Q1 2021 Bank of Nova Scotia Earnings Call
Okay.
Good morning, and welcome to Scotia Bank, 'twenty and 'twenty, one first quarter results presentation, My name and Philip Smith Scotia Bank Senior Vice President of Investor Relations.
Presenting to you. This morning are Brian Porter Scotia Bank, President and Chief Executive Officer, Raj Viswanathan, Our Chief Financial Officer, and Daniel Moore, Our Chief Risk Officer. Following our comments, we will be glad to take your questions.
Also present and to take questions today are the following scotiabank executives.
Can range from Canadian banking, Nacho day shop from International banking, Jake Lawrence and James Neate from global banking markets and Glen Gowland from global wealth management.
Before we start and on behalf of those speaking today I will refer you to slide two of our presentation, which contains scotiabank caution regarding forward looking statements with that I will now turn the call over to Brian and water.
Thank you Phil good morning, everyone I'd like to start todays call by stating and that I am very pleased with the bank's performance this quarter with strong contributions from all four business lines and solid growth and fee income continued growth and digital banking and disciplined expense management.
We have delivered significantly better financial performance for our shareholders. Our results reflect the significant investments we have made over the past several years and key areas such as global wealth management, enhancing the bank's digital capabilities and improving our competitive position and core markets.
We are well positioned to continue this positive earnings momentum and the future and we have even greater flexibility for capital deployment to build on these results I will now turn the call over to Raj to discuss our results in more detail and I will return after Daniel's remarks, with some closing thoughts.
Thank you, Brian and good morning, everyone.
Before I begin I'd like to note that all my comments on on adjusted basis for the bank and all business lines.
My comments reflect the quarter over quarter changes in many places, which we believe is the most relevant basis for comparison and a depressed and time, given the economic and part of the pandemic.
I'll begin with a review and see all bank performance for the quarter on slide five.
The bank carried the positive momentum from the strong finish in 2020, each and Q1 and Delaware and strong results this quarter.
The bank reported earnings of $2 4 billion and diluted EPS of $1.88 for the quarter and increase in EPS up 30% from the last quarter and 3% year over year with strong contributions from multiple business lines.
Return on equity for the quarter also improved significantly from 14, 4% from 11, 3% in Q4.
Revenue was up 8% from last quarter and pretax pre provision earnings increased 11%.
Net interest income improved 1%, excluding the impact from divestitures and 2% compared to the last quarter.
Core banking margin improved five basis points over Q4, two 2.27%, marking the second consecutive quarter of NIM expansion.
Noninterest income increased a strong 15% over Q4, driven by higher wealth management fees and banking and trading revenues.
And the PCL ratio declined significantly to 49 basis points for the quarter.
This represents a decline of 24 basis points quarter over quarter, and two basis points year over year, Daniel will discuss these skills and more detail shortly.
We continue to manage expenses prudently on.
On a year over year basis expenses declined 1%, excluding the bank from divestitures.
This decrease was driven by lower personnel costs and benefits from foreign currency translation and business development costs with offset such as higher performance based compensation and.
On a payment to reorganize the scene loyalty program this quarter.
The productivity ratio improved to 51, 8% compared to $53 four per cent a year ago.
And the bank generated strong operating leverage.
2%.
On slide six.
We provide and evolution of our common equity tier one capital ratio over the quarter.
The bank reported a strong common equity tier one ratio of 12, 2%.
Moving 40 basis points from Q4, and 80 basis points from a year ago.
This was due primarily to strong internal capital generation and.
Additional benefits from pension re measurement and book quality improvements and retail.
And partly offset by the impact from the transitional phase out on all suites partial inclusion of stage, one and two ECL and foreign currency translation.
Turning now to the business line results beginning on slide seven and.
And Adrian banking had a strong quarter and so he found and earnings continue on with adjusted net income of $915 million up 17% quarter on quarter.
Both net interest income and noninterest revenue grew expenses remain contained and PCL has continued to normalize.
Pre tax pre provision earnings grew 5% quarter on quarter, driven by 3% growth and revenue.
Compared to the prior quarter net interest income grew 1% and noninterest revenue increased a strong 90 per cent.
The net interest margin was stable at 226% in line with our outlook for this year.
Residential mortgages grew 7% and business lending grew 5%.
Prudent management of discretionary expenses, such as advertising and travel resulted in a 2% decline and noninterest expenses year over year.
And the PCL ratio decrease from 23 basis points.
Turning now to global wealth management on slide eight.
Earnings of $425 million was up a strong 34% year over year, driven by solid mutual fund sales.
Momentum strong contributions from lightweight and performance fees.
The performance fees of $62 million after tax were driven by substantial benchmark outperformance by certain dynamic funds and calendar 2020.
Less than 3% off on assets under management eligible for such performance fees.
Excluding this performance fees. The division's total reported a very strong year over year earnings growth of 14%.
Our revenue grew a strong 9% while expenses grew only 6% generating a positive operating leverage of three per cent.
Canadian wealth management earnings were up 49% or 25%, excluding the higher performance fees with six of our business is seeing double digit growth.
Assets under management and assets under administration increased 5% to $314 billion. This conference is no longer being recorded sits closer Hosni. Please also as you see.
And 10% to $546 billion from the prior year, respectively with record asset levels achieved and Canadian asset management.
<unk> Laski Fraser and be financial and private investment counsel as we continue to win customer mandates across our wealth platform.
Moving to slide nine global banking and markets.
Net income of $543 million was up 20% year over year, and 18% quarter over quarter.
Year over year improvement was driven by higher net interest income noninterest income and lower noninterest expenses.
Offset by higher provision for credit losses.
Capital markets results benefited from continued strong performance and fixed income complemented by improved performance in equities and foreign exchange.
On equity capital markets and M&A businesses.
Hey, active and the quarter and our pipeline is robust, which bodes well for the balance of year on.
Corporate loan portfolio continues to perform very well in terms of credit Suisse, and we expect to see good asset growth across the division and 2021.
Expenses decreased 6% year on we are primarily due to lower personnel costs as well as lower advertising and business development expenses.
And with earnings of $174 million in Q1, GBM last time and for 32% growth and earnings from Q4, continuing to reflect the investments made to grow our wholesale banking operations and Latin America.
Turning to the next slide on International banking and my comments that follow are based on an adjusted and constant dollar basis and normalizing for the impact from divestitures.
International banking reported net income of 398 million true.
It's up 47% quarter over quarter.
Improving business conditions support on increasingly optimistic outlook from the division and our expectation of achieving $500 million of.
By Q4 2021.
Earnings increase and all focus on the guidance countries over the previous quarter and whereby both pre pandemic levels, and both Chile, and Colombia and in Mexico.
Excluding the benefit from the alignment of reporting period last year.
Pre tax pre provision earnings increased 3% from the prior quarter for the business line overall, while the Pacific.
Alliance countries grew 6%.
Total loans grew 2% year over year as commercial lending grew 4%, while retail lending was stable.
Net interest margin of 403 basis points improved six basis points compared to Q4, as we paid down higher cost borrowings.
Noninterest income improved 2% compared to Q4, mainly driven by net fees and commissions that was up 4%, reflecting improving retail customer activity.
Excluding the impact from the elimination of the one month reporting lag and Mexico last year noninterest income decreased from modest 7% year over year.
Provision for credit loss ratio declined quarter over quarter to 149 basis points.
The economic outlook continues to improve.
Expenses declined 4% year over year, and 2% compared to Q4, driven by digital acceleration distribution optimization.
And other efficiency initiatives.
Now turning to the auto segment, we reported earnings of $47 million driven by better results from asset liability management activities and from higher securities gains.
We expect the auto segment to have a positive earnings for the balance of the year benefiting primarily from lower funding costs.
I'll now turn the call over to Daniel to discuss with us.
Thank you Raj and good morning, everyone.
I will begin my remarks on slide 13.
To sum up the quarter and one sentence.
We ended Q1 with stable credit quality.
Strong credit performance.
And improving credit trends.
Our customer assistance programs are complete.
And the credit performance of customers exiting these programs remains very strong.
At the end of Q1, the bank reported total allowances of seven $8 billion in line with Q4.
Our ACL build is complete and we are well reserved for estimated net write offs, which were expected to begin in Q2.
Our total provisions for credit loss, our PCL declined to 764 million, which is down and 32 per cent quarter over quarter and in line with last year.
The total PCL ratio fell by 24 basis points from Q4, that's two basis points below Q1 of last year.
Yeah, and parent PCL ratio fell five basis points quarter on quarter to 49 basis points and we continue to expect the total PCL ratio to decline through 2021.
This is consistent with our guidance, we provided last quarter.
Moving to slide 14.
I want to briefly discuss our performing and impaired PCL.
Beginning with our third Pcl's, we reported 762 million and Q1.
That's down from 835 million last quarter.
The improvements came from lower commercial provisions across Canadian banking international banking, and GBM, but some increase and international retail.
This reflects stable overall delinquencies in line with their expectations.
Our performing T cells from a modest $2 million and Q1 down from 296 and Q4.
This decline was across all business lines due to good asset quality.
And this is being recorded.
And of course and homes that don't have as you see.
And more favorable macroeconomic outlook.
Turning to asset quality.
Portfolio remains strong as you can see on slide 15.
Our Gil ratio 84 basis points was up only three basis points from last quarter.
And seven basis points year over year.
The primary reason was higher formations and international retail as we expected.
Formations in GB and improved from last quarter, and last year, driven by lower formations and energy real estate and construction.
On the book on Slide 15, you can see the all bank net write off ratio.
It increased slightly to 43 basis points Butler, and bank 11 basis points lower than a year ago.
A slight increase over Q4 was primarily driven by international retail.
This was partially offset by improvements and the Canadian and international and commercial banking.
We expect to migration of loans from performing to appear in Q2, and Q3 of this year and lines expected write offs and have.
Of course, and self allowances for that.
So let me conclude with a few takeaways.
First of all our asset quality remains high.
And our credit trends.
Better than expected.
Secondly, our allowances are more than sufficient to cover our estimated future write offs.
Thirdly, improving macroeconomic trends and support our positive credit outlook.
Remainder of the year.
And finally, the total PCL ratio will improve gradually through 'twenty and 'twenty one.
And now I'll turn the call over to Brian for closing remarks.
Thank you Danielle on our last quarterly earnings call I highlighted the resilience of the bank during times times of economic uncertainty. The resilience is rooted and are highly diversified business model and high quality assets and a strong risk management culture.
And I'm, particularly proud of our aro exceeding the medium term target of 14% and our common equity tier one ratio increasing to 12, 2%.
This provides greater flexibility for capital deployment.
And I had mentioned previously we have multiple avenues for organic growth across all our business lines, and we look forward to increased flexibility and the future including share buybacks.
The power of diversification and driving these results cannot be overstated.
As a leading bank and the Americas, we are highly diversified with four major business lines across six core markets, our diversification and competitive strength provides stability during times of economic stress and is now showing us earnings power during economic recovery.
Importantly, all four business lines contributed to our results this quarter global wealth management, and global banking and markets demonstrated very strong year over year growth well Canadian banking and international banking showed marked improvement over the previous quarter and our.
<unk> positive momentum to return to a normal earnings levels as business conditions improve.
I believe this provides a clear indication of the direction of our earnings and and improving economic environment and.
In addition to and resilience we have also demonstrated flexibility with strong expense management.
Low interest rates and lower levels of economic activity have proven challenging to revenue growth, we have adjusted quickly by reducing expenses by 2% over the past year.
Well, it's still making critical investments in technology and regulatory initiatives.
The result is a positive operating leverage of 3% and then industry, leading productivity ratio of 51, 8%.
The bank also continues to make significant progress and digital banking.
This quarter, we have expanded our digital metrics to include data on and active digital users active mobile users and self serve transactions. This demonstrates the bank continued progress with active digital and mobile users up almost 20% and the past year digital sales and Cao.
On a per over 40% of retail banking sales and self serve transactions nearing 90%.
All banking transactions.
The pandemic has accelerated the shift of customers to digital and mobile channels for day to day banking on.
Our leading digital innovation highly rated mobile apps and consistent digital investments position us well to realize greater customer satisfaction and improved productivity from the ship from the shift to digital and mobile.
Finally, we believe strongly and the importance of high standards, and banking and making a difference and the humidity's and which we live and work we continue to raise the bar and ESG with investments and commitments, which will improve environmental standards and enable that transition to cleaner energy sources to reduce greenhouse gas emissions.
And promote economic resilience and our communities, we continue to make steady progress towards our goal to mobilize on $100 billion and lending financing and advisory services by 2025 to reduce the impacts of climate change. We also launched Scotia rise.
<unk>, a tenure and 500 million dollar community investment program designed to promote economic resilience among disadvantaged people.
These efforts will continue to gain momentum and closing I would like to highlight that economic conditions continue to improve across our Americas footprint.
Forecast for economic growth had been revised higher since Q4 as reflation takes hold and this bodes very well for asset growth and our core markets, including the United States, which is our second largest market in terms of earnings where we have a significant wholesale business, which will benefit.
From a strong U S economic recovery and in addition, our Pacific Alliance countries, notably Mexico have strong trading relationships with the United States that provide the leverage to U S economic growth.
With strong performance across all four business lines, improving margins well managed expenses high levels of allowances for potential write offs and growing capital levels I am greatly encouraged by our Q1 results and it reflects a significant efforts we have made to reposition.
And the bank and the investments we have made over the past several years and I look forward to continue positive momentum over the course of 2021 and beyond.
With that and that concludes my formal remarks, and I'll turn it over to Phil for the Q&A.
And thank you, Brian we will now be pleased to take your questions. Please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call.
Operator can we have the first question on the phone please.
The first question is Ebrahim, Pune Wala from Bank of America Securities. Please go ahead.
Good morning.
I guess, so if you could just spend some time on day International banking segment, Oh, Dodge and maybe not sure give us a sense of I think Raj I heard you say that you still feel good about getting good the $500 million net income by <unk>.
At some point I guess by the end of it when you go and do one.
And so if you don't mind breaking down net expectations at all costs somebody activities covering and do can see the fees going back all the way too.
Yeah look like and what about 640 million and then also on the credit docs look at that anything that on international Bank.
And that could lead to a little bit more of a lag credit recovery and I D buses the rest of the bank. Thank you.
Good morning, Ebrahim. This is not sure. Thank you for your question before asking specifically the drivers to get to the 500 million by Q4, Let me tell you that I'm very pleased with our Q1 results and feel even greater confidence to achieve a $500 million or more by the end of the year.
And Q over Q or revenues were off 1% <unk> was up 3% and Pcl's went down 30% and this was even stronger and the Pacific Alliance countries or <unk>, 6% Q on Q and earnings were only 11% below pre COVID-19 levels showing high risk.
And.
And yes, we are seeing better business momentum both in our commercial and retail segments and I see a combination of different drivers to reach the GAAP from where we are today and through 2098 to get to 500 million by Q4 first I expect our loan book to resume growth.
Actually starting in Q2 and to grow around 6% from Q1 to the end of the year.
Second as commercial activity, particularly retail and the second half of the year and accelerates, we still have 18 million GAAP in fees and commissions compared to pre COVID-19 levels that I expect debt what gradually.
We'll increase then I would also highlight ebrahim expenses expenses has been positive to our results last quarter, we reduced 20 million on our expenses and we will continue to go down sequentially and finally at constant effects RP sales are still 50 million above.
Pre coffee examples and due to business mix and asset quality, we expect <unk> to continue to go down. So I have increased confidence also supported by the strong economic recovery that is underway and the Pacific Alliance countries and neighborhood and I'd, probably just add one comment he can and nachos wholesome response.
It's a net interest margin has started and growing and as retail growth coming back there and NIM should improve as well Richard actually on the net income came from momentum from Q1.
And if I could just follow up it was the whole some of the school and so thank you you said anything and and as far as Youre not as intimately familiar with our day to day in debt yes.
And it's market, but anything that on the vaccine from the debt.
And so on and see what anything negative on the put and take aside from Nacho and he should we look at all true.
No not really actually let's put things in context first ebrahim. The number of new cases are trending down and the four Pacific Alliance countries and for 100000 population the fixture and rates are similar to the U S and Canada and at these levels a hospital and the health systems are manageable.
Second while there have been some coffee and restriction measures in most countries similar to the rest of the world. There has been no impact and the economic recovery, which has been strong and GDP is expected to grow in average, 6% and 2021.
The government is copying actively securing back vaccines for example for instance, Peru, Chile, and Mexico have purchased enough doses to cover 800 per cent of their populations and Colombia, 50% and the four Pacific Alliance countries have already started vaccination actually let me highlight Chile, because he's one of the.
Leaving countries worldwide and doing better even on Canada with about 15% of the population already back vaccinated. So in summary, while managing coffee the economic recovery of the region is underway.
Got it thanks for taking my questions.
Okay. Operator can we have the next question. Please.
The next question is from John Aiken from Barclays. Please go ahead.
Good morning, Daniel you highlighted international retail a couple of times and in your prepared commentary and well I'm fully aware that there is mix and some offsets to the diversification. We did see a step up on impaired loans in terms of Mexico, Peru, and Colombia was hoping that you might be able to dive in and give us a little more detail in terms of what was.
Happening and those particular countries and whether or not it's symptomatic of across these three or if there are.
On differences in terms of what's been what's been developing.
No. Thanks, John this was completely anticipated as we looked at how this was going to evolve going forward and really what we're seeing here is the impact of the expiry of the deferral programs, which happened and many of our markets and the fall and those are trending through now the late stage delinquency and could also see that effect by the way on the 90 day past due chart on page 34.
There's a bit of a denominator effect there is a demand for unsecured credit has come down but really what we're seeing is what we call. It a pig in the Python and so it's early stage delinquencies, maybe a way to late stage and of course that manifests itself somewhat in our provisions as well.
So that was fully anticipated, John and and part of our allowances.
Okay. Thank you Daniel.
Operator next question please.
Thank you. The next question as you said, Doug Young from Deutsche Bank Capital markets. Please go ahead.
Hi, Good morning, just on the regulatory capital ratio it looked like and proved book quality and impacted.
Impacted positively and types of set one ratio, but 18 basis points, hoping you can just maybe elaborate with what youre seeing from a migration perspective and from a capital or is that one organic set one generation over the next year can you kind of remind us what you think he can generate for the set one ratio and thank you.
And I'm happy to do that hit strides and so as far as this quarter goes the arguably and declined by about $10 billion.
Declined from $4 $70 billion to $407 billion.
And excluding FX and declined about six basis, Saudi 6 billion, primarily relating to book quality improvements like you pointed out it's a minimum and migration impact business bank and migration was up a lot.
And on a half retail was down by it but and then and have you can see it on page 77 on the subtract the regulatory setbacks.
And that's what flex actually the asset quality that we have if you look at our business banking.
Disclosures and 85% of on exposures are and the top 380 bands and retail exposures are 94% of the top four TD bank, which is 75 basis points and less so that's something that we expect to see and reflects the asset quality, Daniel just referred to it and his prepared remarks as well.
And when you're talking about I believe flow.
And we update on regulatory capital metrics of Bd's, Ltvs and Q1 of each year and this quarter. There is an improvement and the credit risk book quality, primarily and uninsured and mortgages, which you will see once again and that's up back.
And on page 36, 38, if you look at our Pts improved from 63 basis points to 53 basis points from lower delinquencies and historical default data all of that stuff that happens annually frankly and Q1.
And then there is also improvement and LGD again in the same categories of retail mortgages, because our projected losses and data is expected to get better.
All of it to say that portfolio quality is very good migration has been fairly muted and see some migration. We expect will come on in Q2 and Q3 through the capital numbers as I've indicated before.
And I'd also say that strong internal capital generation will continue and on this.
And this quarter was 27 basis points, we think that will continue at these levels earnings are going to be really strong and we are very confident and what our capital ratio and remain around these levels, which we reported and a 12 point too.
Which is.
Which is a really a good outcome as earnings and true asset quality remained stable on getting better and our asset growth is going to come and the future quarters in 2021 that should help us generate better earnings going forward as well.
Great. Thank you very much.
Okay. Operator can we have the next question. Please.
Next question is from Lamar per side from BMO capital markets. Please go ahead.
BMO.
Core Mark Smith.
I'm sorry, that's okay. I just have a quick clarification question for Dan and Dan I think you mentioned you expect P sales to decline as we move through 'twenty and 'twenty. One is that relative to 2020 are relative to Q1 'twenty on.
Yeah. So thanks for the question Oliver good to hear from you.
Let me just say that you know and I look at the Tcl and the allowances and we have a credit losses right now we're very happy with where we are in fact, we're more confident and we have been more confident than ever about the.
Adequacy of our reserves and the potential for future allowance releases.
Going forward.
So to be clear in line with the outlook provided in Q4 previously we expect our PCL ratio to be moderately lower than 2021, and then in 2019, and that's really down to three things changed on our footprint asset quality and the macroeconomic backdrop.
You'll recall, we've had changes on geographic footprint, we've exited some of the lower rated higher credit risk markets.
But against that we've also had within our core markets and shift to higher asset quality and shifted secured across our footprint, which has driven the allowances and much more than sufficient.
And finally, we've got a strong macroeconomic backdrop and also indicated strong outlook for Canada.
First on growth strong outlook for Pacific Alliance, and 6% growth. So that all leads to a strong tailwind for us. So we're more than adequately provided and again, we expect our PCL ratio to be moderately lower in 'twenty, one and 19.
Great. Thank you.
Okay. Operator can we have the next question. Please.
The next question is from Mike Christiana Bank from Credit Suisse. Please go ahead.
Hi, Good morning, I want to go back to Nacho on Peru.
<unk> business and I'm guessing that most of the weakness that we've seen lately has been related to the micro finance business.
And so I'm just wondering is that a business debt as part of your recovery story is there a lot of torque due and economic recovery or is that something that maybe gets the emphasize going forward just given its volatility.
Well and I would say is firstly.
Firstly in general debt the way I look to per who is that there is she delay and the recovery compared to the other countries for several reasons together and Pacific Alliance countries for several reasons.
I would say first day recession was stronger and federal the balance sheet structure and the market is weighted more towards unsecured and.
And that includes the on the abuse and as you were referring to and Covid lockdowns were stricter and longer.
And therefore, we have and increased our PCL significantly.
In line with the system to build allowances for potential credit losses, but that Johnny and just said, we expect PCL to go down significantly starting in Q2 and.
And in addition, the PTP of Peru has been down 7% is going to have any imports and rebounding to second half of the year, because GDP growth expectations are 9% for the year actually the central bank has more than 10% forecast for GDP growth and favorable so in summary the.
D C a delay relative to the other countries and actually the recovery is well on their way from an economic perspective, DCP and December for example, GDP was already slightly up on year over year and infrastructure construction projects start driving a 20 per cent increase year over year and submit.
Net sales 80 per cent of employment has been recovered already so we expect it.
Ribeye and rebound and the second and the second part of 2021.
So there's no change and our strategy with respect to the micro finance business improve.
No no change in the strategy did you say this business is more vulnerable he had a bigger impact from Covid, but did you say it has been historically, a very profitable business how to equal and you will take away a little bit more time, but will be returned to strong profitability. Okay.
Okay. That's very helpful. And then just one real quick numbers clarification. So your NCI as a percentage of earnings and international I think it was running at about 10 per cent pre COVID-19 levels and it's been about 20%. The last two quarters is that the new run rate, we should use to model international approximately 20 per cent the NCI.
Hi, Mike I <unk> I think the NCI is it is a difficult and wanted to give you an absolute estimate because it depends on actually on eggs and Colombia on English and a big contributor to NCI and that business.
And the way you could think about it as we've done and expanded disclosures and our geographic highlights table and the MD&A. This quarter you can look at it you can see the Chinese earnings recover. So book, we lose about 22 23 per cent of NCI and Colombia is almost 50 50 on me a great quarter and a $39 million of earnings.
And one of the highest quarters, we have had and Colombia, so that drove the increase of the MTI.
That's a number that's hard to predict and depends on these two countries, particularly going forward with normal earnings you could use those percentages I think it'll be anywhere between 10 and 20 per cent to use your numbers.
Okay. That's extremely helpful. Thank you.
Hello.
Okay. Operator can we have the next question. Please thank.
Thank you. The next question is from Merrill Lynch <unk> from TD Securities. Please go ahead.
Good morning.
Danielle if we could go back to your point on and <unk>.
And so the guidance you've offered on around credit for 2021, and but BMO offered earlier and what some of these U S banks have said as well.
It sounds to me like the government support has essentially socialized all the losses that we would've otherwise expected is that your interpretation as well that the losses have been.
That we essentially.
We bridged.
Commercial and retail book.
Borrowers to the vaccine or is it more your view that.
And the losses will emerge in 2022.
Okay.
Yeah, I think there's a number of effects at play and Mario but I think the bottom line is that our customer assistance programs do their job.
And it works on the bank side. They are complete as you said, we've reached our customers cash flow over the crisis, and we've had and our portfolio of very high return to current status as a result of that so that's reflected and our strong credit quality.
For Canada, we have no accounts and deferral and business banking 900, and extended accounts that were in the flow of returned to current on the retail 97% returned to card and international banking 88 per cent accounts returned to correct. So these programs work.
We're seeing our customers get back on their feet customers' balance sheets are stronger than ever we've seen increases on our deposit balances reduction and unsecured borrowings and that's all things are and our credit metrics. So we're very pleased with how this has played through and gives us regions on the optimistic outlook going forward.
But you wouldn't you wouldn't then point needs a higher losses in 'twenty and 'twenty two as a result.
No okay.
Thank you.
Operator can we have the next question please.
Next question is from Gabriel <unk> from National Bank Financial Please go ahead.
Good morning, and I want to go back to the Nacho on the international and you know about the walking us through the 500 million earnings number and with a few elements behind that was very helpful. I wanted to know do you have a number in mind for pretax pre provision profit so.
You know because getting back to 500 million people sales being lower and you're going to help a lot.
I look at P. P. P P youre running at a billion and a half.
Pre COVID-19 and closer to one two.
A quarter I know there was from divestitures, but we're.
And what what kind of numbers that I have in mind and timing thereof.
And for that line on them.
Hey, Gabe it's Raj, let me see if I can help you with that and then Nacho and obviously complement if I Miss something I think the way to think about it as a sequential game and you think about Q1, we talked about our commercial growth starting in Q2 and retail following quickly debt after both of which should add to the revenue line on a pretax pre provision and I commented on.
On NIM going to expand from here at least from at the table and then start expanding our retail comes in so that should improve revenues. We still are between $80 million to $100 million on noninterest revenue, that's going to come back primarily from the Caribbean as well as all the retail activity and the Latin American footprint. So that should help you get to some revenue number and how would you.
On the sequencing for the remainder of the year.
Expenses like we mentioned expenses are always going to be a key factor to ibs and resolved we know how to manage expenses. There is on 20 million quarter over quarter. It was down quite a bit and Q4 compared to Q3 and you'll see the sequential decline and expenses going forward. So all of which to say that the pretax pre provision is going to continuously improve when you compare.
Sequentially Q1 to Q2, and Q2 to Q3 and so on the PCL would also decline like Nacho set and Daniel can flow from the elevated levels frankly is that even in Q1 and come back to a pre COVID-19 levels. Hopefully that gives you an idea and three countries are already back to the anomaly on these levels is not true indicated in previous call.
And if Peru follows that's going to be a huge lift in the quarter that it happens to pretax pre provision earnings.
Oh, Okay, I mean, as nacho, adding or and do a quick follow up.
And I think that's it that's the answer maybe it's not the only highlights to rush com and she is the Pacific Alliance countries debt, it's coming faster and.
And in terms of PPP, we are already 3% up year over year. So I expect the Pacific Alliance countries to continue delivering strong PTP performance graduate and okay, great and just from a quick margin standpoint on that segment.
Cause commercial.
And the way on the loan growth recovery, we shouldn't see too much NIM expansion, because it was gonna be lower spread on that.
Region right Yeah.
Yes, I think Gabe if you think about even sorry, I I don't know if I cut you off I'm sorry.
I'm done.
All right.
If you look on Q1, NIM expansion and IV lower costs slightly higher cost funding be paid down during the quarter and you continue to manage our liquidity prudently and not just an IV, but for the rest of the bank so that should help the margin.
Commercial margin should certainly help and maintaining it at the current levels, perhaps expanding depending on how the commercial rates play out in Q2, and certainly on the retail growth comes back that margin will start expanding pretty quickly.
Thanks for all the clarification.
Okay.
Hey, operator with the next question please.
Thank you and our next question is from Sohrab <unk> from BMO capital markets.
Hey, Thank you actually wanted to maybe ask a question of chase and Eh and <unk>.
James.
And then obviously very good quarter, Jake and James and.
And the run rate.
What would have been implied out of 20, and Twenty's quotes and the results I know capital markets tend to obviously give all the time.
And all the work that has been done over the years are you at a new run rate that could have a five handle quarterly earnings or do you still think it would be and that.
Low to mid four hundreds.
Well thanks for the question, James and I had been getting Dusty over recent quarters waiting for one.
So as you noted we have been working hard to reposition the GBM business and we're coming off a record year in 2020, and Q1 was a very strong start to the year. We're.
We're now at a point, where we have the second largest wholesale business among Canadian banks. When we include in our Latam business and it's obviously as you know what had been and exceptional environment for GBM to capture revenue.
And we believe we've captured our fair share.
So looking ahead, we do feel the GBM platform is a stronger one we've made progress towards our natural share and Canada, we've elevated our franchise and we've exhibited the strength of our credit culture, and we continue to strength, our balance and strengthen our balance sheet with good deposit growth.
So looking out we've got great M&A pipeline the asset growth is starting to rebuild our growth and our spot loans with better exiting the quarter than where the average showed the ECM business continues to perform strong and then you add and the international story, Latam was up 30% quarter over quarter and our U S balance sheet, which is at a 150 billion almost is.
Positioned well to grow with the economic recovery and the U S. So certainly.
We think the structural advancements we've made and the business have and have improved the run rate of the business and what we see this quarter is a reasonable and look for how we perform subject to obviously market conditions. As you noticed so we will look to continue to win for our shareholders not only on an absolute basis, but also on a relative basis.
Okay. That's helpful and if I can just quickly sneak one in for Brian and I mean, Brian you talked about and.
And obviously the ROE being back at our Hearts were slightly above the medium term target, but youre doing that actually let me last time you were at these levels you had about 100 basis points lower CET one ratio.
So I guess.
And I guess are you are we.
Are you going to adjust that maybe medium term target is higher.
One said there are oh.
Is there more flexibility around capital deployment, whether it's through share buybacks or or.
Or otherwise or or do you think that still is the right number even if.
Our capital levels drift back to more normal levels.
Well. Thank you for that question sort of you've heard me say and in a number of our shareholders have we think we're at 15% plus ROE bank and we're well on our way to be there and that's a function of all the repositioning we've done Jake just commented about the structural repositioning of our GBM business, which is.
Leads to higher profitability that the global wealth management business is performing exceedingly well.
And number two in terms of revenue growth number one in terms of debt income growth and obviously, providing great performance for our clients.
And we think we've got lots of torque on our business. There's been lots of questions. This morning about our international banking business, that's coming back loan growth is coming back I see it on the spot balances.
And margins are going to be stable here.
If not improving PCL start trending down and you've heard from Daniel So we like how we're positioned here and a fifth.
15%.
Quarter.
It will be.
And our eyesight here are and our line of sight here. So we feel very good about our business both on the revenue side.
We manage expenses and exceedingly well and we've managed credit exceedingly well so.
And we think our numbers have a lot of torque on them and we're looking forward to the balance of 2021.
Thank you.
Okay, operator can we and the next question please.
And next question is from Lamar Prasad from <unk> Securities. Please go ahead and thanks.
Thanks for taking my question and I'm, just going to continue along the lines of questioning here, so sticking with Jake and James It's been a while since we've seen the productivity ratio and GBM dip into the 40 per cent range consistently and despite the strong revenue growth I guess expenses down again year over year again. This quarter can you talk about some of the reasons for the declines and <unk>.
Spencers and secondly, does the mid 40% productivity ratio feels sustainable if we see some softening and revenue growth I guess, what I'm really trying to get at is understanding the.
The city of expenses if revenues do moderate from here. Thank you.
Hello, Mark Thanks for the question it's Raj its.
It's a really good outcome productivity ratio as you pointed out and as a factor on revenue and expenses and both have gone on the right way for GBM and we expect it to continue our six per cent decline year over year on expenses is something we're very proud off and we work on and bake and let's say not just with GBM, but with all of our business lines and across the bank. So you seem to resolve itself.
Sort of daily if what I would add prioritization and.
Our philosophy of having expenses growth inline and taking a SKU from revenue growth. So that's what you're seeing play out.
Gbm's quarter over quarter expenses would be flat to slightly elevated if you look forward because they've got a lot of regulatory spend <unk> is one project that I would call out I think that's normal there's a lot of money to be spent over that by building and managing our expenses very prudently and it'll be in line with like performance within the business and I think you will see that and.
As we look forward.
And I hate to give absolute guidance on productivity and ratios and so on but it's nice to be and the forties and we think we will be no higher than 50, as we look forward and most quarters, Jake and I think that yes, Lamar all I'd add in as and when we look at the business. We do think about absolute expenses, where that growth is the year over year number does have a bit of seasonality and it as well.
<unk>.
Higher expenses in Q1 every year just around some some performance comp. So we look at that we look at operating Leverages as well and as Raj noted we've got some investment to do not only regulatory were adding bankers into our international markets. There is a chance to feed the revenue pipeline, we're seeing some competitors in markets choose to be less active as they focus on there.
And their footprints back in Europe, and back and Asia. So we're adding people in our footprint throughout the Americas, that's going to drive better outcomes from from our Canadian business, all the way down to our Latam business. So again to Roger's point, it's tough to give you an exact number on productivity, we do focus on that along with the operating leverage and absolute expenses and when we have.
The revenue.
Environment, we have had we're able to make those investments and the platform.
Great. Thank you.
Operator next question please.
Next question is from Paul Holden from CIBC. Please go ahead.
Thanks. Good morning, just wanted to continue with that same topic productivity ratio, we've you've talked about it for a number of the business segments, but maybe you can put it all together for us at the all bank level and particularly on the context of the digital uptake trends, you've shown and your and your slide deck.
And I guess the bigger picture question is with the digital uptake and the pull forward of that through Covid is a lower bound on where you can take the productivity ratio significantly lower than you would've imagined pre COVID-19 and maybe you can give us some sense on how much further you could go there again on the Oh.
The bank level.
Shortfall, Thank you and described.
Expense management, we think is a cornerstone of our operations. We have done on time and time again, we have done and quarter after quarter and be doing a deal after your.
I indicated on prior calls we will always manage expense growth prudently and we will prioritize our spend across the bank and then we'll take a SKU from revenue growth. So that's the festival and we will continue to follow that so the 51, 8%. This quarter is kind of unexpected result from my perspective, and a few years back we had given guidance, saying, we'd ideally like.
Be it on the 50% productivity ratio level across the bank and we continue to have debt as a target and we will keep looking towards that.
And the outlook for 2022 on expenses when I spoke in November and it's pretty clear that the expenses going to be flat compared to 2020 in 2021 and.
And that's going to quite a lot of work and effort across our teams because we wanted to continue to invest and supporting business growth technology of course is a big component of this and we've had and last few years and we continue to do that and of course the regulatory initiatives.
The savings will come from efficiencies nachos talked before about the digital investments. We have made the level of efficiency, we were able to pick up both in Canadian banking as well as and in the IV P&C continue when.
And when revenue is good and like we have and wealth management as well as and in GBM and suddenly feeds the productivity ratio quite nicely I should point out to you and wealth management's productivity ratios and industrial heating has been for a very long time and it's now below 60%. So we are very proud of the efforts, we make and managing our costs prudently and of course the <unk>.
And that certainly helps and keeping debt productivity ratio up so that you should see it continued on its difficult to give a path to 50%, but it's certainly on target to get to 50 per cent of and we'll continue working towards okay.
Okay very clear on that thank you.
Operator can we and the next question please.
The next question is from Gabriel <unk> from National Bank Financial. Please go ahead.
Hi, there just a follow up on the credit question I guess.
And the PCL guidance is pretty clear at this point or indication and just.
Wanted to know if you have a sense Daniel of where the impaired loan ratio could trim back on this thing pop over a 100 basis points or stay below without you and you're talking about Q2, Q3 and sounds like those will be the peak.
Formation and this quarter.
Yeah, I think the important and that we're focused on here Gabriel is that.
And we built more than sufficient allowances for.
And an increase and net write offs and it's going to happen as you said through Q2 and likely peaking in Q3 and.
And that's why we're taking a thoughtful and deliberate and data driven approach to any releases that we might have this quarter, but here's what I can say against that backdrop of being confident that we're well provisioned for those write offs. We are seeing the portfolio as I said performed very well and in fact.
And inside of our expectations and so all of that leads us to believe that we're likely going to start seeing the leases from our performing allowances in Q2 to offset any increases that might happen and the.
And I would like to will happen and the nonperforming allowances and the same quarters and you'll see that continue going forward.
So the way we think about this overall is that these allowances are on the balance sheet and therefore, a reason we view Q1 is nothing to talk to you the board's off the windows, but this is a balance sheet item and where we're focused on from here is on topline revenue growth.
Okay.
I'm not trying to belabor the point here and and you know your impaired loans and you're really only bank with from declining last year among them sweat a little bit of an uptick this quarter I'm just wondering if.
With Q2 Q3 are the peak right off and impairment cortisol.
And with peak look like.
Yeah, so on future or definitions on peak have been wrong.
Yeah.
Great.
I think the important thing here is that.
And in Q2 Q3 will be up they will.
<unk> increase will be fairly less and less and a 100, let's say, but the important thing here is that because of the sufficiency of allowances. The total PCL will be less than our 2019 okay.
Sure.
Alright, well thanks Pam.
And everybody else.
Okay, operator can we have the.
The next question please.
Next question is from Sohrab <unk> from BMO capital markets. Please go ahead.
And it sort of get on more and on the on another follow we don't usually get much from Glenn Yeah, the wealth business on.
Obviously, you had a bit up there and.
And I think at one time benefit and there but.
No.
And we now have a couple of Years' worth.
And.
And stock record since the acquisitions under our belt can you just paint the picture of how the acquisitions have gone relative to expectations.
And secondarily.
Give us a sense of what we should be expecting as far as capital accretion out of your business.
And next called it's called true.
And this quarters. Thank you.
Great. Thanks service from.
And so on the on the acquisition piece I think first and foremost as you mentioned, where we're coming into three years on those and.
They're very very well integrated and that has gone exceedingly well frankly.
Whether you look at it from a.
Our revenue standpoint clients retention standpoint, and staff retention standpoint, all equal or better than what we expected and those businesses are really fully integrated into our wealth management franchise now and so you can see the growth and those coming and the and the overall numbers I think specifically if I if I look at Jarislowsky Fraser.
And continuing to win institutional mandates and frankly, a tough institutional market in Canada, but continuing to grow.
Both on the institutional side as well as on the private the private wealth side, which is great and their assets are at a record level.
I look at MD and again, we're seeing client retention better than before we acquired them were seeing staff retention is better than before.
Before they were acquired a strong net sales and record asset levels. So that's from from any standpoint.
That's nothing short of a homerun, so but I think more importantly is the the breads to your point.
Success across the businesses, whereas whether it's the investment results.
Strong net flows within the mutual fund franchise, frankly, and net positive across the businesses and strong revenue growth. So.
We believe we're very well positioned for our future.
Because even outside of performance fees or some of the lumpiness.
Underlying results are really really strong so I would say on momentum for us is it's going to be good going forward.
Thank you.
Thank you.
This will conclude the question and answer session and back to your hosts.
Thank you and everyone for participating and I'll call today on behalf of the entire management team I want to thank everyone for participating in our call. We look forward to speaking with you again at our Q2 2021 call and in June.
This concludes our first quarter results call and have a great day.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
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