Q2 2024 The Bank of Nova Scotia Earnings Call

Speaker Change: [music].

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This conference is being recorded so it's gonna stay home if they don't go as you see.

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John McCartney: Good morning, and welcome to Scotiabank's 2024 second quarter results presentation. My name is John McCartney, and I'm head of investor relations here at Scotiabank. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Phil Thomas, our Chief Risk Officer. Following our comments, we would be glad to take your questions.

John McCartney: Good morning, and welcome to Scotia Bank's 2024 second quarter results presentation. My name is John Mccartney and I'm head of Investor Relations here at Scotiabank presenting to you. This morning are Scott Thompson Scotia banks, President and Chief Executive Officer, Raj Viswanathan, Our Chief Financial Officer, and Bill Thomas Our Chief Risk Officer.

John McCartney: Following our comments, we'll be glad to take your questions.

John McCartney: Also present to take questions are the following Scotiabank executives: Aris Bogdaneris from Canadian Banking, Jackie Allard from Global Wealth Management, Francisco Uricegueda from International Banking, and Travis Machin from Global Banking and Marketing. Before we start, and on behalf of those speaking today, I'll refer you to slide two of our presentation, which contains Scotiabank's caution regarding forward-looking statements. With that, I will now turn the call over to Scott. Thank you, John, and good morning, everyone.

Speaker Change: Also present to take questions on the phone with Scotiabank executives <unk> from Canadian banking, Jackie alert from global wealth management, and Francisco <unk> from International banking, and Travis mentioned from global banking and markets for.

Scott Thomson: Before we start and on behalf of those speaking today I'll 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 Scott.

Scott: Thank you John and good morning, everyone.

Scott Thomson: We are pleased to share our Q2 results, which reflect solid earnings from each of our four business lines. This is the second quarter since we shared our enterprise-wide strategy, and I'm encouraged by our continued progress against our plan. I want to take a few moments to recap a few key enterprise initiatives.

Scott: We are pleased to share our Q2 results, which reflect solid earnings from each of our four business lines.

Scott: This is our second quarter since we shared our enterprise wide strategy and I am encouraged by our continued progress against our plans.

Scott: I wanted to take a few moments to recap a few key enterprise initiatives.

Scott Thomson: First, disciplined capital allocation to higher-return client segments and geographies, as virtually all of our incremental capital deployed in fiscal 2024 has been to our identified priority business. Second, deposit growth remains fundamental to our business prioritization and client selection decisions. Our focus on building primacy through deeper relationships has resulted in continued growth with PNC deposits up 7% year-to-date. Third, cost and process efficiencies, which both drive profitability and ensure frontline teams have the tools and capacity to deliver an excellent client experience.

Scott: First disciplined capital allocation to higher return client segments and geographies as virtually all of our incremental capital deployed in fiscal 2024 has been to our identified priority businesses.

Scott: Second deposit growth remains fundamental to our business prioritization and client selection decisions our focus on building privacy through deeper relationships has resulted in continued growth with P&C deposits up 7% year to date.

Scott: Third cost and process efficiencies, which both drive profitability and ensure frontline teams have the tools and capacity to deliver an excellent client experience.

Scott Thomson: Well-managed expenses and productivity gains are driving positive year-to-date operating leverage. And finally, a strong balance sheet that will allow us to support clients through the cycle while maintaining optionality to invest in our businesses, as evidenced by strong liquidity and our 13.2% SETI 1 capital ratio. In terms of results, the bank reported adjusted earnings of $2.1 billion, or $1.58 per share, in the quarter.

Scott: Well managed expenses and productivity gains are driving positive year to date operating leverage.

Scott: And finally, a strong balance sheet, which will allow us to support clients through the cycle, while maintaining optionality to invest in our businesses as evidenced by strong liquidity and our 13, 2% <unk> capital ratio.

Scott: In terms of results the bank reported adjusted earnings of $2 1 billion or $1 58 per share in the quarter.

Scott Thomson: We saw solid revenue growth from both net interest income and fee income coupled with disciplined expense management. The benefits of our productivity initiatives were particularly notable in our Canadian and international banking segments, where productivity ratios improved 100 basis points and well over 200 basis points, respectively, over last year. Higher credit provisions reflecting the uncertain macroeconomic environment and the impact of sustained higher interest rates on certain client segments impacted profitability.

Scott: We saw solid revenue growth from both net interest income and fee income coupled with disciplined expense management.

The benefits of our productivity initiatives were particularly notable in our Canadian and international banking segments, where productivity ratio has improved 100 basis points and well over 200 basis points, respectively over last year.

Scott: Higher credit provisions, reflecting the uncertain macroeconomic environment and the impact of sustained higher interest rates on certain client segments impacted profitability.

Scott Thomson: Overall, net loans were 3% lower year over year, and in line with Q1, balances have stabilized in the Canadian residential mortgage portfolio, while we have seen moderate growth in other personal and commercial portfolios. We continue to reposition our business banking portfolios with a view to optimizing risk-weighted assets and profitability by client. And importantly, return on risk-weighted asset metrics are trending positively on a year-to-date basis. The all-bank loan-to-deposit ratio continues to improve as a result of $26 billion of deposit growth over the past year, driven largely from focused efforts on our Canadian and international banking retail franchises. Deposit growth has now outpaced loan growth in Canadian and international banking for each of the past five quarters.

Scott: Overall net loans were 3% lower year over year and in line with Q1.

Scott: Balances have stabilized in the Canadian residential mortgage portfolio, while we have seen moderate growth in other personal and commercial portfolios.

Scott: We continue to reposition our business banking portfolios with a view to optimize risk weighted assets and profitability by client.

Scott: And importantly return on risk weighted asset metrics are trending positively on a year to date basis.

Scott: The all bank loan to deposit ratio continues to improve as a result of $26 billion of deposit growth over the past year, driven largely from focused efforts in our Canadian and international banking retail franchises.

Scott: Deposit growth has now outpaced loan growth in Canadian and international banking in each of the past five quarters.

Scott Thomson: The bank's wholesale funding has been reduced by $34 billion year over year, resulting in a wholesale funding ratio below 20%, down from approximately 23% in Q2 of 2023. Turning to the credit environment, the impact of higher rates is increasingly weighing on consumers and, to a lesser extent, our commercial and small business clients. Although we believe the monetary tightening phase of the rate cycle in Canada is now complete, our prior expectation of multiple rate cuts in the back half of the calendar year feels less certain.

Scott: The bank's wholesale funding has been reduced by $34 billion year over year, resulting in our wholesale funding ratio below 20% down from approximately 23% in Q2 of 2023.

Scott: Turning to the credit environment, the impact of higher rates is increasingly weighing on consumers and to a lesser extent, our commercial and small business clients.

Scott: Although we believe the monetary tightening phase of the rate cycle in Canada is now complete our prior expectation for multiple rate cuts in the back half of the calendar year feels less certain.

Scott Thomson: The reality of a higher for longer rate scenario will naturally result in the continuation of elevated credit provision in our retail portfolios, keeping us at the higher end of our 2024 PCL outlook of 55 basis points. Our commercial banking and global banking and markets portfolios remain stable from a credit quality perspective, although a continuation of the current rate outlook will weigh on economic activity and industry loan growth. In our key Latin American markets, we are now into the easing phase of the interest rate cycle.

Scott: The reality of a higher for longer rate scenario will naturally result in the continuation of elevated credit provisioning in our retail portfolios keeping us at the higher end of our 2024 PCL outlook of 55 basis points.

Scott: Our commercial banking and global banking and markets portfolios remained stable from a credit quality perspective, although a continuation of the current rate outlook will weigh on economic activity and industry loan growth.

Scott: In our key Latin American markets, we are now into the easing phase of the interest rate cycle.

Scott Thomson: Central Bank policy rates in Chile at 6% and Peru at 5.75% are down significantly from peak levels last year as inflation has been successfully managed lower. Mexico's central bank has started to ease policy rates as aggressive tightening over the past two years has effectively lowered inflation and managed near-term GDP growth expectations to more sustainable levels.

Scott: Central Bank policy rates in Chile at 6% and Peru at 575% are down significantly from peak levels last year as inflation has been successfully managed lower.

Scott: Mexico Central Bank has started to ease policy rates as aggressive tightened over the past two years has effectively lowered inflation and manage near term GDP growth expectations to more sustainable levels.

Scott Thomson: The Mexican economy continues to demonstrate resilient growth and a tight employment market despite the impact of double-digit interest rates for the past 12 months. Our forecasts do not anticipate recessionary conditions in any of our key operating geographies over the next few years. We are well positioned to execute on our new international banking strategy in what we expect to be a more normalized economic growth environment throughout the region going forward. Here are a few highlights in terms of performance and strategic progress within each of our business lines. Our Canadian banking business contributed approximately $1 billion of earnings in the period.

Scott: The Mexican economy continues to demonstrate resilient growth in a tight employment market. Despite the impact of double digit interest rates for the past 12 months.

Our forecast do not anticipate recessionary conditions in any of our key operating geographies over the next few years.

Scott: We are well positioned to execute on our new international banking strategy and what we expect to be a more normalized economic growth environment throughout the region going forward.

Scott: A few highlights in terms of performance and strategic progress within each of our business lines.

Scott: Our Canadian banking business contributed approximately $1 billion of earnings in the period.

Scott Thomson: Favorable business mix shift, asset repricing, and deposit growth delivered solid margin expansion and resulting revenue growth in a period where overall loans were marginally lower year over year. With continued focus on process and efficiency, expense growth was moderate this quarter, resulting in a positive year-to-date operating leverage of 3.1%. Our focus on relationships and more deliberate new client selection is driving an increase in the percentage of clients that we consider to be primary.

Scott: Favorable business mix shift asset repricing and deposit growth delivered solid margin expansion and resulting revenue growth in a period, where overall loans were marginally lower year over year.

Scott: With continued focus on process and efficiency expense growth was moderate this quarter, resulting in a positive year to date operating leverage of three 1%.

Scott: Our focus on relationships and more deliberate new client selection is driving an increase in the percentage of clients that we considered to be primary.

Scott Thomson: Our retail bank has added over 95,000 net new primary clients year to date and, importantly, saw the lowest client attrition in three years as a result of more selective client acquisition and cross-sell initiatives. We are closely tracking client relationship depth and have seen meaningful progress, with over 45% of all retail clients currently holding 3 Plus products in the Canadian bank, a 230 basis point increase from a year ago. Our Seen Plus loyalty program continues to drive deeper client relationships, with 32% of new clients holding more than three products after one month with the bank.

Scott: Our retail bank has added over 95000 net new primary clients year to date, and importantly saw the lowest client attrition in three years as a result of more selective client acquisition and cross sell initiatives.

Scott: We are closely tracking client relationship depth and have seen meaningful progress with over 45% of all retail clients currently holding three plus products in the Canadian Bank, a 230 basis point increase from a year ago.

Scott: Our <unk> plus loyalty program continues to drive deeper client relationships with 32% of new clients holding more than three products. After one months with the bank.

Scott Thomson: These higher-value SIEM Plus clients now represent over half of the new-to-bank clients across day-to-day banking and credit cards, up from 40% last year. At Tangerine, we continue to add new clients and see lower attrition rates with existing clients. Year-to-date, we're tracking well ahead of our plan to add new clients in fiscal 2024. Importantly, primary client growth at Tangerine is up 15% year-to-date, with 35% of all clients now having three or more products with Tangerine. Tangerine continues to set the industry pace in terms of mobile penetration, with 64% of new client signups happening exclusively through the mobile channel, up 11% year to date versus last year.

Scott: These higher value seen plus clients now represent over half of the new to bank clients across day to day banking and credit cards up from 40% last year.

Scott: At Tangerine, we continue to add new clients and see lower attrition rates with existing clients.

Scott: Year to date, we are tracking well ahead of plan to add new clients in fiscal 2024.

Scott: Importantly primary client growth at Tangerine is up 15% year to date was 35% of all clients now, having three or more products with Tangerine.

Scott: Tangerine continues to set the industry pace in terms of mobile penetration was 64% of new client sign ups happening exclusively through the mobile channel up 11% year to date versus last year.

Scott Thomson: Our commercial banking business saw a continued moderation of loan growth of 5% against double-digit deposit growth. Ongoing efforts on client selection and capital optimization contributed to a continued improvement in return on risk-weighted assets this quarter. We continue to believe there is material share gain and profitability growth potential in our domestic retail and commercial bank, which we expect to deliver at least half of the bank's earnings growth over the medium term. Global wealth earnings of $387 million reflect strong performance from our asset management franchise, our integrated multi-channel advisory business, and continued outsized growth from our international wealth unit.

Our commercial banking business saw a continued moderation of loan growth up 5% against double digit deposit growth.

Ongoing efforts on client selection and capital optimization contributed to a continued improvement in return on risk weighted assets this quarter.

Scott: We continue to believe there is a material share gain and profitability growth potential in our domestic retail and commercial bank, which we expect to deliver at least half of the bank's earnings growth over the medium term.

Global wealth earnings of $387 million reflects strong performance from our asset management franchise, our integrated multichannel advisory business and continued outsized growth from our international wealth unit.

Scott Thomson: Favorable returns in most global equity benchmarks and strong relative performance from our 1832 fund lineup resulted in solid AUM growth in the quarter and supported continued flows into long-term investment products as the year progresses. Assets under management in our international wealth business grew over 15% in the quarter through a combination of strong investment performance and over $1 billion of net sales in the period. Our Canadian Wealth Management Advisory businesses, Scotia McLeod, MD Financial, and our Private Investment Council business are having great success delivering our fully integrated total wealth offerings to clients.

Scott: Favorable returns in most global equity benchmarks and strong relative performance from our $18 32 fund lineup resulted in solid AUM growth in the quarter and supports continued flows into long term investment products as the year progresses.

Scott: Assets under management in our international wealth business grew over 15% in the quarter through a combination of strong investment performance and over $1 billion of net sales in the period.

Our Canadian wealth management advisory businesses Scotia, Mcleod, MD financial and our private investment counsel business are having great success, delivering our fully integrated total wealth offerings to clients.

Scott Thomson: We've increased the number of financial plans delivered this quarter by 27% year-to-date, and we continue to add product specialists to deliver comprehensive solutions for clients. Clients with a financial plan are better prepared for their future, are a significant driver of the net promoter score, and twice as likely to have a multi-product relationship with the bank.

Scott: We have increased the number of financial plans delivered this quarter by 27% year to date, and we continue to add product specialists to deliver comprehensive solutions for clients.

Scott: Clients with a financial plan are better prepared for the future are a significant driver of net promoter score and twice as likely to have a multi product relationship with the bank.

Scott Thomson: We continue to see progress in strengthening the partnership between our wealth and Canadian retail channels, with referrals up 15% year over year. In our global banking and markets business, we reported resilient earnings of $428 million this quarter, despite headwinds in the Canadian capital markets franchise that were largely offset by strong performance in our U.S. business. The business continues to reposition the portfolio with a view to achieving a better balance in our loan-to-deposit growth as well as aligning with our strategic geographic priorities and client return objectives.

Scott: We continue to see progress in strengthening the partnership between our wealth in Canadian retail channels with referrals up 15% year over year.

Scott: And our global banking and markets business, we reported resilient earnings of $428 million this quarter. Despite headwinds in the Canadian capital markets franchise that were largely offset by strong performance in our U S business.

Scott: The business continues to reposition the portfolio with a view to achieving better balance in our loan to deposit growth as well as align with our strategic geographic priorities and client return objectives.

Scott Thomson: Deposits were lower by 2% in the quarter, while overall loan volumes were down 6% due to lower new origination activity, paydowns, and additional delivered actions to strategically reposition the portfolio. We were encouraged by GBM's performance in terms of growth in underwriting and advisory fee revenue in the quarter, an indication of more effective client selection and product coverage in our GBM business. We're also pleased to welcome Travis Machin to our leadership team as our new Group Head of Global Banking and Markets.

Scott: Deposits were lower by 2% in the quarter, while overall loan volumes were down 6% due to lower new origination activity Paydowns and additional delivered actions to strategically reposition the portfolio.

Scott: We were encouraged by Gbm's performance in terms of growth in underwriting and advisory fee revenue in the quarter, an indication of more effective client selection and product coverage in our GBM business.

Scott: We're also pleased to welcome <unk> to our leadership team as our new group head of global banking and markets. Travis brings a career of U S focused corporate and investment banking experience with best in class Global banks.

Scott Thomson: Travis brings a career of U.S.-focused corporate investment banking experience with best-in-class global banks. In our international banking business, we delivered strong results this quarter with a net earnings contribution of $677 million, resulting in a year-to-date return on equity of 15%, up from 13.3% in the period last year. Solid revenue growth was driven by continued margin expansion in most geographies, coupled with impressive expense discipline, resulting in a significant improvement in the segment's productivity ratio to 51.1%.

Scott: In our international banking business, we delivered strong results this quarter with a net earnings contribution of $677 million, resulting in a year to date return on equity of 15% up from 13, 3% in the period last year.

Scott: Solid revenue growth was driven by continued margin expansion in most geographies coupled with impressive expense discipline, resulting in a significant improvement in the segment's productivity ratio to 51, 1%.

Scott Thomson: Our capital repositioning continued in the period as risk-weighted assets in the business were lower by $2 billion, while deposits were up 3% sequentially and 6% on a year-over-year basis. Our GBM LATAM contribution moderated to $290 million in the quarter, down from an exceptional $372 million contribution in Q1. We are encouraged by the improved performance and profitability of the business as we look to drive even greater productivity through a more regional, standardized operating model. In international retail, we have a significant client segmentation initiative underway to grow primary clients more selectively in the affluent, emerging affluent, and top of the mass segments.

Scott: Our capital repositioning continued in the period as risk weighted assets in the business were lower by 2 billion, while deposits were up 3% sequentially and 6% on a year over year basis.

Scott: Our GBM Latam contribution moderated to $290 million in the quarter down from an exceptional $372 million contribution in Q1.

Scott: We are encouraged by the improved performance and profitability of the business as we look to drive even greater productivity through a more regional standardized operating model.

Scott: And international retail, we have a significant client segmentation initiative underway to grow primary clients more selectively in the affluent and emerging affluent and top of mass segments.

Scott Thomson: While we expect this franchise repositioning, including client deselection, to be an ongoing process, we saw good progress on priority net client growth in the quarter. We continue to believe we have sufficient scale and capital deployed in our international banking business to profitably grow our retail businesses and capitalize on wholesale opportunities when favorable market conditions and client activity allow, as evidenced by solid results again this quarter. In summary, the bank delivered solid financial performance in the quarter while executing on key initiatives that will enhance profitability and set us up for more balanced, resilient growth over the long term.

Scott: While we expect this franchise repositioning including client deselection to be an ongoing process. We saw good progress on priority net client growth in the quarter.

Scott: We continue to believe we have sufficient scale and capital deployed in our international banking business to profitably grow our retail businesses and capitalize on wholesale opportunities when favorable market conditions and client activity allow as evidenced by solid results again this quarter.

Scott: In summary, the bank delivered solid financial performance in the quarter, while executing on key initiatives that will enhance profitability and set us up for a more balanced resilient growth over the long term.

Scott Thomson: I would like to thank our team of Scotia bankers globally who are delivering on our ambitious plan. As I continue to meet with our teams, it is clear our people understand the important role they play in driving the sustainable, profitable growth we've committed to delivering for our shareholders. With that, I will turn it over to Raj for a more detailed financial review of the quarter. Thank you, Scott. And good morning, everyone.

Scott: I would like to thank our team of Scotia bankers globally, who are delivering on our ambitious plan.

Scott: As I continue to meet with our teams. It is clear our people understand the important role they play in driving sustainable profitable growth, we are committed to delivering for our shareholders.

Speaker Change: With that I will turn it over to Raj for a more detailed financial review of the quarter.

Rajagopal Viswanathan: All my comments that follow will be on an adjusted basis for the usual acquisition-related costs. Starting on slide six, for a review of the second quarter results, the bank reported quarterly earnings of $2.1 billion and diluted earnings per share of $1.58.

Rajagopal Viswanathan: Thank you Scott and good morning, everyone.

Rajagopal Viswanathan: All of my comments that follow will be on an adjusted basis for the usual acquisition related costs.

Rajagopal Viswanathan: Starting on slide six for a review of the second quarter results.

Rajagopal Viswanathan: The Bank reported quarterly earnings of $2 1 billion and diluted earnings per share of $1 58.

Rajagopal Viswanathan: Return on Equity was 11.3% and Return on Tangible Common Equity was 13.8%. Revenues were up 5% year over year driven by 5% growth in net interest income and also by net interest margin expansion and 6% growth in non-interest income. All Bank Net Interest Margin expanded five basis points year over year. Margin was down two basis points quarter over quarter, driven mainly by a lower contribution from asset and liability management activity. Non-interest income of $3.7 billion, up 6% year-over-year primarily from higher wealth management revenues, underwriting and advisory, commitment, and credit fees, partly offset by lower acceptance. The provision for credit losses was $1 billion, and the PCL ratio was 54 basis points, up four basis points quarter over quarter. Expenses grew by a modest 3% year-over-year, driven by higher technology-related costs.

Rajagopal Viswanathan: Return on equity was 11, 3% and return on tangible common equity was 13, 8%.

Rajagopal Viswanathan: Revenues were up 5% year over year, driven by 5% growth in net interest income.

Rajagopal Viswanathan: And also by net interest margin expansion and 6% growth in noninterest income.

Rajagopal Viswanathan: All bank net interest margin expanded five basis points year over year.

Rajagopal Viswanathan: Margin was down two basis points quarter over quarter, driven mainly by a lower contribution from asset and liability management activities.

Rajagopal Viswanathan: Noninterest income was $3 7 billion up 6% year over year, primarily from higher wealth management revenues underwriting and advisory commitment and credit fees, partly offset by lower acceptance fees.

Rajagopal Viswanathan: The provision for credit losses was $1 billion and the PCL ratio was 54 basis points up four basis points quarter over quarter.

Rajagopal Viswanathan: Expenses grew a modest 3% year over year, driven by higher technology related costs.

Rajagopal Viswanathan: Personal Costs from Inflationary Adjustments and Higher Performance-Based Compensation. Partly offset by lower share-based compensation and the benefits of the efficiency initiative. Quarter-over-quarter expenses were down 1%, driven by seasonally higher share-based compensation in the last quarter.

Rajagopal Viswanathan: Personal cost from inflationary adjustments and higher performance based compensation, partially offset by lower share based compensation and benefits of the efficiency initiatives.

Rajagopal Viswanathan: Quarter over quarter expenses were down 1% driven by seasonally higher share based compensation in the last quarter.

Rajagopal Viswanathan: The productivity ratio was 56.2% this quarter, and year-to-date operating leverage was a positive 1%. Moving to slide seven, which shows the evolution of the common equity tier one ratio and risk-weighted assets during the quarter. The bank's ET1 capital ratio was 13.2%, an increase of 30 basis points quarter over quarter and 90 basis points year over year, primarily benefiting from RWA optimization. Total risk-weighted assets were $450.2 billion, marginally down from $451 billion in the prior quarter.

Rajagopal Viswanathan: The productivity ratio was 56, 2% this quarter and year to date operating leverage was a positive 1%.

Rajagopal Viswanathan: Earnings contributed 14 basis points and the DRIP program contributed 10 basis points, offset partly by a reduction of 5 basis points from the revaluation of security. Lower risk-weighted assets, primarily reflecting the benefits of RWA optimization activities, contributed 15 basis points. The Q1 capital floor add-on of $7.8 billion was eliminated by changes in book quality and LGD model updates that only impact the model risk-weighted asset number.

Rajagopal Viswanathan: Moving to slide seven which shows the evolution of the common equity tier one ratio and risk weighted assets during the quarter.

The bank CET, one capital ratio was 13, 2% an increase of 30 basis points quarter over quarter, and 90 basis points year over year.

Rajagopal Viswanathan: Primarily benefiting from audibly optimization efforts.

Rajagopal Viswanathan: Total risk weighted assets was $452 billion marginally down from 451 billion in the prior quarter.

Rajagopal Viswanathan: Earnings contributed 14 basis points and the drip program contributed 10 basis points offset partially by a reduction of five basis points from the revaluation of securities.

Rajagopal Viswanathan: Lower risk weighted asset, primarily reflecting the benefits of arguably optimization activities contributed 15 basis points.

Rajagopal Viswanathan: The Q1 capital floor of seven $8 billion was eliminated by changes in book quality and LGD model updates that only impact the model risk weighted asset numbers.

Rajagopal Viswanathan: The bank will continue to maintain strong balance sheet metrics as it executes on its strategic mission. Turning now to the business line results, beginning on slide 8. Canadian banking reported earnings of $1 billion, a decrease of 4% year-over-year, as higher revenues were more than offset by significantly higher PCR.

Rajagopal Viswanathan: The bank will continue to maintain a strong balance sheet metrics as it executes on its strategic initiatives.

Turning now to the business line results beginning on slide eight.

Rajagopal Viswanathan: Canadian banking reported earnings of $1 billion, a decrease of 4% year over year as higher revenues were more than offset by significantly higher PCL.

Rajagopal Viswanathan: The business generated another quarter of positive operating leverage, resulting in year to date positive operating leverage of 3.1%. Average loans and acceptances were flat quarter over quarter and down about 1% from the prior year. The portfolio mix continues to evolve in line with our strategy as business loans grew 8% year over year, credit card balances grew 18%, and personal loans grew 2%, while residential mortgage balances declined 5%. We continue to see deposit growth as year-over-year deposits grew 7%, and the loan-to-deposit ratio improved to 122% from 132% last year. Net interest income increased 12% year over year, primarily due to solid deposit growth and margin expansion.

Rajagopal Viswanathan: The business generated another quarter of positive operating leverage resulting in year to date positive operating leverage of three 1%.

Average loans, and acceptances were flat quarter over quarter and down about 1% from the prior year.

Rajagopal Viswanathan: The portfolio mix continues to evolve in line with our strategy as business loans grew 8% year over year credit card balances grew 18% and personal loans grew 2%, while residential mortgage balances declined 5%.

Rajagopal Viswanathan: We continued to see deposit growth as year over year deposits grew 7% and the loan to deposit ratio improved to 122% from 132% last year.

Rajagopal Viswanathan: Net interest income increased 12% year over year, primarily from solid deposit growth and margin expansion.

Rajagopal Viswanathan: The net interest margin expanded 26 basis points year over year, reflecting benefits of asset repricing, business exchanges, and growth in deposits. However, the margin was stable quarter over quarter as asset margin expansion was offset by deposit margin compression. Non-interest income was down 11% year-over-year as the prior year included elevated private equity gains and income from our equity interest in Canadian Tire financial services, which we divested in October 2020. The PCL ratio was 40 basis points, up 6 basis points, quote unquote. Expenses increased 4% year over year, primarily due to higher technology costs, personal costs, and expenses to support business growth.

Rajagopal Viswanathan: The net interest margin expanded 26 basis points year over year, reflecting benefits of asset repricing business mix changes and growth in deposits.

Margin was stable quarter over quarter as asset margin expansion was offset by deposit margin compression.

Rajagopal Viswanathan: Noninterest income was down 11% year over year as the prior included elevated private equity gains and income from our equity interest in Canadian tire financial services that we divested in October 2023.

The PCL ratio was 40 basis points up six basis points quarter over quarter.

Rajagopal Viswanathan: Expenses increased 4% year over year, primarily due to higher technology costs personnel costs and expenses to support business growth.

Rajagopal Viswanathan: Quarter over quarter, expenses grew 1%, primarily from higher pension and benefits and Premises Cost. Turning now to Global Wealth Management on slide 9. Earnings of $387 million grew 8% year-over-year, driven by higher revenues in Canada and higher mutual fund fees in the international world, partly offset by higher volume-related expenses. Quarter over quarter earnings were up 3% primarily due to higher brokerage and mutual fund revenues across Canada and internationally, partly offset by higher expenses.

Quarter over quarter expenses grew 1%, primarily from higher pension and benefits and premises costs.

Rajagopal Viswanathan: Yeah.

Speaker Change: Turning now to global wealth management on slide nine.

Speaker Change: Earnings of $387 million grew 8% year over year, driven by higher revenues in Canada, higher mutual fund fees and international wealth <unk> offset by higher volume related expenses.

Speaker Change: Quarter over quarter earnings were up 3%, primarily due to higher brokerage and mutual fund revenues across Canada, and international partially offset by higher expenses.

Rajagopal Viswanathan: Revenues of $1.4 billion were up $114 million on 9% year over year, driven by higher fee-based revenues, mutual fund fees from strong assets under management growth, and higher net interest income from loan and deposit growth across our Canadian and international business.

Speaker Change: Revenues of $1 $4 billion went up $114 million or 9% year over year, driven by higher fee based revenues.

Speaker Change: Mutual fund fees from strong assets under management growth and higher net interest income from loan and deposit growth across our Canadian and international businesses.

Speaker Change: Expenses were up 9% year over year.

Rajagopal Viswanathan: Due to higher volume-related expenses, Salesforce expansion, and higher costs to support business growth, Port assets under management increased 6% year over year to $349 billion as market appreciation was partly offset by net redemption. KUA grew 7% over the same period to $669 billion from market appreciation and higher net sales. International Wealth Management generated earnings of 66 million, up 19% year over year.

Speaker Change: Due to higher volume related expenses sales force expansion and higher cost to support business growth.

Speaker Change: Port assets under management decreased 6% year over year to $349 billion.

As market appreciation was partially offset by net redemptions.

Speaker Change: <unk> grew 7% over the same period to $669 billion.

Speaker Change: From market appreciation and higher net sales.

Speaker Change: International wealth management generated earnings of $66 million up 19% year over year.

Rajagopal Viswanathan: Driven by high mutual fund fees in Mexico and strong deposit growth in Peru, AUA and AUM grew 10% and 15%, respectively, year over year. Turning to slide 10, Global Banking and Marketing. Global banking and markets generated earnings of $428 million, up 7% year over year.

Speaker Change: Driven by higher mutual fund fees in Mexico, and strong deposit growth in Peru.

Speaker Change: <unk> and AUM grew 10% and 15% respectively.

Speaker Change: Per year.

Speaker Change: Turning to slide 10, global banking and markets.

Speaker Change: Global banking and market generated earnings of $428 million up 7% year over year.

Rajagopal Viswanathan: Capital markets revenue was up 5% year over year, primarily from higher fixed income and global equities revenues. Partly offset by lower FX and commodities revenue, quarter quarter capital markets revenue was down 5% as global equities revenues were down 11%, partially offset by growth in FICC. Business banking revenues declined 8% year-over-year and 4% quarter-over-quarter, primarily due to lower corporate and investment banking revenues as the business continues to optimize capital deployment. Loans and acceptances were down 6% quarter-over-quarter to $115 billion, largely driven by borrowers accessing the debt markets to pay down loans and management's focus on ongoing balance sheet optimization.

Speaker Change: Capital markets revenue was up 5% year over year, primarily from higher fixed income and global equities revenues.

Speaker Change: Offset by lower FX and commodities revenues.

Quarter over quarter capital markets revenue was down 5% as global equities revenue was down 11%.

Partly offset by growth in FY <unk>.

Speaker Change: Business banking revenues declined 8% year over year, and 4% quarter over quarter, primarily due to lower corporate and investment banking revenues as the business continues to optimize capital deployment.

Speaker Change: Loans, and acceptances were down 6% quarter over quarter to $115 billion, largely driven by borrowers accessing the debt markets to pay down loans and management's focus on ongoing balance sheet optimization.

Rajagopal Viswanathan: Net interest income decreased 14% year-over-year, primarily due to lower loan volumes, partly offset by lower trading-related funding costs. Non-interest income was up 2% year-over-year, mainly due to higher underwriting and advisory fees. Partly offset by lower trading-related revenue from the impact of the proposed denial of the dividend receipt deduction on certain shareholdings in Canada. However, expenses were up 4% year over year, due mainly to higher personal costs and technology investments to support business growth.

Speaker Change: Net interest income decreased 14% year over year, primarily due to lower loan volumes, partially offset by lower trading related funding costs.

Speaker Change: Noninterest income was up 2% year over year, mainly from higher underwriting and advisory fees.

Speaker Change: Partially offset by lower trading related revenue from the impact of the proposed denial of dividend received deduction on southern shareholdings in Canada.

Speaker Change: Expenses were up 4% year over year, due mainly to higher personal cost and technology investments to support business growth.

Rajagopal Viswanathan: Quarter to quarter expenses were down 3% mainly due to seasonality of share-based compensation, which was higher in the first quarter. The US business generated strong earnings of $271 million, up $97 million or 55% year over year, with strong contributions from both capital markets and corporate and investment banking while managing risk weighted assets. GVM Latin America, which is reported as part of international banking, reported earnings of $290 million, up 5% compared to the prior year, mainly from Mexico.

Speaker Change: Quarter over quarter expenses were down 3%, mainly due to seasonality of share based compensation, which was higher in the first quarter.

Speaker Change: The U S business generated strong earnings of $271 million up $97 million or 55% year over year with strong contributions from both capital markets and corporate and investment banking.

Speaker Change: Managing risk weighted asset growth.

Speaker Change: GBM Latin America, which is reported as part of international banking reported earnings of $290 million.

Speaker Change: Up 5% compared to the prior year, mainly from Mexico the.

Rajagopal Viswanathan: The business also earned through a 7% year-over-year reduction in average assets. Moving to slide 11 for a review of International Bank, my comments that follow are on an adjusted and constant dollar basis. The segment delivered earnings of $677 million, down 2% year-over-year.

Speaker Change: The business also onto a 7% year over year reduction in average assets.

Speaker Change: Moving to slide 11 for a review of International banking My comments that follow I don't know, an adjusted and constant dollar basis.

Speaker Change: The segment delivered earnings of $677 million down 2% year over year.

Rajagopal Viswanathan: Revenue was up 6% year over year as net interest income was up 14%, mainly in Chile and Mexico, although partly offset by a decline in non-interest income driven by lower trading revenues. The net interest margin expanded 11 basis points quarter over quarter to 447 basis points, driven by lower cost of funds from rate cuts and higher inflation benefits, mainly in Chile. However, year-over-year loans were down 2%, primarily in Brazil and Peru. Total business loans declined 7%, partly offset by 6% growth in the financial market.

Speaker Change: Revenue was up 6% year over year as net interest income was up 14%, mainly in Chile and Mexico.

Speaker Change: Clearly offset by a decline in noninterest income driven by lower trading revenues.

Speaker Change: Net interest margin expanded 11 basis points quarter over quarter to 447 basis points, driven by lower cost of funds from rate cuts and higher inflation benefits mainly in Chile.

Speaker Change: Year over year loans were down, 2%, primarily in Brazil and Peru.

Speaker Change: Total business loans declined 7%, partly offset by 6% growth in residential mortgages.

Rajagopal Viswanathan: Deposits grew a strong 6% year over year, primarily in Mexico, Chile, and Brazil. Total personal deposits grew 2% year-over-year, and non-personal deposits grew 8%. The loan to deposit ratio improved to 124% from 138% in the prior year. The provision for credit losses was 138 basis points or 566 million, down $2,000,000 quarter over quarter. Expenses were up a modest 3% year over year, driven by technology expenses and business and capital taxes, despite a higher inflation environment.

Speaker Change: Deposits grew a strong 6% year over year, primarily in Mexico, Chile and Brazil.

Speaker Change: Total personal deposits grew 2% year over year and non personal deposits grew 8%.

Speaker Change: The loan to deposit ratio improved to 124% from 138% in the prior year.

Provision for credit losses was 138 basis points or 566 million.

Down $2 million quarter over quarter.

Speaker Change: Expenses were up a modest 3% year over year, driven by technology expenses and business and capital taxes.

Speaker Change: Despite the high inflation environment.

Rajagopal Viswanathan: Year-to-date operating leverage is a positive 5.5%. Turning to slide 12, the other segment reported an adjusted net loss attributable to equity holders of $421 million, an improvement of $53 million compared to the prior quarter, mainly due to higher non-interest revenues, mostly from mark-to-market benefits from investments and certain derivatives, and lower expenses. I'll now turn the call over to Phil to discuss. Thank you, Raj. Good morning

Speaker Change: Year to date operating leverage was a positive five 5%.

Speaker Change: Turning to slide 12.

Speaker Change: The other segment reported an adjusted net loss attributable to equity holders of $421 million, an improvement of $53 million compared to the prior quarter, mainly due to higher noninterest revenues, mostly from mark to market benefits from investments in certain derivatives.

Speaker Change: And lower expenses.

Speaker Change: I'll now turn the call over to Phil to discuss for us.

Phil: Thank you Raj and good morning, everyone.

Phil Thomas: Credit performance is playing out as expected. International banking has benefited from a stabilizing macroeconomic environment, and specific client segments in Canadian banking are facing headwinds as rate relief is delayed. As a result, this quarter, all bank PCLs were 54 basis points towards the higher end of our range. This resulted in total PCLs of approximately $1 billion, up quarter-over-quarter by $45 million. Performing PCLs were 32 million or two

Phil: Credit performance is playing out as expected international banking has benefited from a stabilizing macroeconomic environment and specific client segments in Canadian banking are facing headwinds as rate relief is delayed.

Phil: As a result this quarter all bank piece sales were 54 basis points towards the higher end of our range.

Phil: This resulted in total PCL to approximately $1 billion.

Phil: Up quarter over quarter by $45 million, performing PCL were $32 million or two basis points.

Phil Thomas: Impaired PCLs were 975 million or 52 basis points, up 33 basis points quarter over quarter, largely driven by Canadian banking retail, partly offset by lower PCLs in Canadian business banking. We continue to maintain appropriate allowances on loans with an ACL coverage release ratio of 88 basis points, up two basis points quarter over quarter, and up 10 basis points from Q3 2023. In Canadian banking, PCLs were $428 million, translating to a PCL ratio of 40 basis points, up six basis points quarter over quarter.

Phil: Impaired PCL were $975 million or 52 basis points up 33 basis points quarter over quarter, largely driven by Canadian banking retail, partly offset by lower PCL and Canadian business banking.

Phil: We continue to maintain appropriate allowances on loans with an ACL coverage ratio of 88 basis points up two basis points quarter over quarter and up 10 basis points from Q3 2023.

Phil: In Canadian banking PCL for $428 million translating to a PCL ratio of 40 basis points up six basis points quarter over quarter Canadian retail pcl's were $365 million of which $343 million were impaired PCL.

Phil Thomas: Canadian retail PCLs were 365 million, of which 343 million were impaired PCLs. This represented a $65 million increase quarter over quarter. Canadian clients continue to be impacted by increased borrowing costs and higher expenses driven by inflation. PCLs were elevated due to deterioration in the Canadian automotive finance portfolio in the used segment and specific cohorts of variable rate mortgage customers. Specifically, variable rate mortgage customers originated in 2022 have shown signs of stress. These clients are largely from the Greater Toronto Area and Vancouver.

Phil: This represented a $65 million increase quarter over quarter.

Phil: Canadian clients continue to be impacted by increased borrowing costs and higher expenses driven by inflation.

Phil: <unk> sales were elevated due to deterioration in the Canadian automotive finance portfolio in the used segment and specific cohorts of variable rate mortgage customers.

Phil: Specifically variable rate mortgage customers originated in 2022 have shown signs of stress. These.

Phil: These clients are largely from the greater Toronto area in Vancouver.

Phil Thomas: This resulted in an increase of vulnerable customers from 2,700 in Q1 to 3,300 in Q2. Variable Rate Mortgage Portfolio Delinquency increased two basis points quarter to quarter to 28 basis points. Our fixed-rate mortgage portfolio, representing 68% of balances, has stable delinquencies. We will continue to work with our mortgage and auto clients and have launched several proactive measures across our collections function, including pre-delinquency solutions and new loss mitigation. Turning to International Bank, International Banking PCLs were $566 million, down $8 million from the prior quarter.

Phil: This resulted in an increase of vulnerable customers from 'twenty 700 in Q1 to 3300 in Q2.

Phil: Variable rate mortgage portfolio delinquency increased two basis points quarter over quarter to 28 basis points.

Phil: Our fixed rate mortgage portfolio, representing 68% of balances had stable delinquency performance.

Phil: We will continue to work through our mortgage and auto clients.

Phil: And have launched several proactive measures across our collections function, including pre delinquency solutions and new loss mitigation tools.

Phil: Turning to international banking International banking, PCL were $566 million down $8 million from the prior quarter. The Q2, PCL ratio was 138 basis points up three basis points quarter over quarter.

Phil Thomas: Q2 PCL ratio was 138 basis points, up 3 basis points quarter over quarter. Our international business banking portfolio continues to perform well with PCLs down slightly from the prior quarter, driven by strong performance across the region, slightly offset by continued market deterioration in Colombia. Retail PCLs were in line with the prior quarter at $485 million.

Our international business banking portfolio continues to perform well with PCL is down slightly from the prior quarter driven by strong performance across the region slightly offset by continued market deterioration in Colombia.

Phil: Retail <unk> were in line with the prior quarter at $485 million.

Phil Thomas: TCLs in Colombia increased, offset by stable performance in Mexico, Chile, and Peru. Central banks across the region continue to cut policy rates, which should have a positive impact in these markets. Looking forward to the second half of the year, we expect, on a full year basis, to remain within our guidance of 45 to 55. However, we expect to remain at the higher end of the range in the next two quarters.

Phil: T cells in Colombia increased offset by stable performance in Mexico, Chile and Peru.

Phil: Central banks across the region continue to cut policy rates rates, which should have a positive impact in these markets.

Phil: Looking forward to the second half of the year, we expect on a full year basis to remain within our guidance of 45 to 55 basis points. However, we expect to remain at the higher end of the range in the next two quarters.

Phil Thomas: In anticipation of a deteriorating environment in fiscal 2024, we increased ACLs from 78 basis points to 85 basis points in Q4 of fiscal 2023. Additionally, over the last four quarters, we have built approximately $585 million in performing allowances.

Phil: In anticipation of a deteriorating environment in 'twenty and fiscal 2024, we increased ACL from 78 basis points to 85 basis points in Q4 of fiscal 2023.

Phil: Additionally over the last four quarters, we have built approximately $585 million in performing allowances.

Phil Thomas: Driving the elevated provisions, Canadian credit performance will continue to gradually work its way through the cycle, and in international markets, we believe credit performance will remain stable throughout the rest of the fiscal year. Overall, we are comfortable with our allowances and continue to manage our portfolios proactively. With that, I will pass it back to John for Q&A. Great. Thank you, Phil. Operator, please open the line for questions. Please limit your questions to one so that all participants have the opportunity to ask a question and re-cue if they have a follow-up. Operator.

Phil: Driving elevated provisions Canadian credit performance will continue to gradually through the cycle and in international markets. We believe credit performance will remain stable throughout the rest of the fiscal year.

Speaker Change: Overall, we are comfortable with our allowances and continue to manage our portfolio proactively with that I will pass it back to John for Q&A.

John: Great. Thank you Phil operator, please open the line for questions. Please limit your questions to one so that all participants have the opportunity to ask questions and re queue. If you have a vote.

John: Operator.

John: Thank you.

Operator: Thank you. If you have a question, please press star 1 on your device's keypad. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Ebrahim Poonawala from Bank of America. Please go ahead. Your line is now open. Good morning.

Speaker Change: If you have any question. Please press star one on your devices keypad.

Speaker Change: There will be a brief pause while the participants register.

Speaker Change: Thank you for your patience.

Speaker Change: The first question is from Ebrahim <unk> from Bank of America. Please go ahead. Your line is now open.

Speaker Change: Hey, good morning.

Ebrahim Huseini Poonawala: I guess maybe a question, Phil, starting with you just on credit quality. You mentioned impaired PCLs or PCLs at 55 basis points for the back half. Give us a sense of your visibility on credit, do you see things peaking in the back half of the year and whether one or two rate cuts from the BOC will make any significant impact? Or should we think about just credit quality as we look beyond the back half? and there could be a lot more work come 2025.

Speaker Change: I guess, maybe the question Phil.

Speaker Change: Starting with you just on credit quality.

Speaker Change: And <unk> is at 55 basis points for the back half give us a sense of your visibility.

Speaker Change: Do you see things, peaking in the back half of the year and whether one or two rate cuts from the <unk>.

Speaker Change: It didn't make any significant impact or how we should think about just credit quality as we look beyond the back half.

Speaker Change: And the potential that could be a lot more work to come 2025.

Phil Thomas: And within that, like, where do you see the drivers of the lost content within your loan book? Thank you. Thank you, Abraham.

Speaker Change: And we didn't that like where do you see the drivers of the loss content within your loan book. Thank you.

Thank you Brian.

Phil Thomas: So I'll guide towards the higher end of the 45 to 55 basis points that we gave in Q4 last year on a full year basis. I think the dynamic within our portfolio is you'll see, as I mentioned earlier, international banking starting to stabilize. And we've seen great cuts over the last few quarters in international, and those are starting to really bear fruit for and provide relief for our consumers. I'm more thoughtful about what's going on in the Canadian market, and you are seeing the impact of hire for longer really starting to impact, particularly our variable rate mortgage customers and into our auto portfolio. We're seeing friction in those portfolios.

Speaker Change: So our guide towards the higher end of the 45 to 55 basis points that we gave in Q4 last year.

Speaker Change: On a full year basis.

Speaker Change: I think the dynamic within our portfolio as you'll see as I mentioned earlier international banking, starting to stabilize and we've seen rate cuts over the last few quarters and international and those are starting to really bear fruit for and provide relief for our consumers.

Speaker Change: I am more thoughtful about what's going on in the Canadian market and you are seeing the impact of higher for longer really starting to impact.

Speaker Change: Particularly our variable rate mortgage customers and into our auto portfolio, we're seeing we're seeing friction in those portfolios.

Phil Thomas: There's some talk about rates. Decreases in June and July. I'm of the opinion that those rates, even if with those decreases in June and July, it'll take a few quarters for those rates to start to really support the Canadian consumer. Maybe a little bit of math to help you, some numbers to help just do it with the thought process.

Speaker Change: There is some talk about rate decreases in June and July.

Speaker Change: The opinion and those rates, even if with those decreases in June July it will take a few quarters, maybe 123 quarters for it to start to really support the Canadian consumer.

Speaker Change: Maybe a little bit of math to help you some numbers to help just to it was the thought process on the variable rate mortgage customer, particularly those within Toronto and Vancouver.

Phil Thomas: On the variable rate mortgage customer, particularly those within Toronto and Vancouver, with an average decrease of 25 basis points, or a 25 basis point decrease will lead to an average decrease in payment of about $100. And so, as you think about how quickly rate decreases happen, that will provide good relief for the average consumer to start making payments on other products. And so, I think, but I think it's gonna take probably one to three quarters, depending on the consumer, for it to really bear fruit.

Speaker Change: With the average decrease of 25 basis points or 25 basis point decrease will lead to but an average decrease in payment of about $100 and so as you think about how quickly rates decrease has happened that will provide.

Speaker Change: Good relief for the average consumer to start making payments on other products and so I think but I think it's going to take probably one to three quarters, depending on the consumer for it to really bear fruit.

Phil Thomas: And just on that field, the 25 basis points, should we be looking at the overnight rate, obviously on the variable rate, but when you think about the rest of the book? The overnight rate versus the five-year rate, and how do you think about the sensitivity between the two? Should we be monitoring the yield curve needing to move lower as well as through the DOC rate cuts? Ibrahim, I can start, and maybe Phil can help.

Speaker Change: And just on that fill the 25 basis points should we be looking at the old Navy would likely obviously on the variable rate, but when you think about the rest of the book.

Speaker Change: Overnight versus the five year like how do you think about the sensitivity between the two there shouldn't be one thing the yieldco needing to move lower as well.

Speaker Change: The <unk> cuts.

Rajagopal Viswanathan: Yeah, I think for the variable rate mortgage customer, like you said, the short end of the rate curve is going to have an immediate impact because of our product and, therefore, a benefit in the ranges that Phil talked about. The others, they will benefit based on the longer-term rate. I think most of our renewals we're seeing are in the three-year cohort, fixed rate, so on. So as the rate curve moves, definitely it's not going to go down 25 basis points at the long end of the curve. We know that

Speaker Change: I can start and maybe Phil again, yes, I think for the variable rate mortgage customer like you said the short end of the rate is going to have an immediate impact because of our product and therefore, a benefit in the ranges that Phil talked about.

Speaker Change: The others they will benefit based on the longer term right I think most of our renewals we are seeing in the three year cohort fixed rates. So on SaaS. It eight co moves definitely it's not going to go down 25 basis points of the long enough to go we know what that might go on something you know 510 basis points on the other you get reflected in some of the relief that these customers will get at the time of renewal.

Speaker Change: <unk>.

Speaker Change: But I would say, it's more meaningful at the short end of the curve for the variable rate mortgage customer.

Rajagopal Viswanathan: It might go down by something, you know, 5, 10 basis points, and that will get reflected in some of the relief that these customers will get at the time of renewal. But I would say it's more meaningful at the short end of the curve for the variable rate mortgage curve. Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Question is from Doug Young from <unk> capital markets. Please go ahead. Your line is now open.

Doug Young: Good morning, just Phil, looking at slide 15, you talk about the low, the decline in the PCL in international banking driven by lower retail formations across all countries. And then, you know, I flipped to slide 16, and you talk about higher gilt formation, and Buy Higher New Retail Formations, Mainly Chile, and Mexico. Just trying to reconcile these two statements.

Doug Young: Good morning, just looking at Slide 15, you talk about the low the decline in the PCL and international banking driven by lower retail formations across all countries and then.

Speaker Change: I put the slide 16, and you talked about higher Jill formations driven by higher new retail formations, mainly Chile, Mexico I'm just trying to reconcile these two statements I am a little slow this morning, but.

Phil Thomas: I'm a little slow this morning, but just trying to kind of understand the movements there. And then, you know, as a follow-up, just, I just want to clarify, Phil, as well, you're talking about the higher end of your 45 to 55 basis point PCL guidance. Is that higher end for Q3, Q4, or is it the higher end for the full year? So I'll start with your question on slide 16.

Speaker Change: Just trying to kind of understand the movements there and then as a follow up just I just wanted to clarify Phil as well you're talking about higher end of your 45 to 55 basis points PCL guidance.

Speaker Change: Is that higher end for Q3 Q4 or is it the higher end for the full year.

Speaker Change: So I'll start with your supply to your question on Slide 16.

Phil Thomas: And what you see a lot of, a lot of our increasing deals this quarter in ID are related to Chilean commercial real estate. And so given the real estate hire for longer situation in that market, we have seen some prolonged stress on the commercial real estate portfolio there. It's not a big portfolio; it's about $3 billion. And really, the challenge has been for the real estate developers, the cost to complete.

Speaker Change: And.

Speaker Change: What you see a lot of a lot of our increasing deals this quarter.

Speaker Change: Related to Chile commercial real estate.

Speaker Change: And so given the given the real estate at higher for longer situation in that market.

Speaker Change: We have seen some prolonged stress on the commercial real estate portfolio. There it is.

Speaker Change: It's not a big portfolio to both at about $3 billion.

Speaker Change: And really the challenge has been the for the real estate developers the cost to complete.

Phil Thomas: What we're seeing in Chile though the dynamic has been we've had about 475 basis point reduction in interest rates already and so we're starting to see the construction starting to come back online and we're also reassured because we have pre-sales in place for the majority of the lending that we've put in that we have there so it's going to be higher for a little bit longer but we're not expecting to to lose any any money there so that sort of explains the increase in in gills from that part in terms of, In terms of the forecast, we're expecting, we'll be at the sort of 40, 54, 45 range for the next two quarters. And so I've been speaking more on the quarterly, the quarterly outlook. Sorry, 54 to 55 basis points for the, for the next two quarters. Thank you. Thank you. The next question is from Paul Holden from CIBC, please go ahead, your line is now open. Yeah, thank you.

What we're seeing in Chile, though the dynamic has been we've had about 475 basis point reduction in interest rates already.

Speaker Change: And so we're starting to see.

Speaker Change: Z.

Speaker Change: Construction starting to come back online.

And we're also reassured because we have pre sales in place for the majority of.

Speaker Change: The lending that we've put in that we have there.

Speaker Change: So it's going to be higher for a little bit longer, but we're not expecting to lose any any money. There. So thats sort of explains the increase in <unk> from that part in terms of.

Speaker Change: In terms of the forecast we're expecting.

Speaker Change: We'll be at the sort of 40 $54 45 range for the next two quarters and so I was speaking more on the quarterly quarterly outlook sorry.

Speaker Change: Sorry, 54% to 55 basis points for the for the.

Speaker Change: The next two quarters.

Speaker Change: Thank you.

Thank you.

Speaker Change: The next question is from Paul Holden from CIBC. Please go ahead. Your line is now open.

Paul David Holden: I want to continue on the line of questioning the hire for longer and potential impact on Canadian retail borrowers, specifically on fixed-rate mortgages. Wondering how you're viewing the difference or similarities and potential payment shocks for fixed-rate mortgage borrowers versus what you're seeing with the VRM today.

Speaker Change: Thank you.

Paul David Holden: Stay on the line of questioning of the AR higher for longer and potential impact on Canadian retail.

Speaker Change: Borrowers specifically.

Speaker Change: On the fixed rate mortgages, I'm wondering how you're viewing the difference or similarities and potential payment shock for the fixed rate mortgage borrowers versus what youre seeing with the V. R. M. Today.

Phil Thomas: Thanks for the question, Paul. Most of the renewals that are coming up on the fixed rate portfolio are those that were originated in 2017. So we haven't been seeing a big volume of fixed rate renewals so far. Maybe it's interesting to note that 70% of the renewals that are coming through right now are opting for a fixed, three-year fixed term.

Sure. Thanks for the question Paul.

Speaker Change: We haven't.

Most of the.

Speaker Change: Renewals that are coming up on the fixed rate portfolio are those that were originated in 2017. So we haven't been seeing a a.

Speaker Change: A big volume of fixed rate renewals so far.

Speaker Change: Maybe it's interesting to note that 70% of the renewals that are coming through right now or are opting for a fixed.

Speaker Change: Three year fixed term.

Phil Thomas: What we are looking forward to, though, in terms of, you know, as we look in the sort of 2025 and 2026, obviously, there's some payment shock anticipated. But we're taking some comfort in terms of how our variable rate mortgage customers are absorbing the shock. We have seen discretionary spend decrease.

Speaker Change: The what we are looking forward to though in terms of.

Speaker Change: As we look into sort of 2025 and 2026, obviously there is some payment shock anticipated, but we're taking some comfort in terms of how our variable rate mortgage customers are absorbing the shock.

Speaker Change: We have seen.

Speaker Change: Discretionary spend decrease as an example, our VRM portfolio those customers discretionary spend has decreased by about 10%.

Speaker Change: On retail expenditures year over year.

Phil Thomas: As an example, on our VRM portfolio, those customers' discretionary spend has decreased by about 10% on retail expenditures year over year. And on a fixed rate today, it's around five. So we're already starting to see some consumers making choices in terms of how they're managing their savings. In, and I think I've given this number on prior calls, but we still see our very low mortgage customers holding on to about two payments, a two payment buffer within their deposit accounts.

Speaker Change: And on fixed rate today is around five so we're already starting to see.

Speaker Change: Some.

Speaker Change: Consumers, making choices in terms of how they're managing their savings in and I think I've given this number in prior calls, but we still see our variable rate mortgage customers holding onto the two payments too.

Speaker Change: Payment buffer within their deposit accounts.

Phil Thomas: And on the fixed rate, it's about three and a half to four. So we're still comfortable with the credit quality we're seeing there. And just as a reminder, the average FICO score that we're seeing at renewal still remains strong at about 768, with 91% of the renewed balances being prime or above on the fixed rate portfolio. So hopefully that's helpful.

Speaker Change: On the fixed rate, it's about three and a half two to four so.

Paul David Holden: Thank you. And I'll leave it there. That's my only question.

Still comfortable with the credit quality, we're seeing there and just as a reminder.

Speaker Change: The average FICO score that we're seeing it.

Speaker Change: At renewals still remains strong.

Speaker Change: At about 768, with 91% of the renewed balances being being prime or above on the fixed rate portfolio.

Speaker Change: So hopefully that's helpful.

Speaker Change: And I'll leave it there so my one question. Thanks.

Speaker Change: Thank you.

Matthew Lee: Thank you. The next question is from Matthew Lee from Canaccord Genuity. Please go ahead. The line is now open. Hey, good morning.

The next question is from Matthew Li from Mechanical Genuity. Please go ahead. Your line is now open.

Matthew Lee: Thanks for taking my question. One regarding balancing primacy and growth, Canadian loans declined by 1% year over year in the quarter. I think part of that was a conscious effort to focus capital on areas where you achieve primacy. So are we still expecting to see accelerating loan growth in the back half of the year, maybe particularly on the mortgage front? Hi Matthew, it's Aris here.

Matthew Li: Hey, good morning, Thanks for taking my question, one regarding balancing primacy and growth our Canadian loans declined by 1% year over year in the quarter and I think part of that was a conscious effort to focus capital on areas you achieve privacy.

Speaker Change: So we still be expecting to see accelerating loan growth in the back half of the year, maybe particularly on the mortgage front.

Aris Bogdaneris: Thanks for the question. Just to give you a little context, on a spot basis in the quarter, we grew our mortgage book by around $2 billion.

Speaker Change: Hi, Matthew its hours here thanks for the question.

Aris Bogdaneris: And we continue to grow our credit card book, our unsecured lending book, but where we see, Um Challenges is on the auto book as Phil alluded to actually the auto book the retail business is actually down 14% year-on-year in terms of Origination, but we're slowly seeing now The pipeline for mortgages will continue to go up we're trying to stay extremely focused on what you've heard Scott say often this value versus volume and just to give you a bit of Background on that so 70% of our new mortgage originations are coming with three or more Products and actually in April that number was approaching 80% across all channels, That's one fact. The other fact is renewals. We're hitting a very high level of renewals now, passing over 80% of renewals for the second quarter for our mortgages. These are the originations or the business we like to book for obvious reasons.

Just to give a little context on a spot basis in the quarter. We grew our mortgage book by around $2 billion and we continue to grow our credit card book, our unsecured lending book, but where.

Speaker Change: Where we see.

Speaker Change: Challenges is on the auto book as Phil alluded to and actually the auto book the retail business is actually down 14% year on year in terms of originations, but we slowly seeing now the pipeline for mortgages will continue to go up we're trying to stay extremely focused on what you've heard.

Speaker Change: Let's say often this value versus volume and just to give you a bit of.

Speaker Change: Background on that so 70% of our new mortgage originations are coming with three or more products and actually in April that number was approaching 80% across all channels.

One fact, the other fact is renewals we're hitting.

Speaker Change: A very high level of renewals now passing over 80% of renewals for the second quarter for our mortgages. These are the originations or the business, we'd like to book for obvious reasons.

Aris Bogdaneris: So we're going to see continued mortgage growth in the second half of the year, obviously predicated on how rates go. But even if rates come down, we will continue to stay disciplined on getting multiproduct mortgage customers at origination and, again, focusing on renewal. In terms of credit cards, we'll continue to grow double-digit the balances. But again, our credit card is not a monoline business. It's actually a cross-sell product where 80% of our new originations in credit cards are coming from existing customers and C plus. So hopefully, that gives you a bit of a background and the Tubwell Banks.

Speaker Change: So we're going to see continued <unk>.

Speaker Change: Mortgage growth.

Speaker Change: In the second half of the year, obviously predicated on how rates go but even if rates come down we will continue to stay disciplined on getting multi product mortgage customers at origination and again focusing on renewals.

Speaker Change: Auto book will continue to be stress, we're actually pulling back on used car on non sirvente, it and where we will see some growth will be in the substantive new car.

Speaker Change: Our business as more new cars come on stream.

Speaker Change: With our dealers.

Speaker Change: In terms of credit cards will continue to grow double digit the balances, but again, our credit cards, it's not a mono line business, it's actually a cross sell.

Speaker Change: <unk>, where 80% of our new originations in credit card are coming from existing customers and C. Plus so hopefully that gives you a bit of a background.

Speaker Change: That's helpful. Thanks.

Speaker Change: Thank you.

Aris Bogdaneris: Thank you. Thank you. Thank you. Thank you. The next question is from John Aiken from Jeffreys. Please go ahead.

Speaker Change: The next question is from John Aiken from Jefferies. Please go ahead. Your line is now open.

John McCartney: Your line is not, Good morning. I wanted to dive into the appendix, actually, slide 28, if I may, declining balances in commercial and corporate lending, international, not terribly surprising. But in context, we're actually, we're actually seeing a shift away from investment grade to non-investment grade. The first part of this is, is this just simple credit migration, where some of the former investment grade has slipped into non-investment grade, given what's going on in the region?

John McCartney: Hi, Good morning, I wanted to dive into the appendix actually slide 28, if I may.

Speaker Change: Declining balances scene.

Speaker Change: Our commercial and corporate lending international not terribly surprising but in context, we're actually we're actually seeing a shift away from investment grade to non investment grade.

John McCartney: And the second part of the question, when do we think we can actually start to see the reversion of that and growth? Because presumably, you're looking to grow the investment grade part of the business, or do I have that strategy incorrect? Yeah, I can start, John. It's Raj.

First part of this is is this just simple credit migration, where some of the former investment grade has slipped into non investment grade given what's going on in the region and second part to the question when do we when do we think we can actually start to see the reversion of that in growth because presumably.

Speaker Change: You are looking to grow the investment grade part of the business or do I have that strategy and correct.

Rajagopal Viswanathan: What you're seeing in investment and non-retail trade has got both qualities, as you describe. Yeah, there is some level of migration that is happening both in the GBM book, as well as in the international commercial book. You actually see it in the capital, where we see non-retail migration, for obvious reasons, right? High inflation, low growth in all these economies, and high interest rates have got some impact. The numbers that you see are actually small, right? I mean, it's moving from 40 to 39% in investment grade and 60 to 61% in non-investment grade. There's no deliberate strategy over here.

Rajagopal Viswanathan: Yes, I can start John it's Raj what are you seeing in investment in honors great. That's got both quality is what you described.

Speaker Change: There is some level of migration that is happening both in the GBM book as well as in the international commercial book, we actually see it in the capital where we see non retail migration for obvious reasons right high inflation and low growth in all of these economies high interest rates has got some impact.

Speaker Change: The numbers that you see is actually small right I mean, it's moving from 40% to 39% in investment grade and $60 to 61% of Nonrenewals and grade there's no deliberate strategy over here is how we are going to deselect clients and those clients, where we believe we are not getting the appropriate return we're trying to pull back on capital.

Rajagopal Viswanathan: It's how we are going to select clients and those clients who we believe we are not getting the appropriate return; we're trying to pull back on capital from a capital perspective. And international banking, as you know, every three months, we have the ability to reprice if you want to keep the client or reprice if you want to exit the client. So we have used that in the past, and we continue to use it as we, you know, we have a finite amount of capital that international banking has, and they're making the right choices to improve the returns. You can see some early reference to it here.

Speaker Change: From a capital perspective, and international banking as you know every three months, we have the ability to reprice. If we wanted to keep the client or reprice. If you wanted to exit the client. So we use the abuse. It in the past we continue to use it.

Scott: We have a finite amount of capital that international banking has when they're making the right choices to improve the returns you can see some early reference to it Scott made referenced in his comments talking about auto we'd hope it improved beyond 15%. These are all contributors to the outcome, which is to have a more profitable business, but there is no significant shift that you should expect to.

Rajagopal Viswanathan: Scott made reference in his comments talking about ROE, how it's improved beyond 15%. Now, these are all contributors to the outcome, which is to have a more profitable business. But there's no significant shift that you should expect to see even going forward. It's just a small shift based on a couple of factors. Thanks for the color rush.

Scott: Even going forward is just a small shift based on a couple of factors.

Speaker Change: Thanks for the color Raj I'll requeue.

Scott: John.

Rajagopal Viswanathan: I'll repeat. [inaudible] Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead, your line is now open. All right, just a couple here.

John: Thank you.

Speaker Change: The next question is from Gabriel they're Shane from National Bank Financial. Please go ahead. Your line is now open just a couple here.

Gabriel Dechaine: On international, a good NIM expansion this quarter, but with rate cuts that we've seen across the region, how do you expect that to evolve in the coming quarters? And then on the credit side, look, there's a lot of ways to slice and dice the, you know, evaluation of your provisions, but one thing I look at is the, you know, performing ACL ratio today versus, you know, pre-COVID, you know, historical reasons, I guess. And it's pretty flat for Scotia.

Speaker Change: On international good NIM expansion this quarter, but with the rate cuts that we've seen across the region. How do you expect to evolve in the coming quarters, and then on the credit side.

Speaker Change: Look there's a lot of ways to slice and dice the.

Speaker Change: Evaluation of your provisions, but one thing I look at the performing ACL ratio today versus pre Covid historical reasons, I guess, it's pretty flat for Scotia. Your peers have more of a buffer above the pre COVID-19 level.

Rajagopal Viswanathan: Your peers have more of a buffer above that pre-COVID level. Given what you've, you know, highlighted as far as, you know, some of the challenges your customers are facing, and this is across the industry, of course, but, you know, your book in particular and the auto book, is it possible that we could see another bump up required to that performing ACL ratio just because of, you know, everything that's going on? Thanks. Gabe, it's Raj.

Given what you.

Speaker Change: Highlighted as far as you know some of the challenges that your customers are facing and this is across the industry of course, but your book in particular in the auto book is it possible plausible, but we could see another bump up required to the performing PCL ratio just because of you know everything that's going on thanks.

Rajagopal Viswanathan: I'll start on NIM, and you know, Francisco might have a comment or two to follow me, and then Phil will take over on the performing ACL ratio. International banking then, Gabe, you probably followed me quite a bit, you know, number of countries, multiple factors that move the NIM up and down, inflation is a factor, and so on. This quarter, the benefit came primarily from a reduction in the cost of funds, and we had a significant cut in rates, particularly in Chile and Peru that we looked at. Peru's NIM is up 15 basis points, Chile is up 8 basis points, and even Colombia is up 41 basis points for the same reason. So that thing, I think it's largely done.

Rajagopal Viswanathan: Gabe it's Raj I'll start on the NIM menu Francisco might have a comment or two to follow me and then Phil will take hold on the performing PCL ratio. It's.

Speaker Change: International banking them gave you you probably followed me quite a bit you know a number of countries multiple factors had moved the NIM up and down inflation is effective and so on.

Speaker Change: This quarter the benefit came primarily from a reduction in cost of funds right and he has a significant cost and rates, particularly in Chile, and Peru that we looked at but it was NIM is up 15 basis points, Chile is up eight basis points and even Colombia was up 41 basis points for the same reason so that thing I think it's largely done you'll see some marginal benefit.

Rajagopal Viswanathan: You'll see some marginal benefits over there, but I think most of it is baked into the 447 basis points. There are about two, three basis points in the 447, which is inflation-related, which we know we will give up in Chile. So maybe you should look at it as 445.

Speaker Change: So with it but I think most of it is baked into the 447 basis points.

Speaker Change: That is about two three basis points in the Port 47, which is inflation related which we know we will give up in Chile. So maybe look at it is $4 45, and then it will bobble around.

Rajagopal Viswanathan: And then it will bob around, you know, as International Banking NIM always does because of multiple factors. I think somewhere around that, maybe 450 is the top end, at least over the next two quarters, because we're not expecting meaningful rate cuts like we've seen in the last two or three quarters. So that would be my sense of how the NIM will behave looking forward. I would agree, Raj. This is Francisco. I think the one, the lagger, is Mexico.

Russ: International banking NIM always does because of multiple factors I think somewhere around that maybe full $50 to the top end at least over the next few quarters because were not expecting meaningful rate cuts like we've seen in the last two or three quarters. So that would be my sense of how the NIM will behave looking forward I would agree Russ this is transferred.

Speaker Change: The one the laggards, Mexico, we expect Mexico to quote rates much later much slower so that won't be the remaining benefit, but we don't believe that's going to happen.

Unknown Executive: We expect Mexico to cooperate much later and much slower. So that will be the remaining benefit, but we don't believe that's going to happen in the second half of the year but rather a 2025 event. Okay. Thanks for the clarification. Gabe, Phil here.

Speaker Change: In the second half of the year, but rather a 2025 of it okay.

Speaker Change: Thanks, Mary Kay.

Phil Thomas: Hope you're well. So maybe, maybe just on the ACL question you asked, you know, if you recall, we did do a large performing build in Q4 last year. And we did it on both the business banking side and on the Canadian retail side, just in anticipation of some of the headwinds we expected for fiscal 2024. If I were to go back and look at Q120, we were at 82 basis points; we're at 88 basis points this quarter. So, given where we are, given the level of build that we've done over the past four quarters, I'm comfortable with the level of allowances that we have.

Phil: Phil here.

Well.

Speaker Change: Maybe maybe just on the ACO question U S. If you recall, we did do a large performing building in Q4 last year and.

And we did it on both the business banking side and on the Canadian retail just in anticipation of some of the headwinds we expected for for fiscal 2024.

Speaker Change: If I were to go back and.

Speaker Change: To look at Q1 'twenty, we were at 82 basis points were at 88 basis points. This quarter. So I feel given given where we are given the level of build that we've done over the past four quarters I am comfortable with the level of allowances that we have will be increased performing allowances as we go forward, it's going to depend on how the macroeconomic scenario.

Phil Thomas: Will we increase performing allowances as we go forward? It's going to depend on how the macroeconomic scenario plays out, and we'll be guided by that. That guidance range you gave, sorry, was that for impaired or total? The 45 to 55.

Speaker Change: <unk>.

Speaker Change: Plays out and we'll be guided by that.

Speaker Change: Guidance ranges.

Well it was for impaired or total.

Phil Thomas: That's for total. Yeah. Okay. All right. Thank you. Thanks, Gabe.

Speaker Change: For.

Speaker Change: For 45 to 55.

Speaker Change: That's for total yeah, Okay, alright. Thank you thanks kit.

Gabriel Dechaine: Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is now open. Good morning.

Speaker Change: Thank you.

Speaker Change: The next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is now open.

Mario Mendonca: Probably for Raj, the capital ratio looks pretty healthy now, north of 13.2%. You may have discussed this somewhere in the presentation or in the materials, but I may not have seen it yet.

Speaker Change: Probably for Raj.

Rajagopal Viswanathan: Capital ratio looks pretty healthy now north of 13, 2% you may have discussed this somewhere in the <unk>.

Mario Mendonca: Presentation or in the mature I mean, I've seen yet can you update us on what your intentions are with the drip most of your peers I think all of your peers have dropped the dropped some of them interested in your outlook there.

Rajagopal Viswanathan: Can you update us on what your intentions are with the DRIP? Most of your peers, I think all of your peers have dropped the DRIP, so I'm interested in your outlook. Yeah, sure, Mario.

Mario Mendonca: Yes sure Mario.

Speaker Change: <unk> capital.

Rajagopal Viswanathan: Good morning. Capitalization Yeah, definitely a healthier 13.2% reflects a lot of the actions that we have taken, and we will continue to take as we pivot away from lower profitable segments and businesses to higher profitable segments. So we've seen good returns over there on the efforts that we've made. The capital build has been really good, particularly over the last two quarters. And we're very pleased with the results from all the initiatives that we talk about, which we call the RWA Optimization Initiative.

Speaker Change: Capital ratio, yes, definitely healthy at 13, 2% reflects a lot of the actions that we've taken and we will continue to take as we pivot away from lower profitable segments and businesses to higher profitable segment. So we're seeing good returns over there on the efforts that we've made.

Speaker Change: So the capital build has been really good but clearly over the last two quarters and we're very pleased with the results from all the initiatives. If you talk about which we call as arguably optimization initiatives.

Rajagopal Viswanathan: We previously indicated that our intention was to turn off the drip in the second half of the year; our intention still remains the same. We're quite motivated to do that, and that's what you should expect from us in the second half of the year.

Speaker Change: We previously indicated that our intention was to turn off the drip in the second half of the year. Our intention still remains the same we are quite motivated to doing that and Thats. What you should expect from us in the second half of the year to turn off the drip, but right now we're just alone.

Rajagopal Viswanathan: But right now, it is still Okay, and then again, this is something I may have missed. I thought the cadence for dividend increases was every Q2. But again, I may have missed this. I don't see a dividend increase this quarter. No, you haven't missed anything, Mario, as always, I think yes, there is no dividend increase this quarter. Part of what we're thinking is, you know, we do want to grow dividends in line with earnings growth, which we know is going to happen in 2025, you know, rate situation, and other stuff to contribute to it.

Speaker Change: And then again this is something I may have missed I thought the cadence for dividend increases was hovering Q2.

Speaker Change: But again I may have missed this I don't see a dividend increase this quarter.

Rajagopal Viswanathan: So we decided that it's better to take a pause at this time, and we should start increasing our dividends in 2025, in line with what we do every year in the second quarter. Thank you. Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead. Your line is now open.

Speaker Change: No you haven't missed anything Mario as always I think yes. There is no dividend increase this quarter is part of what we're thinking is we do want to grow dividends in line start earnings growth, which we know is going to happen in 2025 euro rate situation and other stuff to contributed so we decided that it's better to take a pause at this time and we should start.

Speaker Change: Commencing our dividend increases in 2025 language, what we do every year in the second quarter.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: The next question is from Lamar Paresh Shah from <unk> Securities. Please go ahead. Your line is now open.

Speaker Change: Yeah, Thanks, maybe turning to Ers on the question on Canadian banking.

Speaker Change: So you can have a seat or is that going to weigh on noninterest income in Canadian banking, because I noticed the net fee and commission income dropped to $619 million this quarter, but it's been kind of stable in the north of 636 40 range throughout 2023. So I'm wondering if that's going to be a headwind do you have youre going to see play out.

Speaker Change: For the next couple of quarters. Thanks.

Lemar Persaud: Yeah, thanks. Maybe I'll turn to Aris on a question about Canadian banking. This cessation of CDOR, is that going to weigh on non-interest income in Canadian banking? Because, like I noticed, the net fee and commission income dropped to $619 million this quarter, but it's been kind of stable in the north of $630, mid $640 range throughout 2023. So I'm wondering if that's going to be a headwind we're going to see play out for the next couple of quarters. Thanks. Hey, Lemar, it's Raj.

Speaker Change: Hey, Tomorrow, it's Raj how about I start and then Eric might have a couple of comments on this yes, absolutely as we turn off the SEDAR and the acceptance of this level of starts going down which should happen in an accelerated manner than Q3, yes. The noninterest revenue will go down but it doesn't impact total revenue, it's kind of a geography that moves between noninterest.

Rajagopal Viswanathan: How about I start and then you know, Aris might have a couple of comments on this. Yes, absolutely. As we turn off the CDAR and the acceptance level starts going down, which should happen in an accelerated manner in Q3, yes, the non-interest revenue will go down, but it doesn't impact total revenue. It's kind of a geography that moves between non-interest revenue and NII. So we don't have the stamping fees, but we pick them up through the NII line.

And so.

Speaker Change: So we don't understand decrease but we pick it up through the NII line.

Rajagopal Viswanathan: And as you may know, some of these acceptances tend to be at lower margins. So as they come up for renewals, it'll be a tailwind to the margin of the Canadian bank and to the bank as a whole, not necessarily in Q3, but when they come up for renewals. So that's the change you should expect to see. But part of the non-interest revenue of the Canadian bank is also down because we have lost the Canadian Tire Financial Services income, which, as you know, is between $16 to $18 million a quarter.

Speaker Change: And as you May know some of these acceptances tend to be at lower margins. So as they come up for renewals there it'll be a tailwind to the margin of the Canadian Bank and the bank as a whole not necessarily in Q3, but as they come up for renewals. So that's the that's the change you should expect to see the part of the noninterest revenue, indicating bankers also had done because we have lost the Canadian tire financial.

Speaker Change: So it was those income, which as you know is between $16 million to $18 million supporter, but that shift will happen just between revenue for the acceptance as part of the business, but not necessarily impact the total revenue in any meaningful manner.

Aris Bogdaneris: But that shift will happen just between revenue for the acceptance as part of the business, but it will not necessarily impact total revenue in any meaningful manner. And just to add, up to now, it's been one-third of the BAs we've converted into loans, and that has obviously impacted the NIR. But again, as Raj said, the net interest income is going up. By September, the remaining part of the BAs will be converted.

Speaker Change: And then just to add up to now it's been one third we've converted the Bac.

Rob: Into loans and that has obviously impacted the NAR, but again as Rob said the net interest income going up by September the remaining part of the <unk> will be converted these are not able to reprice slightly earlier ones. So we will see a bit of pressure on the NIM as that conversion takes place.

Aris Bogdaneris: These are not able to reprice like the earlier ones, so we'll see a bit of pressure on the NIM as that conversion takes place. Okay, so net net, we should expect it to be kind of a shift from NIR into NII. Yes, that's right, Lemar.

Speaker Change: Okay. So net net it's just a recent expects it to be kind of a shift from <unk> to NII.

Speaker Change: Yes, that's right Lamar it shouldnt be meaningfully and I used the $20 billion portfolio compared to the $440 billion, we have in that business, but it will have some impact as it transitions away yep understood.

Speaker Change: Understood. Thank you.

Speaker Change: Okay.

Lemar Persaud: It shouldn't be meaningful. You know, it's a $20 billion portfolio compared to the $440 billion we have in the business, but it'll have some impact as it transitions away. Okay. Thank you. Thank you. The next question is from Mike Rizvanovic from KBW Research. Please go ahead. Your line is now open. Good morning.

Speaker Change: Thank you.

Speaker Change: Question is from Mike.

Speaker Change: His event of itch from K B W. Research. Please go ahead. Your line is now open.

Mike Rizvanovic: I have a question for Raj, and I wanted to ask about the corporate segment loss. And just in light of Scott's comments at the outset, it sounds like your opinion on the number of rate cuts has certainly changed. And so if you think about the medium term, you know, I'm trying to get a sense of the reasonable trajectory that we should expect from that law. So I'm guessing it's not going to be $400 million plus.

I have a question for Raj and I wanted to ask about the corporate segment loss and just in light of Scott's comments.

Speaker Change: It sounds like Youre, how you on the number of rate cuts has certainly changed.

Speaker Change: So if you think about medium term.

Speaker Change: I'm trying to get a sense of the reasonable trajectory that we should expect on that law. So I'm guessing, it's not going to be 400 million plus but if you think about seeing exiting 2025 quarters from now does this go down to something like sub 300, and if that's the case.

Rajagopal Viswanathan: But if you think about saying exiting in 2025, so six quarters from now, does this go down to something like sub $300 million? And if that's the case, what do we need to see on the, maybe, shape of the yield curve to get you there? Yeah, thanks, Mike, for your question. Yeah, the other segment this quarter, just to clarify, you know, it benefited because of market to market adjustments. And I believe for the second half of the year, unless rate cuts happen differently than what we're expecting, which is only one rate cut we're expecting now in the second half of the year in Canada, will remain around the 450 to $475 million loss range unless we benefit again from some late market to market benefits like I saw this quarter.

Speaker Change: What do we need to see on the maybe the shape of the yield curve to get you there.

Mike: Yeah. Thanks, Mike for your question Yeah. The other segment this quarter just to clarify it benefited because of the mark to market adjustments on I believe for the second half of the year unless rate cuts happen different than what we were expecting which is only one rate cut we are expecting now in the second half of year in Canada.

At around the $4 $50 million to $475 million loss range, unless we benefit again from some late mark to market benefits like I saw this quarter.

Rajagopal Viswanathan: But to answer your question on trajectory, it will follow the trajectory of rate cuts, Mike, because the benefits of the rate cuts will show up in the other segment for us because the business line is compensated through the transfer pricing arrangements that we have to remove the volatility in the business line results. You know, each rate cut this time, we have put out one additional disclosure in the appendix slide where we said a 25 basis point cut at the short end of the curve gives us about $100 million in II benefits over a full year.

Mike: But to answer your question on trajectory it will follow the trajectory of rate cuts, Mike because the benefits of the rate cuts will show up in the other segment for us because our business plan is compensated through the transfer pricing arrangements that we have to remove the volatility in the business line results.

Rajagopal Viswanathan: So it gives you a little bit of perspective on how many rate cuts and how that could play out for the other segments next year. The more meaningful one, Mike, is to look at our fixed-rate mortgages that are coming up for renewal in 2025. You know, you can make some assumptions saying, you know, what could be the pickup and the yield.

Speaker Change: Each rate cut in December you put out one additional disclosure in the appendix slide where we've said 25 basis point cost at the short end of the curve gives us about $100 million NII benefit full year. So it gives you a little bit of perspective of how many rate cuts and how that could play out for the other segment next year.

Speaker Change: The more meaningful one Mike as you look back at fixed rate mortgages that is coming up for renewal in 2025, you can make some assumption, saying you know what could be the pickup in the yield that will show up in the other segment because the spreads will remain constant in the business, but it also has to be offset by some of the gic's, which are coming up for renewal given this.

Rajagopal Viswanathan: That will show up in the other segment because the spread will remain constant in the business. But it also has to be offset by some of the GICs which are coming up for renewal. Even this quarter, at the Canadian Bank, we saw GIC renewals impact their NIM by about two basis points.

Speaker Change: In the Canadian Bank, we saw GIC renewals impacted it.

Speaker Change: NIM by about two basis points. So that is a dynamic between fixed rate borrowings that we have in fixed rate mortgages that will come up for renewal that should help.

Rajagopal Viswanathan: So there is a dynamic between fixed-rate borrowings that we have and fixed-rate mortgages that will come up for renewal that should help. You know, if you have reasonable rate cuts, call it four rate cuts right through to 2025, I would see that the other segment will not start with a four, and the quarterly loss should be meaningfully lower. But it's tough to provide an estimate.

Mike Rizvanovic: Like you said, it depends on how the various parts of the rate curve move right from the short end all the way to five years. But it should be a meaningful benefit in 2025 through the other. Okay, that's super helpful. So it's rate cuts by the Bank of Canada and not necessarily the shape of the yield curve that would drive that. Yeah, I'm assuming that you know, the rate cuts obviously benefit the short end of the curve, you know, hopefully, there's not a parallel shift, I don't think any of us expect that because the rate curve is inverted.

Speaker Change: If you have reasonable rates, that's calling for rate cuts right through to 2025, I would say that the other segment will not start with the for the quarterly loss should be meaningfully lower but it's tough to provide an estimate like you said it depends on how the various parts of the rate move right from the short end all the way to five years, but it should be a meaningful.

Benefit in 2025 through the other segment.

Speaker Change: Okay. That's super helpful. So at its rate cuts bank of Canada, and not necessarily the shape of the yield curve that would drive that.

Mike Rizvanovic: So the long end of the curve should go down meaningfully lower than the 25 basis point rate that we might see at the short end of the curve. So we might lose something at the three-year and five-year point, but the significant benefit will come from the short end. Okay, perfect. Thanks for that.

Speaker Change: Yes, I am assuming that the rate cuts, obviously benefit the short end of the co hopefully theres not a parallel shift I don't think any of us expect that because the rate curve is inverted. So the longer does propose should go down meaningfully lower than the 25 basis point rate cut we might see at the shorter notice ago. So it might lose something at the three year and five year point, but the significant benefits that come from.

Speaker Change: The shopping.

Aris Bogdaneris: And then if I just squeeze one more in for Aris on Canadian Banking, just wanted to ask you about, it sounds like you're getting a bit of traction on those more fulsome relationships, which is now your strategy. On the cost side, I'm just wondering, is that something that could result in a bit of expense inflation in the near term? I'm not sure how much incentives play a part in getting that customer to become more of a fulsome customer for the bank. Any thoughts on near-term expenses? Let me just, on the primary, give a bit of background before I get to your question.

Speaker Change: Okay. Thanks for that and then if I can just squeeze one more in for for aerosol <unk> banking just wanted to ask about it sounds like youre getting a bit of traction on those more fulsome relationships, which is now your strategy.

Speaker Change #100: On the cost side I'm, just wondering is that something that near term could result in a bit of expense inflation I'm not sure how much incentives play a part in getting that customer too shabby.

Speaker Change #100: Become more more of a fulsome customer for the bank and any thoughts on near term expense.

Aris Bogdaneris: So, on primary, what we're doing is, at the point of sale, we're much more deliberate in the types of customers we want to bring into the bank. So, again, having multiproduct acquisition at the point of sale, I talked about mortgages, but it's also in, generally, in our acquisition, in our branch network. The Mortgage Plus, as you know, I discussed, when we book mortgages, we're looking for the multiproduct, day-to-day banking, additional products along with the mortgage, and then, again, the advisory, getting more products.

Speaker Change #101: Let me just on the primary just to give a bit of background before I get to your question. So on primarily what we're doing is at the point of sale, where much more deliberate in the types of customers, we want to bring into the bank. So again, having multi product acquisition at the point of sale I talked about mortgage and but it's also.

Speaker Change #101: Generally in our acquisition and our branch network the mortgage plus as you know I I discussed when we book mortgages, we're looking for the multi product day to day banking.

Speaker Change #101: Additional products along with the mortgage and then again the advisory getting more products. So as you can imagine getting more products to our customers. They are more engaged with us there could be additional of course interactions and cost with that but again in parallel as you know when you see that a bit on the cost side.

Aris Bogdaneris: So, as you can imagine, getting more products to our customers means they're more engaged with us. There could be additional, of course, interactions and costs with that, but, again, in parallel, as you know, and you see that a bit on the cost side, we're digitizing our business. We're looking to take costs out by digitizing end-to-end, digitizing onboarding, and digitizing, and that's where our investments are going. Despite the good management on the cost side, there's a lot of work going on behind the scenes on how we're going to digitize this business, in line with what I talked about at Investor Day.

Speaker Change #101: Is we're digitizing our business, we're looking to take costs out by digitizing end to end digitizing Onboarding digitizing and that's where our investments are going despite.

Speaker Change #101: The good management on the cost side, there's a lot of work going on behind the scenes on how we're going to digitize. This business in line with what I talked about at Investor Day. So, yes, you will get more engaged customers there'll be interacting with us more about your obviously drive more revenues in there with the operator operating leverage will continue to be strong that's the whole thesis behind it.

Aris Bogdaneris: So, yes, you'll get more engaged customers. They'll be interacting with you more, but you'll obviously drive more revenues, and there, the operating leverage will continue to be strong. That's the whole thing. Hey, thanks for the color.

Speaker Change #102: Okay. Thanks for the color.

Aris Bogdaneris: Thank you. The next question is from Nigel D'Souza from Avericus Investment Research. Please go ahead. Your line is now open. Thank you. Good morning.

Speaker Change #103: Thank you.

Next question is from Nigel D'souza from Veritas investment Research. Please go ahead. Your line is now open.

Nigel D'Souza: I wanted to follow up on the variable rate mortgages, but from a different perspective. When I, I think you mentioned those were 2022 vintages. So, would you be able to shed some light on the LTVs for those mortgages? And what I'm getting at here is, were those mortgages underwater or near 100% LTV? There wasn't a payment option, so you have an adjustable payment structure. And is there a correlation, ultimately, between the amount of equity and the LTVs, if you're on your portfolio, and the delinquencies and impairments you're seeing in that book? Hi Nigel and Phil. Our average LTV on that portfolio is in the 50s, so it is quite low. At origination, the average FICO for those products was $800.

Nigel D'Souza: Thank you good morning, I wanted to follow up on the variable rate mortgages, but from a different perspective one.

Nigel D'Souza: I think you mentioned those were 2022 vintages. So would you be able to set some light on vlccs for those mortgages.

Nigel D'Souza: And what I'm getting at here is what are those mortgages under underwater and you're 100% LTV.

Kevin: Wasn't a payments Kevin adjustable.

Payment structure and is there a correlation ultimately between the amount of equity and the Ltvs of Jacek portfolio and.

Kevin: And the delinquencies and impairments youre seeing in that book.

Speaker Change #106: Uh huh.

Nigel D'Souza: Hi, Nigel itself.

Speaker Change #107: The average LTV on that portfolio is in the <unk> It is quite low.

Speaker Change #108: At origination.

Speaker Change #108: The average fee.

Speaker Change #108: FICO for those products for 800, and so it is a it is a quite a strong credit quality portfolio I think.

Phil Thomas: And so it is quite a strong credit quality portfolio. I think, as I pointed out in my prepared remarks earlier, that the friction is really coming from Toronto, the GTA, and Vancouver, where you are seeing, you know, where you have higher costs on the mortgage. And I think people are just in the process now of, given the higher prolonger rate, they are making tradeoffs in terms of their payments, and maybe they got a little bit over their skis at point of origination.

Speaker Change #108: As I pointed to in my prepared remarks earlier that the friction is really coming from Toronto GTA in Vancouver, where youre seeing.

Speaker Change #108: Well you had higher cost on the mortgage and I think people are just in the process now of given the higher for longer rates. They are making trade offs and in terms of their payments and maybe they got a little bit over their skis at point in origination, but these are good customers.

Phil Thomas: But these are good customers that are just facing a little bit of tightness in terms of their cash flow. We've been really focused on the collections efforts, and we've been doing a lot of proactive outreach to these individuals. It's not as if we have a bad customer here; this is just a customer who's sort of going through a life event or having just some difficulties making some payments to pay us. We've expanded our proactive outreach to these customers, and we've... We've implemented a number of loss mitigation programs to help them through this drug. So, uh, to clarify, are you saying there's no correlation between LPDs and I'm not sure. Now, it's tough to hear you, but I think the answer to your question is no.

And that are just facing a little bit of tightness in terms of their cash flow.

Speaker Change #108: We've been really focused on the collections efforts and we've been doing a lot of proactive outreach to these individuals.

Speaker Change #108: It's not as if we have.

Speaker Change #108: It's not as if we have a bad customer here. This is just the customers is sort of going through a life event or having just some some some difficulties, making some payments to payments.

Speaker Change #108: We've expanded our proactive.

Speaker Change #108: Outreach to these customers.

Speaker Change #109: Uh huh.

Speaker Change #109: We've implemented a number of loss mitigation programs to help them through this stressful period.

Speaker Change #109: So.

Speaker Change #110: So there is no correlation between LCD.

Speaker Change #110: Sure.

Speaker Change #111: No it's tough to hear you, but I think the answer to your questions.

Speaker Change #110: Okay.

Nigel D'Souza: Okay, so and just a quick follow-up on the NII sensitivity, I noticed that, yes, there's a $100 million benefit for a 25 basis points decrease in rates, but I believe there's a decline in NII for 100 basis points decrease in rates. So just wondering what's driving that dynamic in your hedging program where there's a benefit for, you know, a 25 basis points decrease, but then Hey Nigel, it's Raj.

Speaker Change #112: Okay, and then just a quick follow up on the NII sensitivity I noticed that.

Speaker Change #113: Yes, there's $100 million benefit for 25 basis points decrease but I.

Speaker Change #114: I believe there is a decline in NII 400 basis point decrease in rate. So just wondering what's driving that dynamic in your hedging program, but there is a benefit for us.

Speaker Change #115: Only five basis point decrease, but then there's a negative impact of 400.

Rajagopal Viswanathan: Hey, Nigel it's Raj.

Nigel D'Souza: That's actually a simple answer, because one of them is a parallel shift, right? Unless we believe that there's going to be a complete parallel shift up and down in an inverted rate environment, yes, the 100 base points plus and minus, like we say, will happen. But that's not what we expect. I think what's more meaningful is the short end of the curve. That's the distinction between the two.

Rajagopal Viswanathan: Simple answer because one of it is a battle of shift right unless we believe that there's going to be a complete battling shift up and down in an inverted rate environment, yes, the 100 basis points, plus or minus like they say will happen, but that's not what we expect I think what's more meaningful as the short end of the curve. That's a distinction between the two but I'm happy to go into.

Rajagopal Viswanathan: But I'm happy to go, you know, into more detail with you one-on-one if you think you have more follow-up questions on that topic. And Raj, it's also important to note that the sensitivity disclosure that we've had, 100 million for 25 basis points doesn't include asset repricing. It does not.

Speaker Change #116: Into more detail with you one on one if you think you have more follow up questions on that topic I think Raj. It's also important to note is that sensitivity disclosure that we've had $100 million for 25 basis points doesn't include the asset repricing industrial and so the tailwind here for the bank in the scenario where rates come down it's pretty good.

Phil Thomas: And so the tailwind here for the bank in the scenario where rates come down is pretty significant. Okay, that's helpful. That's it for me, thanks.

Speaker Change #117: Okay. That's helpful. That's it for me thanks.

Nigel D'Souza: Thanks, guys. Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead. Your line is now open. Hi, thank you for taking my question. I know we're running out of time here.

Speaker Change #116: Yes.

Nigel D'Souza: Thanks Nigel.

Speaker Change #118: Thank you.

Darko Mihelic: I'm just wondering, Raj, if you can spend a little bit more time explaining the Capital Floor Add-on and specifically suggested that it was eliminated because of changes in book quality and model updates. And I think I heard you say that there was more work to be done when the floor kicks back in again and what it is precisely that you're doing with respect to model updates. Yeah, sure, Darko.

Speaker Change #119: Next question is from Darko <unk> from RBC capital markets. Please go ahead. Your line is now open.

Speaker Change #118: Yeah.

Darko Mihelic: Alright. Thank you for taking my question I know, we're running out of time here I'm just wondering Raj if you could spend a little bit more time to elaborate on the capital floor add on and specifically you suggested that it was eliminated because of changes in book quality and model updates and I think I heard you say that there was more work to be.

Darko Mihelic: Kind of when the floor kicks back in again and what it is precisely that youre doing.

Speaker Change #121: With respect to model updates thank you.

Rajagopal Viswanathan: I missed part of your question. You got cut off. But I think I've got what you're looking for. Impact at the end of Q1 off the floor was, you know, $7.8 billion, approximately 23 basis points, if you recall. As I've also mentioned previously, the floor impact inherently will move due to a number of factors, you know, movement in ARB capital relative to the standardized equivalent movement in ACL versus EL. So a lot of things impact the floor, unfortunately, which makes it very difficult to follow from a quarter to quarter perspective. I'll call out two of the things, one of which you touched on which impacted the elimination of the flow this quarter. One is client deselection.

Rajagopal Viswanathan: Yes, sure Doug I missed part of your question you got cut off but I think I got what you're looking for.

Rajagopal Viswanathan: Impact at the end of Q1 of the floor was seven 8 billion approximately 23 basis points, if you recall.

Rajagopal Viswanathan: As I've also mentioned previously the Florida impacting inherently will move due to a number of factors you know movement in AARP capital relative to the standardized equal and movement and ACL was zero. So a lot of things impact the Florida. Unfortunately, it makes it very difficult to follow from quarter to quarter perspective.

Speaker Change #122: But I'd call out two of the things one of which you touched on which impacted the elimination of the flow of this quarter.

Speaker Change #122: One is client selection the way we have worked about client selection. When we think about profitability. If you tried to calculate it or recalculated based on 72.5% floor, because that's ultimately where we're going to land up and see if the client will continue to remain profitable.

Rajagopal Viswanathan: The way we have worked out clientee selection, when we think about profitability, we have tried to calculate it or recalculate it based on a 72.5% floor, because that's ultimately where we're going to land up and see if the client will continue to remain profitable. So the focus of the business across all three business lines is to look at those clients who will not be profitable under the standardized 72.5% risk-weighted asset capital requirements.

Speaker Change #122: <unk> focus of the business across all three business lines is to look at those clients, who will not be profitable under the standardized 72.5% risk weighted asset capital requirements. So they've been deselecting those clients, which has the greatest impact and therefore benefits.

Rajagopal Viswanathan: So they've been de-selecting those clients which has the greatest impact and therefore benefits the floor when we look at it from period to period. The more important thing that impacted this quarter is model changes of $4.5 billion that impact, you know, ARB, and RWA only and do not impact the standardized calculation. It's split two ways.

Speaker Change #122: Benefits of Florida, and we looked at it from period to period.

Speaker Change #122: The most important things that impacted this quarter is model changes of $4 5 billion that impact.

Speaker Change #122: Arguably only and does not impact.

Speaker Change #122: The standardized calculation.

Rajagopal Viswanathan: One, I would call out as just parameter changes. You know, constantly we look at our probability of defaults for our customers based on market influence as well as our own performance and so on. So that resulted, and there was some migration too in the non-retail book, like I pointed out on a different question, which increased the ARB, RWA, which is obviously insensitive under the standardized calculation. The other component is an LGD methodology change we actually put through, which impacted $4.5 billion. The PD changes or the parameter changes, which we call book quality, impacted a little over $4.5 billion.

Speaker Change #123: It's led to is one I would call out is just parameter changes constantly we look like a probability of default for our customers based on market influences on own performance and so on so that resolved and there was some migration to in the non retail book like I pointed out on a different question, which increased the <unk>, which is obviously insensitive and at this time.

Speaker Change #123: A nice calculation.

Rajagopal Viswanathan: It just added up to $7.8 billion, which was our floor. Every quarter, Darko, unfortunately, you're going to see this move around. The floor should not get engaged in Q3, Q4 for sure, because it's directionally, it's supposed to go the other way based on the actions we're taking.

Speaker Change #123: The other component is an LGD methodology change, we actually put through and so that impacted it forward in a heart failure, the pds changes or the parameter changes, which we called book quality.

Speaker Change #123: Impacted a little over $4 $5 billion, you just added up to $7 8 billion, which was our floor.

Every quarter Darko. Unfortunately, we're going to see this move around the floor should not get engagement Q3, Q4 for sure because it tests Directionally. It's supposed to go the other way based on the actual trading scheme, but again Q1 25 is going to be a 2.5% floor. We will see how we trend up towards zircon will update you on what could be the impact in Q1 25.

Rajagopal Viswanathan: But again, Q125 is going to be a two and a half percent floor. We'll see how we trend up towards that, and we'll update you on what the impact could be in Q125, as well as in Q126. Our capital plans looking forward through to 2026 comfortably cover all these impacts as we think about what are the minimum ratios we'd like to run and how we can support business growth. So we feel pretty good about where we are today and the impact of the actions we have taken on our capital ratios. Thank you, Raj. I appreciate that.

As well as in Q1 'twenty six.

Speaker Change #123: Our capital plans looking forward through 2026 comfortably cover all of these impacts.

Speaker Change #123: As we think about what is the minimum ratios, we'd like to run and how we can support the business growth. So we feel pretty good about where we are today and the impact of the actions we have taken on our capital ratios.

Speaker Change #124: Thank you Roger I appreciate that and.

Darko Mihelic: One last quick one here: would it be reasonable for next quarter to get some sort of an estimate on the possible impact of the minimum tax? Yeah, sure. I think I can give you the answer now. It's obviously due in 2025.

One last quick one in here it would it be reasonable for next quarter to get some sort of an estimate on the possible impact of the minimum tax.

Rajagopal Viswanathan: Impact is not expected to be material, like you know, some jurisdictions where it's not at 15%, which is what the OECD wants, there'll be some. Thank you very much. Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead. Your line is now open.

Speaker Change #125: Yes, sure I think I can give you the answer now it's obviously due in 2025 impact is not expected to be material like you know some of the jurisdictions, where it's not at 15%, which is what the OECD ones that'll be some.

Speaker Change #125: Pickup in and dock tax Bill, but we really don't have too many jurisdictions, which I don't say, 12% to 15% Darko, but I'm happy to provide more details, but it wouldn't be material at all that I can tell you. Okay. Thank you very much.

Speaker Change #125: Yeah.

Thank you.

Speaker Change #126: Next question is from Michel <unk> from BMO capital markets. Please go ahead. Your line is now open.

Sohrab Movahedi: Okay, thank you very much for squeezing me in. I think most of the questions were asked and answered. Just one clarification. I think, Raj, you mentioned Brazil at least once in your remarks. I think you talked about it in the context of good deposit growth.

Speaker Change #127: Okay. Thank you very much for squeezing me in I think most of the questions were asked and answered just one clarification I think Raj you mentioned, Brazil at least once.

In your remarks, I think you talked about it in the context of good.

Speaker Change #128: Deposit growth is Brazil.

Unknown Executive: Is Brazil a... is a battleground for you? Is this an area that you're likely to deploy capital in? Francisco, thank you for the question. We have built a sound franchise in Brazil, focusing on the right clients. We have a great team on the ground, but that responded to a strategy of asset growth, which is not the strategy we're focused on now. The focus with Brazil is to ensure that, one, returns increase, primacy drives the clients we serve, and it's an integral part of a connected franchise.

Speaker Change #129: Is it a battleground for you is this scenario that you are likely to deploy capital in place.

Francisco: Francisco. Thank you for the question, we have bill is sound a frac.

Francisco: Franchise, and brushing focusing on the right clients, we have a great team on the ground, but that responded to a strategy of asset growth, which is not the strategy. We're focused on now the focus with Brazil is to ensure that one returns increase primacy drives the clients we serve and it's.

Francisco: An integral part of our connected franchise, we don't expect capital to be deployed in Brazil going forward.

Unknown Executive: We don't expect capital to be deployed in Brazil going forward, but we do expect returns to continue to improve, and we have every confidence in the quality of the team that we have on the ground to get that result, and we're seeing it already. We're seeing tremendous progress there.

Francisco: We do expect returns to continue to improve and we have every confidence in the quality of the team that we have on the ground to get that resolved and we're seeing it already seeing tremendous progress there.

Unknown Executive: But ultimately, Brazil is about how that franchise can continue to contribute to a connected strategy that serves multinational clients, not about incremental capital at all. So we won't have Francisco in a quarter where you say, you know, PCLs are higher because of impairments in Brazil, for example. No, not at all.

Francisco: But ultimately Brazil is about how can that franchise continued to contribute to our connected strategy that serves multinational clients not about incremental capital at all.

So we won't have Francisco courtyard, where you say you know PCL are higher because of the impairments in Brazil for example.

Unknown Executive: I mean, if you look at the exposure we have in Brazil, as I said, it has been very well managed. All primary strong clients in terms of quality, global names primarily that do business in Brazil and that we serve elsewhere. So no, we do not anticipate at all a PCL issue.

Speaker Change #131: No not at all I mean, if you look at the exposure we have in Brazil. As I said has been very well managed all primary strong clients in terms of quality global names, primarily that do business in Brazil and that we say are elsewhere. So now we do not anticipate at all that Bcf issue in Brazil.

Unknown Executive: And so this would be in support of GBM's LATAM operation. Yes, primarily a GBM driven and markets business. And again, what you're going to continue to see us, not only in Brazil, by the way, but certainly in Europe and Asia, is this drive of multinational banking really at the heart of who we serve and how we serve them. This will be in connection with increasing share wallet across all of our footprint with this name. So we will not be focused on, for example, Brazilian names that operate only in Brazil. We will be focused on names that operate across our footprint and also have a presence in Brazil.

Speaker Change #131: And so this would be in support of GBM Latam up operations.

Speaker Change #131: Yes, primarily GBM, driven and markets business and again, you are going to continue to see us not only in Brazil, but certainly in Europe, and Asia and these drive multinational banking really at the heart of who we serve and how we serve them.

This will be in connection to increase share of wallet or cross all of our footprint with these names. So we would not be focused on for example, Brazilian names that operate only in Brazil, we will be focused on names that operate across our footprint, but also have a presence in Brazil.

Unknown Executive: And we will be aiming to deploy capital to close those global relationships, not necessarily only in Brazil. I appreciate you taking my questions. Thank you.

Speaker Change #131: We will be aiming to deploy capital to close those grow our relationships not necessarily only betsy.

Speaker Change #132: I appreciate you taking my questions. Thank you sure.

Sohrab Movahedi: Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Raj.

Speaker Change #131: Yeah.

Thank you there are no further questions registered at this time I would like to turn back the meeting over to rash.

Rajagopal Viswanathan: Thank you very much. On behalf of the entire management team, I want to thank everyone for participating in our call today, and we look forward to speaking again at our Q3 call in August. This concludes our second quarter results call. Have a great day. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your cooperation.

Speaker Change #133: Thank you very much on behalf of anti management team I want to thank everyone for participating in our call today and we look forward to speaking again at our Q3 call in August. This concludes our second quarter results call outright day.

Speaker Change #134: Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.