Q4 2024 The Bank of Nova Scotia Earnings Call - Q&A
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John McCartney, John McCartney, John
Speaker Change: Good morning and welcome to Scotiabank's 2024 fourth quarter results presentation and apologies for our late start this morning.
Speaker Change: My name is John McCartney and I'm Head of Investor Relations here at Scotiabank. Presenting to you this morning are Scott Thompson, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Phil Thomas, our Chief Risk Officer.
Speaker Change: Following our comments, we will be glad to take your questions. Also present to take your questions are the following...
Speaker Change: Scotiabank Executives, Eris Bogdanaris from Canadian Banking, Jackie Allard from Global Wealth Management, Francisco Aristegueta from International Banking and Travis Machin from Global Banking and Markets.
Scott Thompson: Before we start, and on behalf of those speaking today, I will refer you to slide 2 of our presentation which contains Scotiabank's caution regarding forward-looking statements. And with that, I will now turn the call over to Scott.
Scott Thompson: Thank you, John, and good morning everyone. 2024 was a foundational year for the bank. Nearly one year ago, we held our Investor Day and shared with you our new enterprise strategy to deliver sustainable, profitable growth and maximize shareholder value.
Scott Thompson: We also committed to transparently sharing our progress as we entered into our first year of execution against our plans.
Scott Thompson: Our results reflect a year transition as we focused on our enterprise-wide priorities, aligned our capital allocation to each of our business lines, and started our shift to a value over volume strategy.
Scott Thompson: Our results demonstrate both early progress and areas where more work needs to be done.
Scott Thompson: Overall, earnings grew marginally in 2024, consistent with our expectations and Investor Day guidance.
Recapping our areas of focus.
First, our North Star, increasing the number of primary clients.
Scott Thompson: We continue to focus on growth in client segments where we have the scale and product capability to compete and win lead relationships.
Scott Thompson: In our global wealth business, we are relentlessly focused on growing our advice channels and providing holistic wealth solutions to attract high-value primary clients to the bank.
This is driving strong growth in the business.
Scott Thompson: We are ranked number two amongst peers in earnings growth in the most recent five-year period and delivered record net income in 2024.
Scott Thompson: We have increased personal and commercial deposits by 7% year over year.
Scott Thompson: In Canadian banking, 30% of our clients now meet our primacy definition of 1.5 percentage points year over year.
Scott Thompson: And across our retail markets, we have increased total primary clients by 280,000.
Scott Thompson: While this progress is meaningful, in order to meet our 2 million incremental primary client target by 2028, we need to accelerate our progress in 2025 and beyond.
Scott Thompson: Next, we have focused on capital allocation to grow and scale across North America.
Scott Thompson: Today, all incremental capital is being allocated to our priority businesses.
Scott Thompson: This has been an example of enterprise-wide thinking at work, as our business lines have made tradeoffs to support the all-bank strategy.
Scott Thompson: One of the most rewarding outcomes of this past year has been witnessing the international banking team deliver better results with less capital, and generating impressive earnings growth with improved returns.
Scott Thompson: We are delivering on our commitment to remix our portfolio to accelerate growth in fee income.
Scott Thompson: We are de-emphasizing our indirect lending-only channels and domestic mortgage and auto.
Scott Thompson: and in our global banking and markets business in the U.S., we are optimizing capital and building out our ancillary business capabilities.
Scott Thompson: We have embarked on select inorganic initiatives to support our North American strategy, including our agreement to sell Credit Scotia in Peru and our investment in KeyCorp, which is an opportunity to profitably deploy capital into the U.S. market.
Finally, and importantly, we have strengthened our balance sheet.
Scott Thompson: We have a solid Tier 1 capital ratio of 13.1%, and we have grown our allowance for credit losses on the balance sheet by approximately 22% since the end of fiscal 2022, including a performing allowance build of approximately $800 million.
Scott Thompson: We are well positioned to fund our growth agenda in 2025 and beyond.
Turning to our business line results and fiscal 2025 priorities.
Scott Thompson: Our wealth business had a very strong finish to the year, delivering net income of $426 million this quarter, and record annual earnings of $1.6 billion in 2024, as well as continued ROE expansion to 15.7%.
Scott Thompson: Our Canadian wealth management business delivered double-digit earnings growth led by a 25% increase in Scotia McLeod, which is a strong source of recurring fee-based earnings, as well as 15% growth from the private bank.
Scott Thompson: We continue to invest in developing talent as well as adding established teams to our Scotia McLeod MD Financial and Private Investment Council advice channels.
Scott Thompson: Our wealth management businesses in Canada reached an all-time high in client satisfaction scores and delivered 30% more financial plans.
Scott Thompson: We saw growth in our asset management business as overall assets under management grew to over $370 billion, up 18% this year.
Scott Thompson: Importantly, we have seen a strong rebound in fund sales with a particular focus on distribution through our own bank channel.
Scott Thompson: Gross retail mutual fund sales increased 54% on a year-over-year basis with strong momentum expected in 2025.
Scott Thompson: Growth in our international wealth business is very strategic for us in terms of delivering highly ROE accretive growth.
Scott Thompson: International wealth earnings were a record $261 million in 2024, up 17% year-over-year.
Scott Thompson: Our Canadian bank delivered solid revenue-led earnings growth of 7% in a year of modest loan growth and higher loan losses as the realities of a slowing economy and the impact of peak interest rates made for a challenging operating environment.
Scott Thompson: Expense discipline in the Canadian Bank contributed to positive operating leverage for the year, and deposit growth outpaced loan growth.
Scott Thompson: Segments where we saw asset growth include commercial, small business, and credit cards through focused initiatives like Seen Plus and Mortgage Plus, which target deeper, more solutions-based relationships with our clients.
Scott Thompson: Primary client growth, diversification of our portfolio mix, and growth in our fee income remain high priorities for fiscal 2025, as stronger profitability in our domestic P&C business is essential to achieving our financial objectives.
Scott Thompson: Looking ahead, we have initiatives in place to accelerate primacy, including focusing on core day-to-day retail deposits and deepening relationships through personalized value propositions and marketing programs.
Scott Thompson: Optimizing assets like ScenePlus, which in our view remains a very large and underexploited opportunity for us to deepen primary data-rich relationships.
Scott Thompson: CN Plus membership continues to expand rapidly with over 15 million members and is on pace for record point issuance.
Scott Thompson: Over 37% of SEAMplus members have a Scotiabank relationship and we believe further penetration of the SEAMplus member base can meaningfully contribute to our primacy objectives.
Scott Thompson: We are also delivering on our Canadian real estate secured lending strategic repositioning.
Scott Thompson: Our MortgagePlus offering, a customizable offering with an everyday account, preferred mortgage rate and other retail products, continues to drive strong growth and primary relationships, with penetration of greater than 75% among our new mortgage originations in 2024.
Scott Thompson: The early results of these initiatives suggest improved relationship depth with our clients.
Scott Thompson: The number of clients holding 3 or more products with us increased to 46%, up 2 points from last year, and our annual client attrition rate was lower by 40 basis points.
Scott Thompson: 44% of our clients with term deposits are now primary clients, which is up 4.4 points this year.
Scott Thompson: Importantly, 85% of clients with term deposits renewals this year stayed with the bank as a direct renewal or redeployment to investments or other products.
Scott Thompson: We continue our positive momentum in Tangerine, net primary client growth of 19% year over year with our new acquisition offers driving two times higher payroll penetration.
Scott Thompson: Sales through the mobile channel reached a record high at the end of 2024 at 49%, which is an increase of 7 full percentage points year over year.
Turning to our international banking business.
Scott Thompson: Considering the portfolio repositioning and capital reallocation activity, we were pleased with the performance of this business, which delivered solid 7% year-over-year earnings growth.
Scott Thompson: We meaningfully reduced our overall capital deployed to the region, in line with our capital optimization strategy, as risk-weighted assets in the international business were lower by 6% or over $9 billion in 2024.
Scott Thompson: Importantly, we saw margin expansion throughout the year to 442 basis points and an improvement in risk-adjusted margins to over 325 basis points.
Scott Thompson: The International Banking Productivity Ratio improved over 200 basis points to 50.9% on the path to our objective of 45% over the medium term as we realized the benefits of a more regional operating model.
Scott Thompson: Fiscal 2024 return on equity in international banking improved to 14.4% from 13.1% the year prior. We will remain focused on deploying capital prudently to improve the profitability of this segment over the medium term as communicated at our Investor Day.
Scott Thompson: In Global Banking and Markets, our results this year reflect the impact of continued balance sheet optimization as we've redeployed capital and resources into the product and client segments where we envision more optimal returns on our capital over time.
Scott Thompson: Fiscal 2024 earnings of $1.7 billion were a modest 5% below last year, or up 9% excluding the substantial impact of the elimination of the Canadian dividend received tax deduction.
Scott Thompson: Our GBM loan balances are lower year over year, the result of lower utilization rates as corporate clients paid down bank lines for free cash flow and finance in the capital markets given the more constructive market environment.
Scott Thompson: Our underwriting and advisory fees increased by 27%, suggesting franchise growth and the benefits of our balance sheet optimization efforts and product capability builds.
Scott Thompson: We have added specialized teams within the CLO, private credit, and mortgage capital markets businesses to participate in higher capital velocity segments of the U.S. structured credit markets.
Scott Thompson: Enhancing our cash management capabilities is essential to growing our share of privacy with commercial, corporate, and multinational clients.
Scott Thompson: In 2024, we continue to invest in talent, products, and client servicing, including in our Cash Management
Scott Thompson: Our investment in enhancing our cash management capabilities, including in the United States, will allow us to better support clients throughout the North American corridor.
Scott Thompson: In summary, while I am pleased with our financial results in 2024, which demonstrate progress against our strategy, they also reflect our transformation as an organization and the significant work ahead of us in the coming years to increase returns for our shareholders.
Scott Thompson: Looking ahead, the economies in which we are operating in are also in transition from both an economic and geopolitical point of view.
Scott Thompson: The Bank of Canada's policy rate action in recent months should lead to a rebound in economic activity next year.
Scott Thompson: We anticipate additional easing through the first half of the year, which we expect will be stimulative to activity in the domestic housing and mortgage markets, and buoy consumer and business confidence after a period of relative restraint.
Scott Thompson: We are closely monitoring policy actions from the new administration in Mexico, as well as the incoming U.S. administration.
Scott Thompson: While new governments often bring initial uncertainty with respect to trade policy and relations, we believe policy will ultimately support a cooperative environment that encourages capital investment and continued regional growth.
Scott Thompson: We continue to believe in the long-term economic growth potential of the North American Corridor and the strategic value that connectivity among Canada, the U.S. and Mexico will provide to our clients and to the long-term success of the banks.
Scott Thompson: Central banks in Latin America are well along on the easing path to stabilize interest rates, but the pace of interest rate cuts has slowed from first half of 2024 expectations.
Scott Thompson: Growth is expected to remain positive, but more modest than previously forecasted in our larger markets, with less certainty on near-term growth, particularly in Mexico through the period of presidential transition.
Scott Thompson: As we navigate this period of uncertainty, we will be thoughtful with our capital allocation into the country.
Scott Thompson: I would now like to draw your attention to our Enhanced Disclosure, which provides performance updates against critical strategic metrics shared last year at our Investor Day.
Scott Thompson: These select metrics are representative of the many underlying strategic and operating metrics being monitored and measured.
Scott Thompson: Progress in primary client growth, deposits, digital delivery, enterprise-wide cross-sell, and growth in fee income will position us well to achieve our financial goals.
Scott Thompson: Reflecting on the first year of performance and sharing our Investor Day five-year plan, we are confident in and committed to delivering against our stated medium-term financial objectives.
Scott Thompson: Progress towards achieving 14% plus return on equity within our five-year strategy period.
a commitment to ongoing positive operating leverage.
Scott Thompson: and operating with Tier 1 capital levels with a sufficient buffer above regulatory minimums.
Scott Thompson: Our earning expectations have not changed. We continue to expect earnings growth between 5 and 7 percent in 2025, prior to incorporating any benefit from our minority investment in KeyCorp.
Scott Thompson: In summary, I am pleased with the progress we have made in our first year of delivery against our strategy. We remain focused on disciplined capital allocation and execution, primary client growth, improving productivity and maintaining a strong balance sheet.
Scott Thompson: Our teams are rallied behind our strategy, execution, and commitments, and are living our core values and key behaviors as part of our cultural transformation to drive high performance and support the execution of our strategy.
Scott Thompson: Importantly, starting this fall, we rolled out ScotiaBond, our new culture framework which includes refreshed values and behaviors that will help drive our strategy forward.
Scott Thompson: Our updated performance management metrics go beyond measuring results and evaluate the how in terms of the leadership behaviours that we believe lead to great outcomes.
Scott Thompson: This new framework is being embedded in all aspects of our organization, from goal setting to how we reward performance, and recognize our culture of panelists throughout the bank.
Scott Thompson: I would like to thank our global team of Scotiabankers for their support and commitment to the bank and to our clients this year. Our momentum is a result of their efforts to deliver on our shared vision and collective objectives.
Speaker Change: I will now turn it over to Raj for a more detailed financial review of the quarter.
Thank you.
Thank you, Scott, and good morning, everyone.
Speaker Change: This quarter's net income was impacted by $430 million of after-tax-adjusting items or 35 cents of earnings per share.
Speaker Change: and approximately five basis points on the common equity tier one ratio.
Speaker Change: This consisted of a $379 million after-tax impavement charge related to the write-down of our investment in Bank of Zeon and certain intangible assets, including software.
Speaker Change: and after-tax severance provisions of approximately $38 million, both recorded in the other segment.
Speaker Change: The Q4 results also reflect our usual adjustment for amortization of acquisition-related intangibles.
Speaker Change: All my comments that follow will be on an adjusted basis.
Speaker Change: Starting on slide 6 for a review of the fiscal 2024 results.
Speaker Change: The bank ended the year with an adjusted diluted earnings per share of $6.47, a return on equity of 11.3% and a return on tangible common equity of 13.7%.
Speaker Change: Revenue was up 6% year over year, while expenses grew 4% resulting in power.
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Speaker Change: Okay, I'm going to continue from starting on slide 6 for a review of the Fiscal 2024 results. The bank received a year with adjusted diluted earnings per share of $6.47, a return on equity of 11.3%, and a return on tangible common equity of 13.7%.
Speaker Change: Revenue was up 6% year-over-year and expenses grew 4% resulting in positive operating leverage of 2.3% for the year.
Notably, fee and commission revenue was up 5%.
Speaker Change: The progression for credit losses were $4.1 billion in 2024, $629 million higher driven by higher impaired PCLs.
Paul will speak to this later.
Speaker Change: Canadian banking earnings were $4.3 billion, up $290 million, or 7%.
Speaker Change: Revenue grows 7% driven by deposit growth and margin expansion, partly offset by higher expenses and PCLs.
Speaker Change: The business generated positive operating average and achieved a net return on equity of 20.8%.
International Banking Earnings were $2.7 billion, up 10% year-over-year.
Speaker Change: The revenues were up a strong 9%, or approximately $950 million, while expenses were up only 4%, resulting in positive operating average of 5%.
Speaker Change: Global Wealth Management earnings of $1.6 billion were up 10% year-over-year, benefiting from strong assets under management growth of 18%.
Speaker Change: Revenues were up 9% driven by higher fee revenue and net interest income across the Canadian and international wealth businesses.
Speaker Change: Global banking and markets reported earnings of $1.7 billion, down 5%, impacted by the denial of dividend-received deductions.
Speaker Change: Excluding this, the earnings grow 9% during the year while optimizing risk-weighted asset growth.
Speaker Change: The other segment reported a loss of 1.8 billion compared to a loss of 1.4 billion in 2023.
Speaker Change: The high loss was due to lower revenues, primarily from increased funding costs, and higher taxes, partly offset by lower expenses.
Now, a few comments on the outlook for 2025.
Speaker Change: 2025 earnings growth is expected to be within the range of 5% to 7% in line with the investor day outlook.
Speaker Change: This does not include any earnings pickup benefits if the second stage of the KeyCorp investment were to be approved during FY2025.
Speaker Change: Revenues are expected to benefit from strong net interest income growth driven by lower funding costs and growth in loans and deposits.
Speaker Change: Earnings are expected to be impacted by a higher tax rate of between 23% and 24% driven by the implementation of the global minimum tax of 15% and a reduction in inflation benefit in certain international banking markets as well as higher provision for credit losses.
Speaker Change: Expense growth is expected to be modest as investments in strategic initiatives are partly offset by productivity benefits resulting in positive operating leverage for the year.
Speaker Change: The bank remains committed to maintaining strong capital and liquidity positions in 2025.
Speaker Change: From a business line perspective, we expect strong earnings growth in global wealth management and solid growth in Canadian banking and GBM.
Speaker Change: International banking earnings are expected to be lower, in line with our Investor Day presentation, impacted by weaker Latin American currencies, slow growth economies, and a higher tax rate.
Speaker Change: The other segment losses are expected to improve as net interest income continues to benefit, as we saw this quarter, from the 2024 rate cuts and further rate cuts expected in the first half of fiscal 2025.
Speaker Change: Moving to slide eight for a review of the fourth quarter.
Speaker Change: The bank reported quarterly adjusted earnings of $2.1 billion and a diluted EPS of $1.57.
Speaker Change: The return on equity was 10.6% and the return on tangible common equity was 12.8%.
Speaker Change: Net interest income was $4.9 billion, up 6% year-over-year and 1% quarter-over-quarter.
Year-over-year NII growth was driven primarily by loan growth.
Speaker Change: Quarter over quarter net interest income grew in Canadian banking and the other segment while it declined in GBM impacted by 7% decline in loan balances.
Speaker Change: International banking net interest income decline was impacted by the weaker Latin American currencies.
Speaker Change: Net interest margin grew one basis point quarter over quarter mostly from lower funding costs, partly offset by lower margins in Canadian banking and lower levels of higher yielding international banking loans.
Speaker Change: Deposits were up 2% year-over-year, mostly in term, while loans were down 2% year-over-year, mainly in corporate.
PNC deposits were up 6% year-over-year.
Speaker Change: Non-interest income was $3.6 billion, up 11% year-over-year, mainly due to higher trading revenues, wealth management revenues, and other fees and commissions.
Speaker Change: These were partly offset by lower fees related to the conversion of bankers' acceptances to loans due to the cessation of CDOR.
Speaker Change: The provision for credit losses were $1 billion, down $22 million quarter over quarter.
The PCL ratio was 54 basis points this quarter.
Speaker Change: Eurovia expenses were up a modest 1% driven by higher performance based compensation and technology related costs, partly offset by the favorable impact of foreign currency and lower communication costs.
Speaker Change: The productivity ratio is 56.1% this quarter, an improvement of 360 basis points year-over-year.
Speaker Change: The effective tax rate was approximately 22% this quarter compared to 15% a year ago, and 18.6% last quarter, driven by lower tax-exempt income, prior taxes, and lower income in lower tax year sections.
Thank you for joining us.
Moving to slide 9.
Capital.
Speaker Change: The bank's CET1 capital ratio was 13.1 percent, a decrease of 20 basis points quarter over quarter, and an increase of 10 basis points year over year.
Speaker Change: Earnings plus dividends contributed 13 basis points to CED 1 and the DRIP contributed 11 basis points.
Speaker Change: As a reminder, this quarter was the last dividend eligible for the DRIP discount.
Speaker Change: This was offset by 27 basis points from the $10 billion RWA goal, 8 basis points from the closing of the initial Key Corp investments.
Speaker Change: five basis points from the write-down of our investment in Bank of Zeon and nine basis points from other items mostly relating to foreign exchange.
Rajagopal Viswanathan, Philip Thomas, Rajagopal Viswanathan, Philip Thomas, Rajagopal Viswanathan,
Speaker Change: The $10 billion increase in risk-weighted asset was driven primarily by book quality changes from correlation changes and PD-LGD parameter recalibration that increased the result and corporate commercial loan books RWA density
Speaker Change: Turning now to the business plan results beginning on slide 10.
Speaker Change: The Canadian banking reported results of 1.1 billion dollars, an increase of 34% year-over-year driven by lower PCRs and higher revenue.
The business generated a positive operating leverage of 2.6%.
Speaker Change: Average loans and acceptances were up 1% quarter over quarter and up 2% compared to the prior year.
Speaker Change: Residence loans grew 6% year-over-year. Credit card balances grew 12% while personal loans and residential mortgage balances would each up 1%.
Speaker Change: We continue to see deposit growth as year-over-year deposits grew 7% driven by non-personal deposits growing 11% primarily in demand accounts and personal deposits growing 5% primarily in terms.
Speaker Change: Net interest income increased 9% year-over-year from asset and deposit growth and the benefit from BAs converting to loans.
Speaker Change: Net interest margin was flat year-over-year at 247 basis points as higher loan margins offset lower deposit margins.
Speaker Change: The margin was down 5 basis points quarter over quarter driven by changes in business mix and lower deposit margins.
Speaker Change: Non-interest income was down 9% year-over-year primarily due to lower banking fees, including the impact of BA conversion and the sale of the bank's equity interest in Canadian Tire Financial Services last year, partly offset by higher mutual fund fees.
Speaker Change: The PCL ratio was 40 basis points of 1 basis point quarter over quarter.
Speaker Change: Expenses were up 4% year-over-year, primarily due to higher technology, professional and advertising costs.
Speaker Change: Quarter-over-quarter expenses were up 3%, primarily from higher advertising and business development costs to support the bank's strategy and to drive business growth.
Turning now to Global Wealth Management on slide 11.
Speaker Change: Earnings of $426 million were up 28% year-over-year, as Canadian earnings were up 30% year-over-year.
Speaker Change: Quarter-over-quarter earnings were up 3% primarily from higher mutual fund fees partly offset by higher volume related expenses.
Speaker Change: Revenues were up 13% year-over-year driven by higher mutual fund fees and brokerage revenues across the Canadian and international wealth businesses.
Speaker Change: The expenses were up 6% year-over-year due primarily to higher volume-related costs.
Thank you.
Speaker Change: The spot assets on the management increased 18% year-over-year to 373 billion as market appreciation was partly offset by net redemptions.
Speaker Change: Asset fund administration grew 15% over the same period to over 700 billion dollars from higher net sales and market appreciation.
Speaker Change: International Wealth Management generated earnings of $63 million, up 21% year-over-year, as asset management, trust, and the brokerage business delivered strong double-digit growth.
Turning to slide 12, Global Banking and Markets.
Speaker Change: Global banking and markets generated earnings of $403 million, down 3% year-over-year.
Speaker Change: Capital markets revenue was up 7% year-over-year primarily from higher FICC revenues partly offset by lower equities.
Speaker Change: Quarter over quarter, capital markets revenue was up 6% from higher FICC revenues.
Business banking revenues were down 4% year-over-year and 3% quarter-over-quarter.
Speaker Change: Corporate investment banking revenues were down compared to the prior quarter partly offset by higher global transaction banking revenues.
Speaker Change: Losses and acceptances were down 18% year-over-year and 7% quarter-over-quarter to $101 billion, reflecting market conditions and continued balance sheet optimization.
Speaker Change: The business is also focused on reducing unprofitable less stable deposits that was down two billion dollars quarter over quarter on a spot basis.
Speaker Change: Net interest income decreased 8% year-over-year, primarily due to lower corporate lending and deposit volumes.
Speaker Change: Non-interest income was up 4% year-over-year due to higher fee income, mostly underwriting and advisory fees, and stronger trading-related revenues.
Speaker Change: The business is focused on reducing its reliance on lending revenue and growing fee revenue, a trend that was evident this quarter.
Speaker Change: Expenses were up 6% year-over-year due mainly to an increase in personnel and technology costs to support business growth and the negative impact of foreign currency.
Speaker Change: Quarter-over-quarter expenses were up three percent, largely driven by higher personnel and technology costs.
Speaker Change: The U.S. business generated earnings of $217 million, down 5% year-over-year, driven by lower corporate and investment banking earnings, partly from RWA optimization efforts offset by higher capital markets revenue.
Speaker Change: GBM Latin America, which is reported as part of international banking, reported earnings of $264 million, up 5% compared to the prior year, but down 7% compared to the prior quarter.
Speaker Change: Moving to slide 13 for a review of international banking, my comments that follow are on an adjusted and constant dollar basis.
Speaker Change: The segment delivered earnings of $3334 million up 18% year over year.
Speaker Change: Quarter over quarter, on a reported FX basis, earnings declined 6%.
Speaker Change: primarily relating to a weaker Mexican peso and GBM Latin America earnings that was down 7% driven by lower client activity.
Speaker Change: Revenue was up 7% year-over-year as net interest income was up 5% driven by margin expansion.
Speaker Change: Net interest margin expanded 25 basis points year-over-year and was stable quarter-over-quarter at 442 basis points, driven by higher loan and deposit margins offset by business exchanges.
Speaker Change: Year over year, loans were down 2%, primarily in Brazil, Peru, and Chile.
Speaker Change: Total business loans declined 7%, partly offset by year-over-year growth of 5% in margins.
Speaker Change: Deposits were down 1% year-over-year while personal deposits grew 1%, non- personal deposits declined 3% year-over-year.
Speaker Change: The provision for credit losses was $556 million, translating to 137 basis points, down 2 basis points quarter to quarter.
Speaker Change: The expenses were up a modest 1% year over year, driven mainly from higher salaries and benefits, and reflect international banking's focus on managing expense growth in a high inflationary environment.
Quarter-over-quarter expenses were flat.
Turning to slide 14, the other segment.
Speaker Change: The other segment reported an adjusted net loss of $453 million compared to a loss of $465 million in the prior quarter.
Speaker Change: Net interest before income and taxes improved $114 million quarter over quarter from higher revenues primarily driven by lower funding costs benefiting from rate cuts.
Speaker Change: This was largely offset by higher taxes from adjustments related to prior taxes and the lower pre-tax loss.
Speaker Change: We expect the improvements in net interest income to continue through 2025 and into 2026 in this segment.
Phil Thomas: I'll now turn the call over to Phil to discuss this.
Thank you, Raj. Good morning, everyone.
Phil Thomas: All bagged PCLs were 54 basis points this quarter, and the full year total PCL ratio was 53 basis points.
Phil Thomas: Looking forward to 2025, we expect our full year total PCL ratio to be in the mid 50s basis point range.
Phil Thomas: remaining elevated in the first half of the year with the more positive trends toward the end of 2025.
Phil Thomas: PCL performance throughout the year was driven by an uncertain macroeconomic environment that saw elevated unemployment levels and higher for longer interest rates.
Phil Thomas: Looking at Q4 specifically, all bank PCLs of approximately $1 billion were down $22 million for one basis point quarter-over-quarter, primarily driven by lower-performing provisions in Canadian retail, as recent rate cuts will lessen the payment shock experienced by fixed-rate mortgage clients at renewal.
Phil Thomas: increased impairments in Canadian retail and one account in Canadian commercial.
improve client performance across most of our international retail portfolios.
Phil Thomas: We remain comfortable with our ACL coverage at $6.7 billion, or 88 basis points, down one basis point quarter over quarter.
Phil Thomas: Over the last two years, we have built $800 million of performing allowances in anticipation of potential impacts from higher-for-longer rate environment, and we are now seeing some migration as expected.
Phil Thomas: Turning to Canadian banking, PCLs were $450 million, or 40 basis points, up one basis point quarter over quarter.
Phil Thomas: Retail PCLs were down $10 million quarter over quarter driven by lower performing allowances as recent rate cuts lessened renewal risk faced by our fixed-rate mortgage clients.
Phil Thomas: Impaired retail PCLs were up quarter over quarter as higher impairment was observed across most products but mainly driven by expected formations in mortgages and HELOCs.
Phil Thomas: Despite increased impairments, we are encouraged by mortgage tail risk, remaining stable and comfortably below 1% of outstanding retail balances.
Phil Thomas: Furthermore, our mortgage clients' deposits have trended upwards for the second consecutive quarter after falling from pandemic highs.
Phil Thomas: Overall, we remain comfortable with our portfolios as they continue to perform as expected.
Phil Thomas: Moving to international banking. PCLs were $556 million in Q4, resulting in a PCL ratio of 137 basis points.
down two bases, points quarter over quarter.
Phil Thomas: Retail PCLs improved $27 million quarter-over-quarter, as Stage 3 improved in most markets.
Phil Thomas: Performing retail PCLs were down 40 million dollars, driven by lower delinquency, some migration to impaired, and an improved macroeconomic outlook across our international markets.
Phil Thomas: We continue to monitor our portfolio closely, but we are encouraged by improved performance in our retail portfolio, with overall 90-day delinquency declining quarter over quarter.
Phil Thomas: Looking at our international commercial portfolio, PCL has improved quarter over quarter, down $6 million.
Phil Thomas: As I mentioned earlier, we expect our full-year total PCL ratio to be in the mid-50s basis point range. We expect it will remain slightly elevated in the first half of the year and trend positively through the end of 2025.
Phil Thomas: Our outlook is guided by clients continuing to manage the higher-for-longer rate environment until expected benefits from lower interest rates work their way through client balance sheets in a mixed macroeconomic environment.
Phil Thomas: Across our markets, despite expected stabilization of inflation and unemployment, we continue to monitor our portfolios closely given the macroeconomic uncertainty and remain mindful of potential geopolitical risks.
Speaker Change: With that, I will pass the call back to John for Q&A.
John McCartney: Great. Thank you, Phil. Operator, please queue the line for questions. Please limit yourself to one question and re-queue if you have another.
Speaker Change: Thank you. We will now take questions from the telephone lines. Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience.
Speaker Change: Our first question will be from Abraham Poonawalla from Bank of America. Please go ahead.
Good morning.
Speaker Change: I guess maybe, Scott, going back to the summary that you provided in terms of...
Speaker Change: this the strategic sort of execution around the turnaround. I guess this big picture if you look at top down, give us your comfort level as we think about the five to seven percent earnings growth this year.
Speaker Change: What pushes us to the higher end or maybe even above the higher end of the target, given the macro backdrop that you are assuming in your forecast?
Speaker Change: As we think about the ROE improvement, 11.3% for full year.
Speaker Change: Do we exit 2025 with something that's not of 13%? Thank you.
Speaker Change: Great, thanks Ibrahim. As we look through 25 and then importantly 26, I think we have a high level of confidence in
Speaker Change: The 5 to 7 percent in 25 and then frankly double digits in 26
Speaker Change: and its earnings growth and I think it's driven by a couple factors. Obviously if you look at the PPPP growth here, it's strong across all businesses.
Speaker Change: and what could determine higher or lower on that five to 7% in the longer term is obviously the PCLL book, and they'll highlight it. You know, we think it's gonna get modestly better through the back half of the year, and that's an important assumption.
Speaker Change: I think the second piece is just the rate environment, and as you know, we are well positioned for a declining rate environment. You're starting to see, it was really nice to see in the fourth quarter, the $114 million improvement.
in the other segment.
unfortunately offset by the one-off tax.
Speaker Change: But you're going to see it in the first quarter come through and you're going to see it accelerate through the back half of the year. And so that is the underpinning of that 5% to 7% growth.
Speaker Change: As I look to, you know, one year out, you also have the addition of key.
Speaker Change: and we're hopeful that that happens in the first quarter. That's a meaningful NII contributor and that is a component of the double-digit growth into 2026 that we talked about. The five to 7%, to be clear, does not include any contribution from key in that 25 outlook.
Speaker Change: In terms of ROE expansion, I'm not going to give you a target, but that is the key metric that we're driving towards, right? You can see the capital discipline. You can see the cost discipline. The operating leverage in the bank was really encouraging. I can feel it across all of the business lines that they're really taking this cost discipline seriously. And then on the capital allocation, to see us move capital among the bank into this North American Corridor strategy.
Speaker Change: was really encouraging, and I called out International in my opening comments, the $9 billion reduction in RWA and record earnings growth.
Speaker Change: in that business. Similarly in GBM, we're optimizing that balance sheet as well, and those types of attributes are gonna rise to or drive higher ROE in the enterprise.
Speaker Change: and the first instance of that is international. We saw an international ROE uptick between 23 to 24 that was meaningful. So we'll continue to see that progress and that will lead to the 14% plus ROE we have in the five-year plan.
All right, I'll leave you. Thanks, Scott.
Speaker Change: Thank you. Our following question is from Gabriel Deschenes from National Bank Financial. Please go ahead.
Gabriel Deschenes: Good morning. I just want to ask about that international business a bit, both the P&C component and then the GBM component. So loan balances have been declining both in the mortgages and the commercial side of things.
Gabriel Deschenes: Your outlook for international overall didn't sound too bullish, and lower earnings next year. I'm wondering if that's become more pessimistic or more cautious in the wake of what happened in the U.S. election? Is there reduced CapEx investment in some of these countries, and factoring the impact of dollarization and all that stuff? Just wondering if you can give an updated perspective.
Thank you for the question. Francisco here. Good morning, everyone.
Gabriel Deschenes: A couple of things, let me try to tackle the question in two fronts. One is what are we doing deliberately to improve our performance and the other one is the environment that we expect will prevail in 2025.
Gabriel Deschenes: We have been deliberately working on returns, and that has led to
Gabriel Deschenes: the reduction or reallocation of RWA-UA out of IP into higher returning opportunities. And that's the nine billion dollars that Scott and Raj mentioned earlier in the call. That has been a deliberate effort to improve our returns, and that has tackled both GVM
Gabriel Deschenes: commercial banking, as well as retail. That is an integral part of the transformation period that ends at the end of 2025, which we are very much on track to complete by the end of the next calendar year.
Gabriel Deschenes: Now, the environment around us is something we're adapting to. And what we expect in 2025 is that Mexico, Chile, and Peru
Gabriel Deschenes: all economies will grow slower in 25 than they grew in 24.
Gabriel Deschenes: We don't believe that it will be a massive slowdown, but it will be slower. For example, in the case of Mexico, we expect it to grow at 1% or less.
Gabriel Deschenes: In the case of Peru, we expected to grow maybe 0.2% less, and in the case of Chile, also 0.2% to 0.3% less than D.C.
So
Gabriel Deschenes: That is an element that we need to adapt to and we've got to be very nimble in making sure that we continue to improve our productivity on the back of our regionalization effort.
Gabriel Deschenes: So that path continues strong, and as you see the expense performance this year, we see that continuing in 2025, preparing us to maximize returns in 26 and beyond. So that's a little bit of how we're tackling these two avenues of deliberate work to improve returns while adapting to a potentially slower growth environment in 25 that should recoup in 26.
Speaker Change: Okay and then aside from you know your cost you know your productivity gains and stuff like that what else can you adapt how else can you adapt?
Speaker Change: Well, there's there's a number of efforts at play right so as going back to what we committed to at Invest Today The North Star is primacy and that is the driver across all segments
Speaker Change: So, in the case of GVM, it's really driving our transaction banking business at the heart of the relationships, moving from a lending-only relationship to a fully cross-sold, transaction banking-driven relationship. And to that effect, we've made great progress in the global transaction banking platform across all markets. And that will be continued on in 2025.
Speaker Change: In the case of commercial, we've regionalized the commercial banking model in IB, and we're now driving a consistent segmentation and value proposition across all markets. That's going to give us scale, but also better discipline in terms of how we deploy the balance sheet, while completing the value proposition with stronger transaction banking efforts.
Speaker Change: In the retail bank, it's now fully regionalized. That means that we are consistently segmenting that business across all countries in affluent, emerging affluent, top of mass and mass. We now have P&Ls stacked against each of those four segments, and that is driving very consistent value proposition in each segment. That is driving scale that before we couldn't achieve.
That has also rationalized our approach to expenses.
Speaker Change: So right now, we have moved all budgeting powers to a regional office.
Speaker Change: both for operations and technology, for example. And what that is allowing us to do is prioritize investments for scale. So we're moving to our common app, we're moving to common processes and procedures. All of that is driving scale to a degree that we couldn't reach before. Again, all of that is deliberate and is an integral part of how we are ahead of our cost, roadway, efficiency drivers towards 2028. So that process will continue in 25 as we position ourselves to maximize the benefit in 26 and beyond.
Okay, thank you.
Speaker Change: Thank you. Our following question is from Matthew Lee from Canaccord Genuity. Please go ahead.
Speaker Change: Hi guys. Thanks for taking my question. Maybe a clarification on the RWA growth this quarter. I think you guys mentioned book quality changes. It seems like exposure you're seeing is expanding pretty much every quarter, but sort of jump this one. So I know part of it's recalibration, but are there any changes in the risk of the book to call out? And how should we think about RWA growth impacting capital for 2025?
Speaker Change: Sure, Matthew. It's Raja. I'll take that question. So you got it right. There was some migration in the corporate book, too. That was about a couple of billion dollars of the $8 billion. The rest was all about the calibration that I referred to in my prepared remarks.
Speaker Change: I think RWA growth for us is, you know, in 2025 compared to 2024, is going to be driven by organic growth.
Speaker Change: From time to time we could have migration. That's just part of the business we are in. We are in multiple countries, you know, various portfolios drive migration, be it retail or corporate commercial.
Speaker Change: Hard to predict but it's not something that we're looking forward saying this could you know increase our RWA consumption in 2025. Could be a few basis points.
Speaker Change: you know, early part of the year and so on. But I think organic growth is going to drive some of the internal capital generation that we have. It's going to get deployed in, you know, good quality growth in line with the comments you've made, you know, primary customers and so on, that should drive superior returns to what we generated in the past.
Speaker Change: The capital ratio, like we have said before, we are quite comfortable operating, you know, a little north of 12.5% seems like the right capital ratio for us as we think about how we increase the return on equity of the company as well.
Speaker Change: Okay, that's fair. Then, you know, could we potentially see a reversal of that?
Speaker Change: of that increased exposure or that growth if macro-environment gets better.
Speaker Change: Yeah, absolutely. I think, you know, credit quality is always a factor. It moves around every quarter, as you probably know. You know, multiple portfolios drive it up or down. Depending on the outlook, I would say in the first half of the year, a little less probability, Matthew, the way we see it, because, you know, you just heard from Francisco about a lot of low-growth economies as well, so we're going to be cautious.
Speaker Change: And capital, as you know, PDs, LGDs are always conservative. PDs through the cycle, LGDs are downturn, LGDs. So it factors into our models and our metrics that come about. But I would say the second half, we might likely see some benefits.
Speaker Change: But I don't think there should be any major deterioration in the first half, but it could be a few basis points.
I'll get on top of it. Thanks Matt.
Speaker Change: Thank you. Our following question is from Paul Holden from CIBC.
Speaker Change: Good morning. I have a question for Phil. On the Canadian residential mortgage book, I saw a bit of an uptick in impairments this quarter. I know you commented that it was something you expected, but I'm just wondering if you can provide any more details on what drove it. It was just simply interest rate pressures and then with, you know, renewals unfixed.
Speaker Change: mortgages coming up in 2025, why that's not going to be more problematic if that's the case, and or if there's a certain cohort of mortgages this quarter that saw more pressure than the overall book.
Speaker Change: Thanks for your question, Paul. Listen, I think across our retail book in Canada we're definitely seeing some impact of hire for longer, lose a soft recorder from a GDP perspective, some unemployment.
So, not totally unexpected.
Speaker Change: But we are seeing some, as it relates to our mortgage portfolios specifically, we're starting to see some green shoots as it relates to interest rates starting to come through.
Speaker Change: And if I, but if I look at the 91 plus that you're referring to, and I double click on what's driving that, it's about 250 customers, primarily in Toronto and Vancouver.
Speaker Change: that are driving that uptick this quarter. In terms of FRM, we're actually seeing some improvement as customers come in for renewal in that portfolio.
so optimistic there. And maybe just a comment.
to give you maybe a little bit more context.
Speaker Change: From a deposit perspective, we actually saw some interesting trends as well this quarter.
Speaker Change: fixed-rate mortgage customers holding about 6% more in their deposit account quarter-over-quarter and VRM customers
Speaker Change: about 5.5% more in their deposit account. So you can start to see there's some early signs. I mean, one period is not a trend.
Speaker Change: but there's some optimism there. I would say on the credit card portfolio, you saw some uptick.
Speaker Change: in a delinquency there. We expect that portfolio will stay higher, probably into the first half of 2025, as I guided in my outlook. So we're continuing to expect a little bit more deterioration in that portfolio. And so we'll manage that as we move forward.
Speaker Change: Can I speak in one really quick one for Scott? You said hopeful key closes Q1. Is that calendar or fiscal?
calendar. Thank you. Okay, perfect. Thank you.
Speaker Change: Thank you. Our following question is from John Hagen from Jeffries. Please go ahead.
John Hagen: Good morning. In the MD&A, you talked about some pressure from Brazil negatively impacting top and bottom line international.
John Hagen: A little surprised that this got called out because I did not think that the Brazilian operations were that meaningful to have no real impact on the international.
John Hagen: Can you describe what happened in the quarter and try to give us some sort of quantification in terms of what the scale of the operations are in Brazil?
Speaker Change: I'll help you with that, John. You're right. You know, Brazil is a very unique operation we have. It's very targeted.
Speaker Change: towards very high quality corporate clients. We built that business over many, many years.
Speaker Change: Brazil contribute somewhere, you know, it can vary by quarter because it's very transactional driven
Speaker Change: It'll be about $50 million a quarter in that range NIAC, some quarters being slightly higher and some lower.
And that's what happened to us in Q4.
Speaker Change: One of the transactions, which was expected to close, got delayed because of the currency impact from the U.S. elections and so on. There was volatility. The client chose to close it like 10 days afterwards, so it impacted a few poor results.
Speaker Change: Plus Brazil is one of those that we are focused on saying are we getting the appropriate returns for the capital that we have deployed over there, all part of the capital optimization strategy. But I think Brazil is a very strong operation for us. It's a corporate bank operation, we don't have anything else over there and it's a very unique operation in that it contributes very consistently somewhere in the 50 million dollars range per quarter.
which was lower this quarter.
Great, thanks, appreciate the call, Raj.
Thanks y'all.
Thank you.
Speaker Change: Our following question is from Mario Mandonca from TD Securities. Please go ahead. Good morning. First for Phil. Phil, when you offer the mid-50s guidance on total PCOs, could you give us any insight into what that implies on the performing side? What I'm getting at here is are we at the stage now where the allowances have been sufficiently built up that we can actually see the releases come through the way IFRS 9 was sort of intended?
Phil Thomas: Yeah, I think that's fair, Mario. As I said in my prepared remarks, we built over the last two years with the anticipation that we would hit, and now we're starting to release into that. And so, as I said earlier, performing as expected.
Speaker Change: And then on capital, maybe Raj or Scott, can you talk about what dividend growth expectations would be like in 2025 with that resume? And also, is there room for Scotia to start to return capital shareholders in other ways, like BIVAX, for example?
Speaker Change: Just sort of in line with that outlook you have for are we improving over time.
Speaker Change: I know you're not talking about this year necessarily, but... Yeah, it's a great question, Mario. I mean, as we didn't grow the dividend this year, as you know, because we had earnings last, and now as we resume earnings growth in that 5% to 7% range and then accelerating beyond that, we'll see a resumption of the dividends.
Speaker Change: This is my expectation. We're going to have to grow into the payout ratio, and we'll do that over multiple years, but you should see modest improvements in the dividend is my expectation.
Speaker Change: On the share repurchase side, we're not there yet, but it's on our minds. And so as we go through 25 and close the key acquisition and start generating some of those earnings, I think it's going to be a topic of discussion with shareholders back after the year.
in 2006.
Thank you.
Thank you for your time.
Thank you.
Speaker Change: Our following question is from Namar Prasad from Comrac. Please go ahead.
Speaker Change: Thanks for taking my question. Maybe for Scott or Raj, can you guys help me clear up why, despite a higher tax rate,
Speaker Change: challenges in primary client growth and perhaps a tougher economic backdrop in international why the five to seven percent EPS growth X key corp is still in play for 2025 like is it all down to lowering interest rates versus when you provided the guidance at investor day last year just talk about some of the big factors and driving that five to seven percent thanks
Speaker Change: Sure, happy to do that, Lamar. It's Raj. I'll break it down by business line so it makes it easier and relate it back to the investor day comments that we made.
Speaker Change: We were clear in the investor day on international banking that it would be lower in 2025 compared to 2024. One of the drivers is the tax rate. The other driver is everything that Francisco talked about. This is about how we want to optimize the capital deployment.
Speaker Change: and that's the short-term right decision. So it's playing to our investor day plan, frankly, and that's what we expect in 2025.
Speaker Change: Canadian bank earnings will grow, you know I called it solid which is another way of saying you know it would be low to mid single digits from our perspective on earnings. That's going to come primarily from perhaps stable PCLs because like Phil said we have built a lot.
Speaker Change: So, hopefully, you know, it doesn't require more PCLs, as well as loan and deposit growth, both of which are expected to start accelerating in 2025 compared to 2024, again, in line with Investor Day.
Speaker Change: Wealth Management. Wealth Management, you saw this year, you know, pretty close to 10% growth in earnings. That's what it should do in 2025 as well, again, in line with what we talked about yesterday. As AUM starts growing, markets are helping as well.
Speaker Change: But we also have the initiative to sell, you know, retail mutual funds through the branches and so on, part of the strategic initiatives in wealth. So we're quite confident about the growth and wealth management is going to help us. And finally, like what you said.
Speaker Change: You know, the rate situation is a big contributor. You've already started seeing it in the other segment, over $100 million NII improvement this quarter. That should continue into Q1 and then start accelerating as well as the full benefit of the rate cuts start playing into it.
Speaker Change: GVM this was a tough year for them because the dividend received reduction but excluding that they grew 9% so you know mid single digits growth and GVM is what we expect again as they start rationalizing capital I think they're in the back half of that to see how we can continue to improve the profitability
Speaker Change: macro will always be a factor you know we estimate it as best as we can whether it's FX rates or macro but I don't think that should have a serious impact to the five to seven percent maybe push it closer towards the midpoint of five to seven percent from what we thought at the beginning of the year and we talked to you at the end yesterday.
Speaker Change: And if I could squeeze in just a really quick one here, just Scott for you, when you mentioned the double digit EPS growth for 2026, does that include Keycorp or is that XKeycorp?
Scott Thompson: Yeah, no, it would be including KeyTorp because you have the benefits of the PGPT growth. You have a little bit of a better macro environment, so PCL is moderating. You get the benefits of the rates.
Scott Thompson: and then you have Keycorp on top of that. So, you know, it's mid-digit, double-digit, if that makes sense, you know, because there's a lot, there's three big components there. So it's a very attractive 2026 profile if those things play out as we expect.
Thank you very much.
Speaker Change: Thank you. Our following question is from Jill Shea from UBS. Please go ahead.
Speaker Change: Thanks so much for taking the question. Raj, just on the other segment, we did see that NII number improve this quarter. Just curious if you could give us some more color in terms of both the NII trajectory into 2025 with recuts as well as the bottom line results in other segments, just given I presume that tax rate hit is going to run through the other segment. Any color there would be appreciated.
Speaker Change: Absolutely, Jill, and nice to take your call. The NII improvement, like you said,
Speaker Change: primarily from lower funding costs, that should continue. For the $100 million, I expect it to be something consistent next quarter as well, as we see the benefits coming from, you know, rate cuts that have happened. And to be clear, we are most exposed to the Canadian rate cuts.
Speaker Change: Our U.S. book tends to be floating on both sides, so it's not a huge, you know, differentiator whether rate cuts happen or not, but the Canadian book will certainly benefit as rate cuts come through, and that will show up in this segment.
Speaker Change: This quarter, there was some noise in the expense line, if you look at it. The bottom line, you know, $453 million this quarter, I think we'll get to the low 400s next quarter and then get into the 300s as the year goes by.
Speaker Change: The tax rate in this segment, if you just calculate it, it's about 35%, and that's what I expect for the rest of next year as well. This segment should have a tax rate around 35%. That's the right tax rate.
Speaker Change: As you know, this segment has got a lot of components, Group Treasury being one of the big components which we have our investment book as well as our funding books. And then we do operate in multiple countries, which are all aggregated in some of these smaller segments, as we call it, non-related to the business.
Speaker Change: So 35% is the right tax rate, you know, global minimum tax is coming up, so 1% is going to increase for the bank as a whole.
Speaker Change: So this segment, like I said, should get down to the low 400s and then get into the 300s for the rest of the year, mostly driven from NII improvement.
Speaker Change: The investment gains which go through NIR, you know, that can be lumpy, as you know. You know, some quotas we might have some gains, other quotas we may not. Right focus on the NII line, and that should start reflecting in the bottom line.
Okay, thank you.
Speaker Change: Thank you. Our last question is from Saurabh Movahedi from BMO Capital Markets. Please go ahead.
Speaker Change: Okay, thank you. I just wanted to clarify something with Phil. Phil, for 25, I think...
You said, let's call it mid-50s.
PCL
Speaker Change: Do you expect 25 PCLs to be higher than 24 PCLs?
Speaker Change: So right now we're signaling we're going to be sort of right in line with where we are. And again, Saurabh,
Speaker Change: in my prepared remarks, will be slightly elevated in the first half of the year with
Speaker Change: improved performance coming down the second half year. That's how we're that's how we're forecasting things right now.
Speaker Change: I mean, I don't want to put too fine a point on it, Phil, but in your subpack, you have 2024 total bank PCLs, 53 basis points.
That seems to me to be mid-50s.
Speaker Change: and you finished the second half with 55-54. So when you say first half of next year might be a little bit elevated, it could be higher than how the second half of this year has gone? Is that what you're implying to us? I would think about it flat to slightly elevated and then starting to come down the second part as we head to Q3 and to Q4.
But, I mean, you've got one of the smallest relative...
Speaker Change: credit card books. So, what's causing this degradation in the first half of next year? Remember, we have the SDA portfolio, the near-prime auto book. That actually operates similar to a credit card portfolio with the other Canadian banks in terms of the credit performance we're seeing in that book today.
And so, you know, there's
Speaker Change: As I said in my preparation, we've built allowances. We've expected this to come through for a little while. If you also look in the investor slides into some of the international portfolios, you'll see that there's some...
91 plus in the Mexican portfolio.
Speaker Change: And so that's causing a little bit of noise as well as we look towards these are customers that
Speaker Change: had deferrals through the pandemic that are now sort of rolling off given our write-off policy in that market. We have some of these non-core portfolios we're looking at in international, such as the one we have in Chile. And so there's a few moving parts that we're just simply mindful of in the overall retail portfolios.
Speaker Change: Yeah, ROA, as you know, is slightly lower now. It's around the 60 basis points. We expect that to continue to improve. So, you know, I would say around 2026 we should be closer to the 80 basis points. Eventually, we want to get to 100 basis points, which might be in the second half of the five-year plan.
I appreciate that you taking my call. Thank you.
Speaker Change: Thank you. We have no further questions at this time. I would now like to turn the meeting back over to Raj.
Raj Viswanathan: Thank you very much, and on behalf of the entire management team, I want to thank everyone for participating in our call today. We look forward to speaking again at our Q1 call in February. This concludes our fourth quarter results call. I wish you all a great day.