your margin outlook.
And also on the international if the 4.5% plus or minus two that we do think about the international NIM.
Sure Brian I'll start at the all bank.
Overall, as we've mentioned before we focus on managing the banks interest rate risk in the balance sheet to minimize the volatility to the all banks NIM and this quarter was actually an example of had been a look at it year over year, but it's flat, although we saw some margin compression in the core business lines that you just mentioned.
If I address Canadian banking for us, it's primarily driven by competitive pressures that you're seeing in the market both in the retail as well as in the commercial segment.
And as far as international banking margin changes goal is driven by central bank rate changes and of course, the divestitures and international banking when you compare year over year.
They all bank level like I mentioned, the NIM was flat number of moving parts that impacted the banks NIM this quarter.
Yes, it's just that closed I have a lot of 16 has also be confident as some of those go through the interest expense line small, but still about a basis point.
But the all bank main NIM really benefited from better asset liability management activities, which we've talked about before.
The bank is positioned to be neutral benefits like it from interest rate cuts should they happened in Canada or even across the Pacific Alliance.
So as you look at the business lines, you might see some margin compression if that our rate cuts, but at the all bank level, we expect to.
To offset duck through the balance sheet in straight must risk management process that they put in place.
I'd like to said the all banks I will be expecting them to be able to maybe slightly lower twentytwenty.
As we indicated in not outlook in November as well as in the mix today.
Got it thank you.
Well.
Thank you.
Next question is from Sohrab Movahedi with BMO capital markets. Please go ahead.
Thank you.
But a fair or unfair question, maybe but lots of moving parts a bit of obviously transition quarter.
As you think about the earnings power for the organization.
Can you talk us through by segment. What number are you working off of as you think about the target numbers and the outlook numbers that you have.
For each segment growth in Twentytwenty.
So let me start at the all bank levels are up like we mentioned at the Investor day adjusting for the divestitures on an EPS basis, we expect to have a 2% growth at the all bank level by the time be end this year.
So obviously international banking is a one which is most impacted by the divestitures and we've indicated you know high single digit growth on a constant dollar basis and that's important because they do have currency changes, but clearly if you take Chile today's exchange rate as mode fairly significantly over the years when you compare.
So we expect that to be at a high single digit you could call it 7% in that range on a constant dollar basis.
As far as.
Canadian banking is concerned we've talked about mid single digit grains growth, which could be anything between 4% to 5%. So inline with what you saw this quarter of what a 5% yet audio sequential growth.
And lastly, they don't have any more large moving parts with all the data set gains out of the way now.
Global banking and markets, obviously, very strong Q1, driven by you know not of the business changes, which we'd be looking on for the last three years. So stable earnings we have indicated in the past it could be any of that over 400 million dollar zone on average when you look across the full quarters and find the global wealth management, we expected to be in.
This range they entered into 15 piano $20 million in that range, which sequentially. When you look at it yodle would yield will equate to between seven and 8% growth.
So overall I'd say the bank would grow 2% from an EPS basis.
Which is adjusted for divestitures like I mentioned and the outlook that we gave for each of the business sense of consistent with what we spoke about in November none of it has changed.
And to basis that you're working off in each segment. So for example in international banking get the quarter you came in at 615 Honda Canadian dollar basis is that that's in number that is a key number in your opinion.
The 650, new go to adjust for a tad divestiture impact, which Saudi benefit which is nearly a Q1 since all the divested just on now closed which is about $55 million and of course, a one month lag that we talked about on Mexico. So from there.
It will start growing sequentially, starting from Q2 onwards, and accelerating and contained Q4 like not to mention as Chile comes down comes back to more normalized growth levels and Mexico is showing good sequential growth.
So the starting point should maybe if you wanted really use the starting point for Q1 40 International banking. Excluding these two items, it's more like the fight 25 $30 million range, but growing pretty rapidly from that as we look for the rest of year.
Thank you.
Thank you. The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.
Good morning.
I want to ask you a well thanks not sort of for the.
Previous answer you gave on on the outlook for your countries I'm wondering about how the.
On the Corona virus thing affect your.
Look if at all I look across the Pacific Alliance, China number one or number three export market for these countries, if you're seeing anything yet or.
Too early or if you can paritaprevir. Please.
Gabriel.
And then I'll hand over to industrial.
First let me say on the car buyers.
Evolving file, but our first and foremost concern is for the health and safety of our employees and our management team has responded swiftly and thoughtfully throughout the whole enterprise in this regard.
Secondly, we've had a very strong focus here on the operational continuity by the senior measures Pos committees throughout our whole footprint. So that we can assure the continuity of all our services to all of our customers.
Then of course from there we turn to the financial risks I want to say first off that we have no direct exposure to the QB affected areas in China.
We do look then through as you indicate to the second order effects such as the impact of lower Chinese consumer demand on global demand such as global supply chain impacts and whatnot and on this point I'd say, we're continuing to our stress analysis looker scenarios and look at the evolving data, but it is too early to tell on whether it'd be a material impact from Cobiz 19.
On our business our stress scenarios would indicate that we do not think is material at this juncture, we turned to our footprint for instance.
It's a chilling, we're very pleased with chili's results and ill with that I'll hand, it over to Brian to accommodate decade, just to add to that if you look at Chile, Chile is a very diversified economy. The market tends to look as a proxy for copper, which really when you look at it mining only represents 12 and a half a percent of Chilean GDP.
And that contribution has been declining through 10 straight years. So my point is the Chilean economy is a very well diversified economy, approximately 29% of the export sets all copper go to China, and then the U.S. market would be the second largest markets and the rest is very diversified from there.
I would highlight as weve when we've gone through.
Periods like this is that keep in mind that Chile is the world's low cost producer of copper, which is certainly beneficial so.
The theme here is that these economies are well diversified the major markets, rather, the us where china or or or reverse the other way.
Okay, and I guess, Daniel Thanks, Webroom Daniel.
Okay.
This is unique disclosure at all but the for Q2 should we expect familiar the move foods to provision.
It really.
As you grow over nine team and the real block.
I would say infrastructure to handle probably too early to tell what the impact will be conducted to that point.
Continue to monitor if there is impact.
So short in the performing PCL line item.
At this point, we don't think it's material either file.
Q.
Thank you. The next question is from Mario Mendonca with TD Securities. Please go ahead. Good morning, maybe this or Brian or Raj. When you made the point that you'd be active in the buyback or you'd expect to continue to buy back stock. When you look at your Cetone ratio do you look at it solely.
From Scotia perspective sort of in isolation 11.5 makes sense to you in the context of risks you have or do you do you actually look at it across all your competitors both counted in the U.S. and does the relative.
Tier one ratio make a difference and your decision process.
Yes, good question Mario and.
We look at it on.
We look at the us banks, which has been taking their common equity tier one numb numbers down and have been very active in their buybacks and we look at our Canadian peers.
And obviously it has a lot to do a risk appetite in the quality of our assets, which we believe are very high and.
We look at stress test to see I was going to impact different capital our capital number under a variety of different scenarios. So.
We look at the competitive landscape and what we need to run our business effectively and we have as you know different optionality. We can grow grow organically, we can acquire businesses or we can buyback or own shares and.
The reality as we've done a combination of all those things and to show you. The the power of the bank in terms of capital generation well, we've gone through this acquisition and divestiture period as Raj said, we bought back 25 million shares as of 34 million shares we've issued.
And we'll continue at these levels to be a buyer of our stock.
Thank you.
Thank you.
The next question is from Moneygram with Cormark Securities. Please go ahead.
Hi, Good morning, and just wanted to follow up on Starbucks question and just.
From an enterprise point of view.
Given the stronger start to the year in terms of especially GBM and also the positive commentary from international banking.
Why is it not reasonable to expect better than 2.2% Dps growth.
For the year, what are the key sort of risk factors that you're you're watching is that your progress.
Yes, I think all all thought that many I think it's it's a good question. It's been great stock. So absolutely. There is no doubting that GBM has done very well this quarter.
But as I mentioned earlier this quarter does have a little over $50 million of divestiture related income, which is going to go away for the remaining quarters.
But the point domains that on a normalized basis at a many quarters are going to continue to grow for the rest of the are but a 40 cents EPS impact the stock, but on the divestitures and growing by 2% like we said in the Investor day equates to more than 7% growth for the whole year.
Which is in excess of our medium term objectives. So if you look at it from that perspective, particularly when most of our industry peers at expected to grow between three and 4% we think that would be extremely strong growth.
And we expect our Delaware that for the remaining quarters. So it's a good stock they optimistic we feel very good to talk to you at this way, but let's say how the the quarter's a wall, we expect international banking to do significantly better than this quarter as Chile stocks getting back to its nominal growth rate.
If you talk about the risks GBM as a market facing business. So as our wealth business. So we are benefiting from.
Some of the good market moments apart from a business strategy playing out the baby think it should play out that Canadian bank is off some of the real estate gains and so on solid volume growth, we see I talked a bit about margin audio so we're not vacancy and about it international bank when it starts performing the way it's been doing for the last 16 quarters, we're very optimistic.
Finish at 2% growth rate that we talked about.
And at this time like I said, it equates to 7% or greater than 7% growth on a normalized basis.
Thanks.
Thank you. My next question is from Scott Shaw with Canaccord Genuity. Please go ahead.
Good morning, just.
Kind of going back to the Preannounce charges, specifically, the TV and the.
Sales in the pessimistic scenario.
Maybe perhaps you can do.
And on the thought process.
Non core.
Results and.
And.
I'll just leave it there.
Yes.
Sure Scott to thrive. So let me start on the three items. So first wanted to support scenarios, we call it glitches Soviet pessimistic scenario and so on.
So we could have done watsco things at the time of implementation in 2017. If you are as wide says we are today, we're probably included in the transition adjustment in handful scenarios.
As you know the the practices that on the water as a wallet on holiday look like these pessimistic frankly, all the scenarios and we have basically chosen to move to.
The approach that many of our European banks to enable multiple scenarios not just three that most of opposed to over here. So.
So we looked at it and really we looked at it from the perspective of saying if he stressed it really two highly pessimistic level from a balance sheet perspective, it's only 3% on our loan loss provisioning, which is about $150 million.
So for US we looked at it as something which is a one off methodology change, which is not going to beat and we expect up PCL ratio to remain under 51 basis points phase, which is the adjusted base for the rest healthier. So it's a onetime pick up from our perspective, so we decided to adjust.
When you look what's the other two items that we adjusted one off its being the software write off it's a third party window softwood, which depends on another third party. So we had limited ability to control the right thing to do from an accounting perspective to take the charge off and again, it's a onetime item, it's about 40 minutes, sorry, $50 million pretax or 40.
After tax so that to us as a one off software, which we had to do the right thing because we had to transition to a better software and then you have worsened that we have to use.
Finally expiate.
Actually as you know as a component of better devaluation and it effects on collateralized ODC derivatives, primarily in the GBM capital markets Division.
If you go back to 2014 ex vivo significantly otherwise to include what the cost of funding related adjustments at that time, there wasn't a standardized global approach.
Over the us market practices have award and we implemented a new centralized valuation platform provides a better modeling data aggregation capabilities and so on.
So it really reflects the adoption of an enhanced fair value methodology that relates on collateralize OTI seated overdose very much aligned to current market practices and also I believe is a onetime adjustment to how your devaluation of derivatives. So thats a common theme. We believe these are all one time non repeatable fairly significant.
Maybe call it opened adjusted.
Thank you.
Thank you.
Next question is a follow up question comes for him to another with Bank of America. Please go ahead.
Hi, Thanks, Thanks for taking my question again, just a question Brian at all and just a return on equity you talked at the Investor day, or 14% plus target for the enterprise in terms of far OE highlighted the Hyatt auto easing the Pacific Alliance, but when I look at the Canadian segment International segment are always have gradually come down.
And when we look at that 13.9% to reported for this quarter just talk to us that on your outlook for in the current environment do we expect a meaningful improvement on the auto you from given by the beans in synergies coming off of that or just maintaining around 14% would be good enough in this guidance microbes.
Ill.
Yes. Thanks, Ebrahim is for our medium term targets in our or we have 14 per cent plus has been publicly stated we had on our are we as you can see a 13.9% this quarter we think.
We think as as the bank.
Has absorbed these acquisitions and dealt with the divestitures that this is a 15% plus our OE bank and that's what we're striving for.
Talk a little bit about that Investor day last month in Santiago, Chile, So the quality of the assets of the bank has improved the earnings power. The bank has improved and you'll continue to see that quarter by quarter here.
So you think this 15% plus is kind of something that you can expect Scotia do get close to maybe over the next year or so well I think its farther out than a year that youre going to see our are we continually improve quarter by quarter here and that's that's a function of.
Stronger profitability better expense management, we can certainly move our productivity.
Performance in Mexico, better in Chile, better and keeping the Canadian bank, we can be better and as I said higher quality earnings are going to drive. The early so we think we're a 15% plus or we bank.
Over time.
Thanks for the color. Thank you.
Thank you.
Next question is from Steve Terry with capital. Please go ahead.
Thanks, very much wanted to touch excuse me on the Canadian banking for a moment for likely for Dan commercial loan growth was strong at 12% first time, you've gotten well into double digit range I know that's been a focus.
For you Dan I'll hop can you talk a little bit about where you're making headway.
And is it should we expect double digit growth now through 2020 now they're getting some some some enhanced traction there.
Hi, Steve Dan. Thank you for the question as you highlighted this is an area of focus for us for the last number of quarters, because we see ourselves as being under index in the segment and in certain parts of the business bank, particularly in the mid market. We think we have specific opportunity too.
Gainshare from competitors and have been adding sales capacity as you've heard for the last couple of quarters to do that Im pleased with this growth rate number.
I think it's fair to say that across the sectors and the provinces. We've been talking about the growth has been.
Broad based should the growth decline a little bit going forward I wouldn't be surprised by that but this was a strong start to the year with customers. We've known for a long time. So it's a good start.
Thank you.
Thank you there are no further questions on the line.
Thank everyone for participating in our call today on behalf of in time management team. They want to thank our investors and analysts for participating at our Investor day in Chile.
I also want to thank all our employees for their focus and hard work to diluent to all stakeholders.
And our customers and shareholders for the loyalty and support.
We remain focused on delivering against our strategy and achieving consistent long term growth look forward to speaking with you again 2020 soda Q2 20 call.
On may the 26.
Great. Thanks, everybody.
Thank you.
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