Q1 2025 The Bank of Nova Scotia Earnings Call - Q&A
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Speaker Change: Good morning, and welcome to Scotia Bank's 2025 first quarter results presentation. My name is John Mccartney and I'm head of Investor Relations here at Scotiabank.
Speaker Change: Presenting to you. This morning are Scott Thompson, Scotiabank, President and Chief Executive Officer.
Raj Viswanathan: Raj Viswanathan, our Chief Financial Officer, and Bill Thomas our Chief Risk Officer.
Raj Viswanathan: Our comments, we'll be glad to take your questions also present to take questions are the following scotiabank executives arris bogged in Ers Canadian banking, Jackie alerts from global wealth management.
Raj Viswanathan: Francisco <unk> from international banking.
Raj Viswanathan: Travis mentioned from global banking and markets.
Speaker Change: Before we start and on behalf of those speaking today I refer you to slide two of our presentation.
Speaker Change: Which contains scotiabank caution regarding forward looking statements with that I will now turn the call over to Scott.
Speaker Change: Thank you John and good morning, everyone.
Speaker Change: 2025 is off to a strong start we are seeing encouraging signs in this quarter's results that our enterprise strategy is having the desired impact on our financial performance.
Speaker Change: We delivered adjusted earnings in the quarter, a $2 2 billion or $1 70, 676 per share, reflecting a strengthening revenue led crime franchise growth coupled with the favorable impact of easing funding costs from lower rates.
Speaker Change: I am, particularly pleased with a 15% year over year growth in noninterest revenue.
Speaker Change: Our relationship based businesses, including our advisory business in global banking and markets and our advice channels and well coupled with our wealth management product sales throughout our domestic retail channels were all strong contributors to the acceleration of growth.
Speaker Change: Our provisions for credit losses, this quarter remained elevated reflecting the toll on our clients have higher interest rates and inflation over the past few years. In addition to the heightened current geopolitical uncertainty and its potential impact on economic growth.
Speaker Change: Our balance sheet metrics remains strong the.
Speaker Change: The work we've done over the past two years in managing our capital strengthening the balance sheet and responsibly building allowances have set a solid foundation, enabling us to manage through this period of volatility and continue to fund our strategic growth objectives in 2025 and beyond.
Since the end of 2022, we have improved our capital ratio by approximately 140 basis points built approximately $1 6 billion in additional allowances for credit losses, and significantly improved our liquidity ratios.
Speaker Change: We added almost $350 million to our allowances this quarter.
Speaker Change: We are a much stronger bank today aware of current heightened risks and prepared to respond to more tangible trade developments.
Speaker Change: We remain focused on driving forward are very clear and sound strategic agenda.
Speaker Change: To recap our key focus areas.
Speaker Change: We continue to focus on allocating incremental capital and resources to our priority markets.
Speaker Change: This quarter, we closed our investment in key Corp, which is an example of our active capital deployment strategy into the U S market.
Speaker Change: This investment is immediately accretive to our earnings growth and return on equity metrics.
Speaker Change: We also announced the sale of our banking operations in Colombia, Costa Rica, and Panama definitely end up for an approximate 20% ownership stake in the newly combined entity.
Speaker Change: We expect the transaction to be capital neutral and our earnings pickup to be well ahead of what our Scotiabank franchise would've earn stand alone.
Speaker Change: Second we continue to focus on our north star, earning client privacy and growing core deposits.
Speaker Change: Our overall bank funding profile continues to strengthen with strong year over year deposit growth of 4% with positive contributions from each of our business lines that outpaced loan growth and reduced our loan to deposit ratio to 105%.
Speaker Change: Value over volume remains an enterprise wide priority.
Speaker Change: We continue to see an acceleration of multi product clients in Canadian retail as we enhance our client acquisition strategies through initiatives like mortgage plus and <unk> plus.
Speaker Change: Penetration of the 15 million seen plus members across Canada continues to grow.
Speaker Change: 25% of <unk> plus members now have of Scotiabank payment product up 50 basis points in the quarter.
Speaker Change: An impressive 89% of our new mortgage originations in Canada in Q1 came through our mortgage plus packaged offerings.
Speaker Change: In Canadian retail on a cumulative basis since our strategy launch we have now added 200000, new primary clients.
Speaker Change: Although primary client growth has decelerated due to the notable immigration slowdown we continue to see good momentum in the number of clients, we consider primary which reached 30% of total clients in the quarter.
Speaker Change: <unk> depth and Canadian retail continues to trend above target with clients holding three or more products, increasing sequentially to approximately 47% up 30 basis points.
Speaker Change: And we're also successfully growing primary clients and international retail we have now welcomed 113000, new primary client scotiabank since our strategy launch and are seeing positive trends in overall clients considered primary and revenue per international banking retail client.
Speaker Change: Third we continue to demonstrate operational excellence and return discipline.
Speaker Change: We delivered again on positive operating leverage while investing in frontline product specialists in retail increasing the sales force in wealth and additional sectorial coverage professionals in GBM and our drive to deliver best in class solutions to our clients.
Speaker Change: Yeah.
Speaker Change: We delivered an 11, 8% return on equity Q1, representing solid sequential progress, but we know the opportunity exists in each of our business lines and geographic markets to drive stronger ROE performance, we have the scale and strategies in place to do so.
Speaker Change: Finally, we have updated our approach to business segment presentation to be consistent with management's evaluation of the financial performance of the segments.
Speaker Change: Changes will support better decision, making around pricing and capital allocation to help the bank achieve its financial and strategic medium term objectives.
Speaker Change: Turning to a few key performance metrics and strategic highlights from each of our business lines Star.
Speaker Change: Starting with our markets facing businesses.
Speaker Change: Global wealth management continued its positive momentum delivering $414 million in earnings as we continue to invest in the growth of our advice channels and broaden the distribution breadth of our differentiated asset management franchise.
Favorable markets strong trading revenues and a return to positive net fund sales drove fee, earning assets to record levels as we exceeded $730 billion of assets under administration led by our Scotia, Mcleod retail asset management and private investment counsel businesses.
Speaker Change: Growth in investment fund sales across our branch wholesale and Scotia financial planning channels remain our leading strategic priority in this business.
Speaker Change: Strong fund sales in the quarter were up 50% over last year, and we expect strong net sales to accelerate through the year.
Speaker Change: We are tracking ahead of our targets year to date in terms of new clients financial plans delivered and client retention.
Speaker Change: New financial plans delivered in Q1 were up 10% year over year and average revenue per account is up 13% year to date.
Speaker Change: We are performing well on referrals between our wealth and retail business with more work needed to meet referral targets between wealth and commercial banking.
Speaker Change: Referral volume between our wealth and retail businesses was $2 $5 billion in the quarter, an increase of 16% over last year.
Speaker Change: We continue to invest in technology to make it easier for our advisors to do business with their clients and in frontline staff to deliver total wealth solutions to our wealth and retail clients of the bank.
Speaker Change: Global banking and markets had a very strong start to the year up 33% year over year in Q1, with particular strength across our capital markets businesses as clients reacted and reposition their portfolios in response to evolving macro and geopolitical developments.
Speaker Change: Capital markets businesses contributed 54% of the GBM revenue this quarter as our origination and advisory business has delivered one of the strongest quarters on record.
Speaker Change: Average deposits were up 3% and return on equity improved 350 basis points year over year, while demonstrating capital discipline.
Speaker Change: Our underwriting and advisory practice also had an impressive start to the year up 61% year over year, and 33% sequentially and our pipeline remains strong looking into the year subject to continued constructive market tone and supportive financing conditions.
Speaker Change: Our global banking and markets team continues to exceed targets on lead relationship client growth, while deliberately reducing our absolute exposure to lending only client relationships.
Speaker Change: We are seeing good progress and competitive positioning across our footprint.
Speaker Change: In Canada, our debt capital markets and equity capital markets teams delivered number one and number two league table ranks respectively.
Speaker Change: Our U S debt capital markets team break that outstanding 11th in the period and on the M&A side, we were the number one adviser by deal value in the Latam markets in which we operate.
Speaker Change: Canadian banking had solid revenue growth driven by asset margin expansion and well diversified fee income growth. However results. This quarter do reflect the impact of higher credit provisions because of the portfolio migration and a more cautious consumer outlook.
Speaker Change: Our commercial banking business delivered growth through capital discipline, while our expanded cash management capabilities drove deposit growth.
Speaker Change: The commercial business continues to show a very attractive funding profile generating deposit growth of over $10 billion year over year, while assets grew a modest 3 billion.
Speaker Change: Commercial is an increasingly important source of cross sell fee revenue to both our GBM and global wealth businesses.
Speaker Change: Retail deposit growth was up 4% year over year as we continue to focus on day to day and savings accounts.
Speaker Change: In addition investments find it an insurance product sales, which are a key priority to drive higher noninterest revenue saw a double digit growth.
Speaker Change: Capitalizing on our <unk> plus in mortgage plus opportunities will be required to deliver on our client growth objectives.
Speaker Change: Tangerine continues to increase primary clients aligned to our goal of deepening relationships through everyday banking.
Speaker Change: This quarter digital active clients reached an all time high of one 4 million.
Speaker Change: We have a new leadership team in place at Tangerine, who will be intently focused on relationship depth and find acquisition.
Speaker Change: Primary client growth improve productivity business makes diversification with a focus on fee businesses, coupled with the normalization of the credit environment will be the drivers of future earnings growth from our domestic banking franchise.
Speaker Change: International banking delivered solid results based on diversified revenue growth by segment and geography, coupled with strong expense discipline.
Speaker Change: Our GBM business in this segment had a strong rebound in activity levels and profitability delivering $330 million in earnings with lower capital deployed.
Speaker Change: We continue to reposition our retail business, while strengthening our commercial business.
Speaker Change: Specifically in commercial this quarter, we saw a primary client expansion with deposits growing 9% year over year driving improvement in customer revenue by 8%.
Speaker Change: Our productivity ratio improved to 51% this quarter, a result of 4% revenue growth and disciplined 1% expense growth year over year.
Speaker Change: Productivity ratio is expected to continue to improve as the benefits of our move towards a regional model take effect.
Speaker Change: We are well on pace to achieve our medium term run rate savings commitment of $800 million.
Speaker Change: And in all bank level, we are encouraged by our strong results this quarter.
Speaker Change: Excluding the impact of any potential tariffs we are on track to deliver 2025 earnings growth towards the higher end of our 5% to 7% range prior to the key Corp earnings pick up.
Speaker Change: Our balance sheet strength provides us flexibility in the near term to successfully manage through the various economic and trade scenarios that may evolve.
Speaker Change: We remain mindful of the impacts of possible economic disruption in growth pause could have on businesses across the country.
Speaker Change: We're taking a conservative and proactive approach to ensuring we successfully navigate what could be a volatile period with the long term interests of all stakeholders in mind.
Speaker Change: The capital discipline now in place across our business has us well positioned to fund our organic growth agenda, while resuming dividend growth and capital returned to shareholders over time.
Speaker Change: Looking ahead, we are in a period of heightened geopolitical uncertainty and a less certain economic outlook as new government administrations in two of our priority markets, the United States and Mexico look to define new policy and trade relationships for the next few years.
Speaker Change: This is an important moment for Canada.
Speaker Change: An opportunity to reflect on the trade and productivity challenges that if addressed conserve as a catalyst to redefine our national economic agenda.
Speaker Change: The bank continues to see the potential for an integrated North American economy to further drive competitiveness and collective prosperity.
Speaker Change: I remain confident that candidate can come out of this period of transition with a much clear strategic direction and an economic agenda that is squarely focused on raising our competitiveness.
Speaker Change: Lower taxes less regulation.
Speaker Change: Clear focus on measures to boost investment energy policies that significantly increased export opportunities for Canadian oil and gas and a sharp reduction in the time it takes to develop other natural resource projects should be key objectives.
Speaker Change: And I believe the banking industry will play an important role in supporting a much more deliberate national economic plan.
Speaker Change: In summary, I am pleased with the progress we have made in executing against our strategy and I'm encouraged by our results in this first quarter of fiscal 2025.
Speaker Change: I would like to thank our entire team of Scotia bankers across our footprint, we're focused on supporting our clients with advice as they navigate the challenges of the current environment.
Speaker Change: As we stay focused on disciplined capital allocation growing client privacy, improving productivity, while maintaining a strong balance sheet I remain confident in our path ahead as we continue to execute on our strategy I.
Raj Viswanathan: I will now turn it to Raj for a more detailed financial review of the quarter.
Raj Viswanathan: Thank you Scott and good morning, everyone.
Raj Viswanathan: This quarter's earnings was impacted by $1.10 of adjusting items within approximately 12 basis points impact on common equity tier one.
Raj Viswanathan: In addition to unusual adjustment for amortization of acquisition related intangibles, we recorded a $1.2 billion after tax loss net of Noncontrolling interest related to the announced sale of operations in Colombia, and Central America that was recorded in the other segment.
Raj Viswanathan: All my comments that follow will be on an adjusted basis.
Raj Viswanathan: Moving to slide six for a review of our first quarter results.
Raj Viswanathan: The Bank reported quarterly earnings of $2 4 billion and diluted earnings per share of $1.76 that improved seven cents from last year and 19 sends from last quarter.
The investment Didnt keycorp entrepreneur approximately two cents to this quarter's EPS.
Raj Viswanathan: Return on equity improved to 11, 8% from 10, 6% last quarter and have done our tangible common equity was 14, 3%.
Raj Viswanathan: Revenues went up 11% year over year, driven by growth in both net interest and noninterest income.
Raj Viswanathan: Net interest income grew 8% year over year, due primarily to loan growth, including the VA conversion and a higher net interest margin.
Raj Viswanathan: The all bank margin expanded four basis points year over year, and eight basis points quarter over quarter.
Raj Viswanathan: Driven by lower funding costs as it has all got rate cuts.
Raj Viswanathan: Noninterest income was $4.2 billion up 15% year over year, primarily due to higher trading revenues wealth management revenues underwriting and advisory fees and income from associated corporations.
Raj Viswanathan: These were partly offset by the impact of VA conversion and the negative impact of foreign currency translation.
Raj Viswanathan: The provision for credit losses was approximately $1.2 billion and the PCL ratio was 60 basis points up six basis points quarter over quarter, mostly in performing allowances.
Raj Viswanathan: Expenses grew 8% year over year of which 3% was from higher performance and volume driven expenses in GBM and global wealth.
Raj Viswanathan: The rest of the increase related to higher technology and personal cost to drive business growth.
Raj Viswanathan: Quarter over quarter expenses were also up 7% driven by seasonally higher share based compensation.
Raj Viswanathan: Business and capital taxes higher personnel costs.
Raj Viswanathan: Technology related costs, and the unfavorable impact of foreign currency translation.
Raj Viswanathan: The bank generated positive operating leverage of two 8% and the productivity ratio at 54, 5% improved 160 basis points sequentially.
Raj Viswanathan: The bank's adjusted effective tax rate increased to 23, 8% from 19, 6% last year.
Due to changes in earnings mix across jurisdictions and the implementation of the global minimum tax this year.
Raj Viswanathan: Moving to slide seven which shows the evolution of the common equity tier one ratio and risk weighted assets during the quarter.
Raj Viswanathan: The bank CET, one capital ratio remained strong at 12, 9%, a decrease of 20 basis points quarter over quarter and flat year over year.
Raj Viswanathan: Earnings less dividends contributed 19 basis points and lower risk weighted assets also contributed 19 basis points, which includes the benefits from the synthetic restaurants of a transaction.
Raj Viswanathan: This was offset by 43 basis points from the closing of the additional investment in Keycorp and 12 basis points from the announced sale of adult patients in Colombia and Central America.
Raj Viswanathan: The total risk weighted assets was 468 billion up $4 billion.
Raj Viswanathan: Our down 4 billion, excluding the impact of foreign currency.
Raj Viswanathan: This included a decline in book size of approximately $12 1 billion, primarily from the synthetic those transaction.
Raj Viswanathan: And although arguably optimization, which is partly offset by an increase in book quality earthquake of $4 7 billion that related primarily to non retail product migration and the impact of from a recalibration.
Raj Viswanathan: Turning now to the business line results beginning on slide eight.
Raj Viswanathan: Canadian banking reported earnings of $914 million down 6% year over year as higher revenues were more than offset by higher loan loss provisions and expenses.
Raj Viswanathan: Average loans were up 3% year over year.
Raj Viswanathan: Real estate secured lending was up 4% business loans grew 3% and credit card balances grew 9%.
Raj Viswanathan: Loans grew a more modest 1% sequentially primarily in mortgages.
Raj Viswanathan: We continue to see deposit growth as you know who your deposits grew 6% driven by an increase of 10% and nonperforming deposits, mostly in demand and 4% from both from deposits mostly in term.
Raj Viswanathan: Net interest income grew 6% year over year, primarily from asset and deposit growth and the benefit of ba's converting to loans, partly offset by margin compression.
The net interest margin declined by one basis point quarter over quarter, and 10 basis points year over year as asset margin expansion of eight basis points was more than offset by lower deposit margin of 17 basis points, reflecting the impact of rate cuts.
Raj Viswanathan: Noninterest income was up 4% year over year, primarily due to elevated private equity gains higher mutual fund fees and insurance income that were partly offset by lower banking fees on the back there'll be a conclusion.
Raj Viswanathan: The PCL ratio was 47 basis points.
Raj Viswanathan: 14 basis points year over year, and seven basis points quarter over quarter.
Raj Viswanathan: Expenses increased 8% year over year.
Raj Viswanathan: I'm only due to higher technology costs and professional fees to support key strategic priorities.
Raj Viswanathan: Quarter over quarter expenses grew 2%.
Raj Viswanathan: Primarily due to higher technology costs and seasonally higher share based compensation.
Raj Viswanathan: The operating leverage for the quarter was negative one 8%.
Raj Viswanathan: Turning now to global wealth management on slide nine.
Earnings of $414 million were up 23% year over year as Canadian earnings went up 27% driven by higher mutual fund fees and wealth advisory revenues, which were partly offset by higher expenses largely volume related.
Raj Viswanathan: Quarter over quarter earnings went up 7%.
Raj Viswanathan: Due to higher brokerage revenues and mutual fund fees and net interest income were partially offset by higher expenses.
Raj Viswanathan: Revenues of $1 6 billion were up 19% year over year from higher mutual fund fees, driven by strong AUR growth and higher brokerage revenues.
Raj Viswanathan: Expenses were also up 17% year over year of which more than half was due to volume related expenses. In addition to higher technology costs and sales force expansion.
Raj Viswanathan: The operating leverage was a strong positive two 8%.
Raj Viswanathan: Our AUM increased 16% year over year to $396 billion and.
Raj Viswanathan: <unk> grew 13% over the same period to over $730 billion, driven by market appreciation and higher net sales.
Raj Viswanathan: International wealth management generated earnings of $54 million up 1% year over year or 5%, excluding the impact of FX driven by higher mutual fund fees and brokerage revenue, partly offset by higher expenses.
Raj Viswanathan: The impact of the global minimum tax.
Raj Viswanathan: Yeah.
Raj Viswanathan: Turning to slide 10, global banking and markets.
Raj Viswanathan: Global banking markets, Delaware, a particularly strong start to the year with earnings of $517 million.
Raj Viswanathan: 33% year over year.
Raj Viswanathan: Capital markets revenue was up 41% year over year, and 47% quarter over quarter.
Raj Viswanathan: Driven from higher in equities and F. C C revenues.
Raj Viswanathan: The business banking revenues also grew 8% year over year, and 7% quarter over quarter due to higher corporate and investment banking revenue, including higher underwriting and advisory fees.
Raj Viswanathan: The net interest income increased 18% year over year.
Raj Viswanathan: From higher corporate lending and deposit margins, while loan balances declined 15% year over year, reflecting market conditions and management's continued focus on balance sheet optimization.
Raj Viswanathan: Noninterest income was up 25% year over year due to higher client driven trading related revenue.
Raj Viswanathan: Across the capital markets business, so fixed income equities and FX.
Raj Viswanathan: Expenses were up 14% year over year, mainly from higher personal cost, including performance based compensation as a result of stronger performance higher.
Raj Viswanathan: Higher technology costs, and then it can have impact of FX.
Raj Viswanathan: <unk> expenses were up 10% due mainly to seasonally higher share based compensation and higher personnel costs.
Raj Viswanathan: The operating leverage was a strong nine 2%.
Raj Viswanathan: The effective tax rate increased to 24, 5% in this segment due to changes in earnings mix across jurisdictions.
Raj Viswanathan: The U S business generated strong earnings of $296 million up 39% year over year, driven by higher capital markets revenues from equities fixed income and effects that were partially offset by higher expenses.
Raj Viswanathan: Moving to slide 11 for a review of International banking My comments that follow on and on an adjusted and constant dollar basis the.
Raj Viswanathan: The segment delivered earnings of $657 million up 5% sequentially, but down 7% from last year.
Raj Viswanathan: The GBM business in this segment generated earnings of $330 million from strong client activity, although down 10% compared to the prior year.
Raj Viswanathan: The revenue was up 1% year over year as non interest income was up 6% driven by higher capital markets revenue, which were partially offset by a 1% decrease in net interest income.
Raj Viswanathan: The margin expanded by five basis points year over year, driven by lower funding costs.
Raj Viswanathan: Net interest margin was down two basis points quarter over quarter, driven by lower inflation and lower loan margins in Mexico.
Raj Viswanathan: Year over year loans were down 2%.
Raj Viswanathan: Business loans declined, 8%, but were partially offset by 4% growth in residential mortgages.
Raj Viswanathan: Deposits were down a modest 1% year over year.
Raj Viswanathan: While personal deposits grew 1% year over year non personal debt also declined 2%.
Raj Viswanathan: The provision for credit losses was $602 million translating to 146 basis points up nine basis points quarter over quarter.
Raj Viswanathan: Expenses were up a modest 1% year over year, driven mainly by higher salaries and employee benefits.
Quarter over quarter expenses grew 3% driven by higher benefits and seasonally higher expenses in Jamaica.
Raj Viswanathan: Operating leverage for the quarter was positive 0.4%.
Raj Viswanathan: The effective tax rate increased by 170 basis points from 21, 7% due to lower inflation benefits.
Speaker Change: The impact of the global minimum tax.
Raj Viswanathan: Turning to slide 12.
Raj Viswanathan: The other segment reported an adjusted net loss of $177 million compared to a loss of $202 million in the prior quarter, an improvement of $25 million.
Raj Viswanathan: Sequentially revenue improved approximately $150 million as net interest income continued to improve benefiting from lower funding costs driven by rate cuts.
Raj Viswanathan: This was partly offset by higher expenses.
And taxes.
Raj Viswanathan: I'll turn the call over to Phil to discuss with us.
Phil: Thank you Raj and good morning, everyone.
Phil: Last quarter, we indicated that <unk> would remain elevated in the first half of the year as our clients continue to manage the impacts from higher for longer rate environment, and the increased macroeconomic uncertainty and geopolitical risks.
The announcement of potential terrorists has further increased macroeconomic uncertainty and based on what we knew on January 31st our base case scenario includes modest tariff risk approximately 5%.
Phil: On behalf of Canadian imports and 10% on half of Mexican imports.
Phil: Yeah.
Phil: We also incorporated more severe tariffs into our already stressed pessimistic and very pessimistic scenarios.
Phil: Against this backdrop of increased uncertainty all bank Tcl's were approximately $1 2 billion or 60 basis points this quarter.
$132 million quarter over quarter.
Phil: Of this performing PCL for $98 million or five basis points approximately two thirds of this performing build was driven by the inclusion of potential tariffs and continued macroeconomic volatility.
Phil: Across our Canadian and Mexican portfolios.
Phil: The remaining drivers of this quarter PCL included increased impairments across our Canada, Mexico, and Chile retail portfolio was driven by credit migration.
Phil: And the full provision of one impaired account in Canadian commercial and the food and beverage industry.
Phil: Turning to Canadian banking, PCL for $538 million or 47 basis points up seven basis points of core work.
Phil: Retail sales were $423 million up $68 million quarter over quarter, driven primarily by unsecured and auto portfolios.
Phil: Retail performing PCL increased $45 million quarter over quarter, driven by an unfavorable macroeconomic outlook and higher delinquencies.
Phil: Impaired retail sales were up $23 million quarter over quarter from higher net write offs in both automotive and unsecured revolving portfolios.
Phil: Overall, 90 day mortgage delinquencies increased a modest one basis point quarter over quarter as delinquency in our variable rate mortgage clients begins to stabilize as they experience relief from central bank rate cuts.
Phil: Furthermore, decreasing payments continued to benefit variable rate mortgage clients as their deposit coverage maintained its upward trend.
Phil: Commercial sales were $115 million up $20 million quarter over quarter, which includes the account previously mentioned.
Phil: Moving to international banking PCL for $602 million in Q1.
Phil: Resulting in a PCL ratio of 146 basis points up nine basis points quarter over quarter.
Phil: Impaired PCL, so flat quarter over quarter, while we had $47 million increase in performing provisions.
Phil: Retail sales were up $58 million quarter over quarter as last quarter, we had a $40 million release in performing PCL.
Phil: This quarter's higher performing allowances were driven by Mexico, and Chile offset.
Phil: Improvements in other markets.
Phil: Commercial sales improved quarter over quarter down $12 million.
Phil: We increased all bank allowances for credit losses again, this quarter by a further $344 million.
Phil: And it is now $7 billion. The ACL ratio is at 91 basis points up five basis points.
Phil: Year over year, and three basis points quarter over quarter, we still anticipate our PCL ratio to trend down in the second half of the year. However, this assumes we do not see significant deterioration in the macroeconomic environment and meaningful tariffs.
Phil: With the backdrop of a central tariffs, we've conducted a significant amount of analysis across various scenarios.
Phil: This is to ensure the bank is sufficiently prepared to navigate through this uncertainty.
Phil: Yeah.
Phil: Any impact to allowances from tariffs will depend on several variables, including the size and duration of tariffs. The degree of retaliation the amount of government subsidies or intervention any client actions taken to mitigate the impact and.
Phil: And bank actions, we take to further support our clients.
Phil: We are comfortable with the adequacy of our allowance for credit losses that has grown approximately $1 6 billion since the end of 2022.
Phil: If tariffs are imposed we will review and adjust our allowance it doesn't need it in the quarter they are finalized.
Phil: In addition to our allowance as we remain well capitalized have a strong liquidity position and are confident in our proven track record in managing through more challenging periods across all our markets, while supporting our clients with that I will pass it back to John for Q&A.
John McCartney: Thank you Phil will now move to the Q&A segment of the call. Please limit yourself to one question and re queue. If you have another operator do we have the first question.
Phil: Thank you.
Speaker Change: I'll take questions from the telephone lines.
Speaker Change: At this time, if you have any question.
Speaker Change: So it won't be a responsible participants register for questions. We thank you for your patience.
Speaker Change: Our first question is from Ebrahim.
Speaker Change: <unk> from Bank of America. Please.
Speaker Change: Go ahead.
Speaker Change: Hey, good morning.
Speaker Change: I guess, maybe just a question on <unk>.
Speaker Change: Look I think if we can break this down and then ex that it would I think Phil you mentioned.
Speaker Change: Expect PS he has to go down in the second half of 'twenty five.
Speaker Change: And then you'll be you definitely.
Speaker Change: Higher for longer would you.
Speaker Change: Got it relates to that is no longer being higher for longer in terms of the ability of the consumer customer base to service their debt. So one it doesn't.
Speaker Change: Good backdrop, now long enough, but that's not a big risk factor.
Speaker Change: <unk> should be are you seeing any signs of a cyclical rebound maybe a few if you go back three four weeks ago before the headlines it well.
Speaker Change: Would appreciate any color around those two things. Thank you. It's a it's a great question and I'm glad to look out beyond our beyond tariffs now certainly as we look at theirs.
Speaker Change: Still a little bit of softness in the Canadian retail portfolio, but we are starting to really see customers starting to benefit from the from rate cuts, particularly in our <unk>.
Speaker Change: Our variable rate mortgage portfolio as well as those customers that are coming up for renewal and those rate cuts are benefiting those customers.
As I look out for the remainder of the year still very positive.
Speaker Change: Tariffs aside we.
Speaker Change: We will see our provisions starting to trend down in the latter half of the year and that's that's what our models are telling us that's the way customers are.
Speaker Change: Tumor trends or are shaping up and we've got confidence in that outlook outside of the instead of the tariff landscape.
Speaker Change: Got it.
Speaker Change: One quick follow up maybe Scott for you.
Speaker Change: At very discounted valuations might not initiate buybacks given the capital levels are.
Speaker Change: How are you.
Speaker Change: First I'm very pleased with the capital discipline in the internal capital generation that we saw this quarter I think.
Speaker Change: As we think about capital return it will be important to see how tariffs play out.
Speaker Change: But my expectation is that we will resume dividend growth, albeit at a modest level next quarter and I'm hopeful that we'll be in a position to start returning capital to shareholders via share repurchases by the end of the year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Following question is from John Aiken from Jefferies. Please go ahead.
John Aiken: Good morning, I wanted to focus in on the strong performance that we saw in global banking and markets. This this quarter the productivity ratio showed some market improvements quarter over quarter year over year no water that is related to the strong growth that we saw on revenues, but it was a little surprised that it came in this low what.
Speaker Change: How should I be interpreting this are we expecting I guess lower expenses were better productivity ratio through 2025 or is this an indication that we're expecting revenues to significantly decline to a more normalized level that we saw in the first quarter.
Travis: This is travis.
Speaker Change: I appreciate the question.
Speaker Change: If you look at our business in this quarter, we had a lot of segments that really performed where you have great operating leverage and I think that plays out for the profitability of the ROE and the productivity level.
Speaker Change: We expect revenues probably to normalize towards that.
A more normal level in this business.
Speaker Change: We clearly earned.
Speaker Change: Nearly a record amount in this quarter.
Speaker Change: So I expect that productivity level ratio too.
Product productivity ratio to normalize a little higher.
John: And John it's.
John just wanted a little more color yeah. The 517 million earnings is really going to be very pleased because we have this trend to monetize and capitalize in the opportunities come up the normal run rate for this business how much should be between 425 to $4 50, I think assuming normal market conditions, but the expense ratio always benefits right like in Scott's comments he talked about.
John: Capital markets being 54% of the revenue mix and that plays a big role in reducing product configuration, but they are focused on managing expenses in line with revenue growth and prioritizing spend in that segment I mean, the only other thing I'd add is if when you look at the expense growth. This quarter. It was primarily driven by our market facing businesses. So when you see the wealth expense growth it was.
John: The big revenue growth and similar land and travelers. This business you had great revenue performance, but he also had expense growth with that so you get to a more normalized expense growth for the overall entity. If those businesses came off a little bit from a revenue perspective.
John: And then not to not to downplay the advisory impact this quarter, but it's I mean, obviously the exceptionally strong growth on treating can you give us a sense in terms of what youre seeing for pipeline on advisory given the fact that there's there's a lot of I guess excitement exuberance in terms of what the outlook would be.
John: Sure, Yes, let's say our pipeline remains incredibly strong.
John: We have tremendous client activity across all segments in all sectors of the market is robust.
John: That being said you know, let's call it headwinds that persist in the market with rates rate uncertainty tariffs geopolitical.
John: And I would say the U S market stock market is priced for perfect perfect protection right now.
John: So theres a lot of things that can slow down the pipeline, but as of right now it looks incredibly strong what I really liked about this quarter too with the league table performance. So when you look at number one in debt capital markets in Canada, and number 11 in debt capital markets in the U S number one in M&A and Latam Great M&A performance here in Canada, I mean from an advisory perspective it was.
John: Really good competitive result for the business this quarter.
John: Fantastic Thanks for the color.
John: Thank you.
Julie: Following question, you're so much Julie from Canaccord Genuity. Please go ahead.
Julie: Hi, Thanks for taking my question, maybe just one on international and the debit transaction.
With taking back equity or strategic decision on your end or maybe more weight and negotiate more favorable terms of the deal I think I guess, if you look at divesting more assets.
Julie: Any more deals like this one or.
Julie: Maybe a greater focus on using cash in the transaction.
Scott Thompson: Great Matthew Thanks for the question, Scott and then I'll, let Francisco follow up.
Speaker Change: There is not a strategic view here on minority investments if that was the question I mean, the key Corp acquisition was done in vessel was done for particular reasons that we talked about in terms of financial attractiveness on the Davita and aside.
Scott Thompson: We didn't want to sell at the low point in the cycle.
Scott Thompson: And so when we could take advantage of combining with the strong bank in the region to become the second largest bank capture a lot of synergies and see both capital neutrality in the short term and earnings accretion in the long term that seemed like the right plan for our shareholders, maybe Francisco just give us a sense of absolutely Scott.
Scott Thompson: Terms of our footprint there is no plan to enter into minority agreements as part of our strategic push forward. So that's not at all of the way forward.
Scott Thompson: When we look at the situation in Colombia is very particular.
Scott Thompson: We identified this opportunity to partner with a very strong operator that culturally provides an extraordinary fit to our culture.
Scott Thompson: A footprint that is relevant to our client base, both in Central America, and Colombia, We have now created a very strong bank that enjoys a scale that own our own ranking six we would never achieve.
Scott Thompson: And allows us to redeploy management time capital an effort through our core growth markets, while maintaining through the referral agreement the ability to support our multinational and wealth clients both in Central America, and Colombia effectively so what this allows us to do is also a benefit from the transformation on it.
Scott Thompson: Proven with the Colombian market, because we have no doubt as a management team, but Colombia will turn around over the next few years and this will allow us to capture the upswing of Columbia coming back to normal in terms of economic activity of micro performance. So overall, we see this as a very accretive transaction to our current short term strategy, while positioning our strong four.
Scott Thompson: The long term.
Speaker Change: Alright. Thanks, that's helpful. One last one.
Scott Thompson: Thank you.
Doug Young: Following question is from Doug Young from Desjardins Capital markets. Please go ahead.
Doug Young: Hi, good morning questions for sell in sorry, So I'm Gonna go tariffs.
Doug Young: But you haven't changed your PCL guidance for fiscal 'twenty. Five you were at the higher end this quarter, but you expect them to be lower in the back half as you kind of talk that that would be built in a little bit of cushion or for tariffs now you've done a lot of stress testing can you give us a sense yes.
Doug Young: Tariffs are put in as proposed what where does your guidance go where what are the kind of range as we should be thinking about in terms of your total PCL rate.
Yeah. Thank you I appreciate the question obviously, that's the topic de jure that I'm sure everybody in the financial services industry is is looking and trying to come up with some.
Doug Young: Some outlets.
Doug Young: Listen as I said in my prepared remarks.
Doug Young: There's going to be a number of variables that we're going to work through the size and duration of the tariffs that degree of retaliation the amount of government subsidies planned actions bank actions and it's really hard to give you a range or an outcome at this at this point in time without having some some understanding of what these tariffs look like I think what I.
Doug Young: Wanted to really just stress is that.
Doug Young: If tariffs come along in Q2, we'll we'll do the appropriate build in Q2.
Doug Young: And you know.
Doug Young: It'll be a sizeable but manageable build and we'll work through it.
Doug Young: We've done a great job over the past couple of years of strengthening the balance sheet.
Doug Young: Strengthening the balance sheet and.
Doug Young: And we're well capitalized and do it we're feeling pretty comfortable that we could it'll be meaningful but manageable.
Doug Young: Okay, I would ask what meaningful means, but I'm going to guess you're not going to tell me.
Doug Young: Yeah.
Doug Young: Okay I appreciate the color. Thank you.
Doug Young: Thank you.
Speaker Change: Following question is from Gabriel <unk> from National Bank Financial Please go ahead.
Speaker Change: Hey, good morning, a quick one on international if I strip out the GBM.
Speaker Change: Impact your earnings were down still high single digits and I Wonder you you had.
Speaker Change: Got it to a softer performance for that business. This year, just wondering if that's a no.
Speaker Change: Better worse and learn and what your expectations were.
Speaker Change: Capital actually I'll wait for an answer and I'll ask you a couple of them.
Speaker Change: Thank you for the question.
Speaker Change: Matter of fact Q1 for US in 25 is our second best quarter ever on the back of a record quarter over the first quarter of 2024.
Speaker Change: So it is a very strong showing although we do.
Speaker Change: I believe.
Speaker Change: Getting to the level, we were in Q1 and 24 it was very hard to achieve.
Speaker Change: When you look in constant terms.
Speaker Change: Year over year, we're still growing at 1% quarter over quarter, 4%. So revenues still showing strong in spite of the fact that we had to again, our highest quarter on record to compare to year over year. When you look at performance overall very much in line with economic activity, Although we are outperform.
Speaker Change: Our expectation in Q1.
Speaker Change: We are seeing the benefit of lower rates at a faster pace than we anticipated we had a little bit of higher inflation in some markets also benefited our positions. So overall, what I see is very much in line with our prior guidance around.
Speaker Change: Around a slower GDP growth for most of our markets in 2025.
Speaker Change: But what we're seeing in performance an important initiative as markets allow us to perform well.
Speaker Change: What I really liked about the quarter and international as the productivity ratio when you see the 4% revenue growth in the 1% expense growth do you think about what we've done over the last two years now on bringing that productivity ratio down three or 400 basis points with an outlet to continue to reduce that through the regionalization efforts and I think Colombia will be helpful to very much we will take out the kind of thing.
Speaker Change: Overhead costs associated with that business. So on plan here for the $800 million reduction that we talked about which gives a lot of running room for earnings international overtime, Wow, while continuing to improve capital deployment.
Speaker Change: Again, another quarter of <unk>.
Speaker Change: Improvement on our return on risk weighted assets were now at 199%, which is a massive improvement from where we were while maintaining very strong top line and earnings capacity for the business.
Speaker Change: No as far as the balance sheet.
Speaker Change: This optimization process whatever you call. It it's been ongoing for two years or so.
Speaker Change: I appreciate there's not a process whatever ends but.
Speaker Change: It's been a bit more you know.
Distinct activity in the past couple of years.
Speaker Change: Corporate loan book is down roughly $30 billion from its peak a you'd.
Speaker Change: You'd be at 11 billion of credit risk transfer this quarter I don't know what the cumulative amount is I'm. Just wondering if you know we're we're we're done with it.
Speaker Change: Upside stuff given that Oh skus.
Speaker Change: Increases to the Basel III output floor.
Speaker Change: Hum.
Speaker Change: Show them anyway.
Speaker Change: Is that Oh.
Speaker Change: Are we going to be more business as usual going forward.
Speaker Change: Let me just start on the philosophy piece gave them then for Archie can follow up on the specifics on the balance sheet. So.
Speaker Change: We're transitioning the business to a valuable Arroyo right and we've historically led with the balance sheet and we're trying to grow fee income and a holistic client relationship around our balance sheet really focused on creating value for the client, which will create value for our shareholders and so when you think about this loan growth.
Speaker Change: We've been really thoughtful about this over the last two years across all of the business whether it be in GBM, whether it be an IV or whether it be in mortgages in Canada, and you're starting to see the benefits of that through higher return on risk weighted assets and higher ROE performance and then look at the 15% improvement in fee income year over year and so.
Raj Viswanathan: That strategy of discipline on the capital deployment value add for the client relationship based contribution from all of our business lines, you're starting to see that in the numbers and then it comes through in the internal capital generation. This quarter Raj what was internal capital generation close to 30 basis points or 20 basis points in Germany, including the optimization, but Gabe to answer your.
Raj Viswanathan: <unk> is the heavy lifting done on that I think most of it is done the synthetic restaurants or like you pointed out it cumulatively, it's almost $20 billion you can see it in the disclosure.
Raj Viswanathan: And those are done simply because we think it enhances our returns incidentally it improves our capital ratios as well they selected will be the Doc.
Speaker Change: But to Scott's point, we just want to ensure we're deploying the capital to the most profitable relationships, but I think we had on the backend of that.
Raj Viswanathan: Alrighty then thanks.
Speaker Change: Thank you. Our following question is from Mario Mendonca from TD Securities. Please go ahead good morning go.
Mario Mendonca: The terrorists again for a moment was there any trend in the loan growth throughout the quarter that you could highlight what I'm getting at here is as the threat of tariffs unfolded throughout the quarter did it have a negative effect on commercial loan growth corporate loan growth even in retail loan growth throughout the quarter.
Speaker Change: Yeah, sorry, I'll start and maybe I don't know, if Scott or others want to join it I think that the as we've been going out and speaking to clients. I think people are we get a sense people are sort of holding their powder dry and people are waiting to see what's going to happen and I think as a result, whether it's on the retail side the corporate side the commercial side.
Speaker Change: You kind of see this a bit of a stasis right now and so its causing people to sort of pause.
Speaker Change: And think about what theyre going to do and hopefully when we get through the through tariffs and we can we can see through the end of it we'll probably see more economic growth occurring at that point right.
Speaker Change: Paris here just on the Canadian banking side, we're seeing that clearly in the commercial banking business, where people are holding back on borrowing we see clearly in the trendy. However on the mortgage side interesting enough as rates have come down you start to see that pent up demand in the mortgage business, starting so that you don't.
Speaker Change: See yet in terms of obviously, the tariffs and all the discussions however, if the tariffs do get implemented and of course that the economy contracts, you'll probably see the mortgage business also start to come down, but we don't see that yet. Okay. Quick question, then on impaired like with all due respect to the accountants, who dreamed up by first nine I'm not all of them are really not.
Speaker Change: It's hard to build up my interest in performing loan reserves.
Speaker Change: It really matters to me is.
What is the timing and what sort of effect do you expect on your own parents. If in fact, we do see.
Speaker Change: Meaningful terrorists like did it do the parents buildup abruptly or is it like 2026, how should we think about the parents.
Mario Mendonca: With a little less emphasis on the performing yeah, no I think you're I think you're right Mario where as we've sort of looked out at our scenarios, it's really going to take time for tariffs to grip to the Canadian consumer and there is some obviously some positive tailwind in the economy as it relates to unemployment GDP already and so you add tariffs onto that we're re.
Mario Mendonca: Looking at that to be more of that from an impaired perspective, I really a lag up to 2026 and beyond. So your thesis is correct. That's the thing that's the same way we're thinking about it all right. Thank you.
Mario Mendonca: Yeah.
Mario Mendonca: Thank you.
Speaker Change: Following question is from Paul Holden from CIBC. Please go ahead. Thank.
Thank you good morning, I wanted to tie together two predominant themes here tariffs and capital allocation.
Speaker Change: You know lot of contingency planning I'm sure on the part of Scotia as with many companies. What are you thinking in terms of if if tariffs under the scenario, where there are significant tariffs and maybe more permanent does that change at all Scott sort of your thinking around capital allocation does accelerate the need or desire to do more in the U S. For example.
Speaker Change: Yes, Thanks Paul.
Speaker Change: There's a question are you still committed to the North American corridor tried to essentially what you're asking and I don't see a need to pivot at the current time and you know as part of the strategy rollout, We said, Canada first U S. Second in Mexico third Canada represents greater than 50% of our earnings U S. Approaching now 15% in Mexico is less than 10%.
Speaker Change: This past quarter U S grew by 39% and we've continued to be thoughtful about capital deployment in new Mexico.
Speaker Change: Long term I think given the U S. As geopolitical ambitions, we believe the resources of Canada, and the labor in Mexico will be important.
Speaker Change: I think looking at the renegotiation of the U S. MCA will be an important milestone for all of us to consider and so way too early to think about pivoting office strategy, which I think long term is a lot of strategic rationale to it right.
Speaker Change: Thank you for that.
Speaker Change: Thank you. Our following question is from Darko <unk> from RBC capital markets. Please go ahead.
Speaker Change: Alright. Thank you good morning, I see things a little bit differently with respect to stage two I see stage two provisioning.
Speaker Change: Somewhat of a reflection of conservatism and given all of the uncertainty I was surprised that you didnt build more and but I guess your answer to Mario was that look do you think that the.
Speaker Change: Problems come in 2026, and maybe it's outside of the 12 month window.
Speaker Change: Yet I still think there could have been an overlay right. So Phil could you speak to me about.
Speaker Change: Because when I look at your base case in your alternative pessimistic cases, they don't change much.
Speaker Change: So you could have at least perhaps put a bigger weighting on that on a scenario and sort of get ahead of it and build a reserve but is it really the timing that's preventing you from doing that.
Speaker Change: So let me give maybe I'll add a little bit more color.
Darko: Darko and it's a great question so.
Darko: We're limited to what we knew as of January 31st.
Darko: So.
Darko: The quarter ended the 31st and then we had all that if you recall at the time, we had all this noise in the.
Darko: Our headline after headline what we're going to do what we need so we could only from an accounting perspective.
Speaker Change: Going back to Mary's comment in Iowa for a site, we can only do what we knew as of as of the 31st and as such we did you know.
Speaker Change: 5% tariff on half of Canadian imports. This is sort of what went into the scenarios with half retaliation, 10% tariff on Mexico on half the imports with half retaliation, 15% tariff on China.
Speaker Change: For half of imports with with full retaliation and so you start to think about that.
Speaker Change: But we built boats just under $100 million in the quarter of which 95% of it was actually stage two so we're not far off the way youre thinking about it.
Speaker Change: But we can only build what we knew from an economic perspective as at 31st one about two thirds of that build was related to.
Speaker Change: Macroeconomic uncertainty and volatility.
Speaker Change: Okay, and so is it fair to say, though then.
Speaker Change: Unless something significantly changes, we should be expecting something.
Speaker Change: Really in Q2.
Speaker Change: If we have if tariffs are imposed then we will look at as I said earlier, we will look at our build within Q2, if theres no tariffs I go back to the comp.
Speaker Change: The comments I made to Abraham earlier.
Speaker Change: We have we continue our guidance says as we get it last quarter and I think we're in good shape to deliver tour lower PCL towards the latter half of the year.
Speaker Change: Okay alright, thank you.
Speaker Change: Thank you well following question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Okay. Thank you Phil.
Speaker Change: Just maybe to take Tom quick question, just a little bit differently. If the quarter was ending two days with those 510, 15% type of assumptions be any different.
Speaker Change: No no I mean, we.
Speaker Change: We have not seen an executive order that relates to the type of tariffs that.
Speaker Change: That that are being proposed again, we're still.
Speaker Change: We're still digesting what's going on.
Speaker Change: When we have certainty will act uncertainty, it's difficult to act on headlines and tweets.
Speaker Change: Yes.
Speaker Change: I understood. So big I mean, it doesn't really matter that the quarter ended January 31st you have no better information you're seeing to date versus January 31st is that true.
Speaker Change: If tariffs are imposed by the U S government and we have clarity in terms of our actions until then we have no clarity.
Speaker Change: I appreciate that and Scott I, just wanted to kind of go back to.
Speaker Change: At December 2023, Investor Day, you, obviously laid out a plan, including a five year <unk>.
Speaker Change: Set up kind of milestones and what have you.
Speaker Change: You've got a little bit over a year under your belt since then.
Speaker Change: One of the assumptions would you say are being tested at the most.
Speaker Change: In you being able to deliver on that 2028 for example, a real clear.
Speaker Change: Yeah. So it's a great question one if you look at the different business lines I think international we're right on track.
Speaker Change: In terms of what we said we were going to do we thought it was gonna be a two year transition that we're going to move through that and we've had some some great progress in that regard said, leading with the productivity ratio of that comes back to my points on productivity ratio.
Speaker Change: We're significantly ahead of what we said at our Investor day.
Speaker Change: He said, we're going to grow at 10%, we're growing at 15% and that will probably moderate a little bit, but it's been really good to see that progress.
Speaker Change: <unk>, we're early but this quarter was a great a great kind of a checkmark for what we're trying to do around fee income, but we have to put up more than one quarter to show that we're on the right track, but I was really pleased with that and in Canada. We're doing the right things the right things in terms of growing primary clients you know 200000, new.
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