An address by Brian Porter, President and Chief Executive Officer, presented to the Scotiabank Annual Meeting of Shareholders.
To the 184th Annual Meeting of Shareholders
April 12, 2016
Thank you, Tom.
Good afternoon, everyone.
As a management team, we are fortunate to have such an engaged Board of Directors, and one that is so deeply committed to building an even better Bank.
Welcome everyone to Scotiabank’s 184th Annual General Meeting, including those who are joining us by webcast.
It’s great to be in Calgary!
We have with us today members of the Bank’s Board of Directors, our senior management team, shareholders, and a number of special guests.
In particular, I want to extend a warm welcome to Barbara Ritchie.
Scotiabank is a great bank today because of the vision and contributions made by Scotiabankers who came before us – Scotiabankers such as our former President, Chairman and CEO Cedric Ritchie.
From driving the Bank’s global expansion, to his instinctive approach, along with a tremendous work ethic, Cedric left a profound and permanent legacy.
We are all truly grateful for his service to the Bank.
This morning, I’d like to share some thoughts on three subjects.
Firstly, I’ll review the progress we made across Scotiabank in 2015, and comment on our first-quarter results for 2016.
Secondly, I’ll touch on the work we’re doing to build an even better bank.
And finally, I’ll outline some actions that governments should take to deliver stronger, sustained, economic growth for Canada.
Despite some challenging operating conditions, the Bank reported earnings of $7.2 billion for 2015.
We had particularly good performances in our personal and commercial businesses here in Canada, and internationally.
These businesses generate 80% of the Bank’s earnings.
The Bank is very well-capitalized, and we announced an increase to our quarterly dividend, which is up 6 per cent compared to the same period last year.
We are in a very good position to grow the Bank organically, and we have the
balance sheet strength to selectively pursue acquisitions that are on strategy,
and within our footprint.
Looking at our business lines, the Canadian Bank is successfully growing assets in a number of targeted areas, and efforts to improve our business mix are generating better returns for our shareholders.
On the liability side, we are focused on growing core deposits and we are pleased with the momentum we’ve established in this important area.
International Banking’s strong performance in the second half of 2015 continued into the first quarter of 2016, with net income increasing to a record $505 million.
These encouraging results from International Banking reflect strong operating performances in the Pacific Alliance Region.
Mexico, Peru, Colombia and Chile are core to our strategy, and they continue to achieve more robust GDP growth than Canada and the United States.
In January of this year, we showcased our Pacific Alliance operations at an Investor Conference we hosted in Mexico City.
The conference included visits by Central Bank governors from each of the four Pacific Alliance countries.
Attendees heard the Central Bankers say what we’ve been saying for some time: The trading bloc’s growing middle class, solid economic fundamentals and strong growth prospects make it an excellent place to invest, and run a business.
Shareholders and analysts left Mexico with greater confidence in our operations, our local and global leadership teams, and most importantly, our strategy in the Pacific Alliance.
Dieter Jentsch and his team deserve credit for the strong performance of our international businesses.
With Dieter recently assuming leadership of our Global Banking and Markets division, we are delighted to have Nacho Deschamps, a globally recognized banker, as the new Group Head of International Banking and Digital Transformation.
I’m highly confident that Nacho, and his team, will do a great job with our international businesses, and our digital strategy.
I now want to highlight some of the important efforts we have underway to create value for our shareholders over the longer term.
Moderate economic growth, volatility in markets and rapid technological developments are forcing change upon virtually every industry around the globe.
Financial services are no exception.
Scotiabank is responding to the need for change with a comprehensive strategic agenda.
The foundation of our strategy is a commitment to become truly customer focused because great businesses care about improving the experience for their customers.
We are also building a stronger, and more agile, leadership team by investing in our people and ensuring that they have the necessary tools to succeed.
We are actively adjusting our cost structure to become more cost-competitive, and to improve our overall operating efficiency.
We are evolving our business mix to become more profitable and improve our funding profile, while remaining within our risk appetite.
We are allocating our capital more effectively, while also strengthening our balance sheet.
Finally, we are committed to a digital transformation at the Bank, a subject I’d like to elaborate on this morning.
Firstly, let’s talk about what we mean by ‘digital’.
Digital broadly refers to the latest generation of technology systems, programs and tools that are dramatically improving the way we live, work and communicate.
Digital technology is faster and more powerful than ever before.
As we have seen through the Internet and mobile devices, it is capable of transforming virtually everything we do – from what drives businesses, to how consumers behave, to the way people interact.
Let me give you some concrete examples:
Digital technology allows us to FaceTime with our friends, family and colleagues regardless of whether they are across the street or around the world.
It’s responsible for automating the most complex industrial and manufacturing processes, resulting in significant productivity gains.
And, in the case of financial services, digital technology allows an increasing number of customers to do virtually all of their banking with the smartphone in their pocket.
As a result, “digital” is having a profound impact on all industries and all economies.
And the trend is not going away. In fact, every indicator suggests that digital will gain speed going forward.
At Scotiabank, we are embracing digital technologies to deliver the best customer experience in our major markets.
This fundamentally means reducing pain points for our customers in their day-to-day banking.
Digital will also provide our employees with the necessary tools, technology and data to better serve our customers.
And through automation, we will achieve better operating efficiency for our shareholders.
We have many digital efforts underway across the Bank.
I’ll give you some tangible examples, starting with our distribution network.
Digital trends and changing customer preferences are re-shaping the role and utility of our branch network.
Our customers increasingly perform routine transactions – such as balance enquiries, bill payments and remote deposits – online and through their mobile devices.
By 2020, we expect that less than 10% of financial transactions will occur in our branch network. At the same time, we expect sales through digital channels to increase materially – likely in excess of 50% of total products sold.
That said, our customers continue to tell us they value face-to-face interactions, particularly when it comes to making larger financial decisions.
Our branch network will continue to be an important channel to serve customers, but it must adapt and evolve.
We are re-designing our branches to provide financial advice more effectively, and to conduct the declining volume of day-to-day transactions more efficiently.
As a case in point, in January, I visited our exciting new branch formats in Mexico City.
We will be launching similar branches here in Canada over the coming months.
The Canadian branch network will feature smaller branches that are staffed differently. And they will be better organized and better equipped, for the benefit of both customers and employees.
For example, we have radically re-engineered the mortgage application process.
Before, customers had to make multiple visits to a branch, provide paper documents, and could wait up to 5 days for approval.
Under the new process: the majority of mortgage applications can be completed with a single branch visit; All documents can be provided digitally from the comfort of a customer’s home or office; and end-to-end approval can happen in as little as one day.
We’re also significantly improving the application process for credit cards, day-to-day banking, small business loans and other products.
Let me give you a few more examples:
Our new application process to open day-to-day bank accounts is being significantly improved. In fact, we’re confident that it will provide the best customer experience among the full-service banks here in Canada.
The turnaround time to open a small business account will be reduced from up to 3 weeks to approximately 20 minutes.
The time it takes to fill out an online credit card application will be significantly reduced from 8 minutes to just 2 minutes for an instant approval decision. The entire process will be more intuitive, and require customers to answer fewer questions.
For many applications, such as mortgages and wealth, we are cutting in half the amount of time our employees will spend on applications. That frees up their time to provide valuable advice to our customers.
And we are doing all of this within our risk appetite.
Obviously, this is great news for our customers and our employees. It’s also great for our shareholders, who will benefit from these digital improvements through higher loan volumes, increased deposits and a variety of operational efficiencies.
We are also driving many digital initiatives across our Pacific Alliance countries.
One of the most important aspects of our commitment to transforming digitally relates to our mobile banking apps because mobile is a critically important channel.
More than 40% of all Canadians – in all age groups – expect to be banking on their mobile device in the near future.
Adoption across Latin America, where smart phone penetration is still only 40%, is growing rapidly at 20% per year.
In a recent global survey, more than half of all consumers said they would miss their mobile phone more than their physical wallet.
These factors explain why so many companies are adopting a mobile-first mindset.
And at Scotiabank, we are deeply committed to mobile.
In Canada, our banking platform earned the highest overall score for functionality by Forrester Research in 2015.
Our newly launched online and mobile banking platform in Mexico will significantly enhance customer experience, and we’re well on our way to introducing this new platform to our other key Latin American markets.
But when it comes to excellence in this field, no one does it better in the world than our very own Tangerine.
Tangerine is a fully digital Bank with more than 2 million customers.
It now has a suite of everyday banking products, including savings accounts, chequing accounts, wealth management and – as of this month – credit cards.
In fact, the early response to Tangerine’s new credit card offering has been fantastic.
For the past four years in a row, Tangerine has earned J.D. Power’s highest ranking for customer satisfaction.
It also has the highest Net Promoter Score – the best indicator of customers’ willingness to recommend – among all Canadian banks.
In many ways, we see Tangerine as the future of banking.
Firstly, Tangerine offers an unparalleled customer experience.
For example, our Voice Banking feature allows customers to bank easily and conveniently through voice commands. It’s like SIRI for banking.
And with Interactive Voice Recognition, we can authenticate a customer without the need for passwords or pins.
Secondly, Tangerine is efficient. It serves 2 million customers with less than 1,000 employees.
And thirdly, Tangerine’s business model is scalable. It can easily serve many more of the 12 million ‘direct ready’ Canadians who are interested in banking primarily through digital channels – be that online or mobile.
Tangerine is our own internal disruptor, and is an important part of our overall digital strategy.
On the subject of digital disruption, there is a lot of discussion these days about whether FinTech firms pose an opportunity or a threat to banks.
For our part, we see the emergence of these new players primarily as an opportunity.
We’ve already built many strategic partnerships with FinTech firms, and are leveraging their creativity and agility to drive business value and help us deliver an even better customer experience.
As part of our commitment to being a leader in digital and mobile Banking, we are looking to build even more partnerships with other innovative firms.
I’d now like to turn to the final portion of my remarks.
Each time I have the opportunity to speak on behalf of the Bank, I try to incorporate a few comments on public policy.
I do this because we feel very strongly that companies like Scotiabank have a responsibility to contribute to the development of good public policy here in Canada.
All of us – individuals and corporations – have a responsibility to leave a strong and prosperous Canada for future generations.
In February of this year, Larry Fink, CEO of BlackRock – the largest global investment management firm – wrote a letter to CEOs of the world’s leading companies.
I liked it so much that I circulated it to our Board of Directors and senior management team.
His message was direct and simple: instead of focusing on quarterly results, companies and investors should focus on value creation over the longer term.
While longer-term thinking is important for all business leaders, it’s also important for political and community leaders.
In this spirit, federal and provincial governments should develop forward-looking and comprehensive economic strategies.
Such strategies should focus on three critical areas:
Free and open trade, building economic infrastructure, and increasing productivity.
I have spoken about the first two areas previously, so I’ll focus today on productivity.
Productivity is the most important determinant of a country’s per capita income over the long term.
And yet, Canada’s labour productivity has lagged behind our peers globally for some time.
In some ways, it’s Canada’s Achilles’ heel.
There are at least two pieces of this puzzle that could be addressed in the near term.
The first is innovation.
While governments can create the conditions for innovation to thrive, Canadian companies need to step up to be the primary drivers.
This is exactly what we’re doing at Scotiabank.
As an example, the Bank’s annual investment in technology has doubled over the past years to more than $2.4 billion.
We are also partnering with a number of innovative ‘made-in-Canada’ companies to better serve our customers and increase efficiencies.
One example is a company called Sensi-bill, a Toronto-based start-up that was incubated at Ryerson University’s Digital Media Zone.
Sensi-bill developed a game-changing application to make it easier for our customers to manage their purchase receipts, reconcile their bank statements and file their taxes.
The second piece of the productivity puzzle is skilled labour.
Canada is fortunate to have some of the best-educated young people in the world.
Nevertheless, the above-average youth unemployment rate reflects, in part, a disconnect between the skills of many graduates, and the needs of their future employers.
We see the effects of this at Scotiabank, where we have a growing need for digitally savvy employees, such as specialized programmers, engineers and data scientists.
More and more companies – regardless of the industry – are chasing this same talent pool.
That’s why we’ve increased our focus on developing digital talent, and why we recently announced new partnerships with three Canadian universities:
The Scotiabank Digital Banking Lab at Western University’s Ivey Business School, the Scotiabank Centre for Customer Analytics at Queen’s University’s Smith School of Business and the Master of Technology Entrepreneurship and Innovation Program at St. Mary’s University.
These partnerships are good for the Bank, and they give us better access to the talent we need.
They’re also good for Canadian youth, who will have opportunities for paid internships, field studies and hands-on experience.
The future prosperity of our Bank, and our country, is not a given – it depends on the decisions we make today.
For our part, we are working hard to create long-term value for our shareholders.
To that end, we are investing in innovation, and we are cultivating a workforce that will thrive in the new digital age.
In closing, I want to thank all of our shareholders for their support.
I want to thank our customers for their business and trust.
And I want to thank Scotiabankers across our footprint for the great work they do day in and day out to serve our customers.
It is an honour for me to work with a very talented team, and lead a company with such a storied past and very bright future.
I would also like to thank our kind hosts here in Alberta.
At 184, Scotiabank is older than Canada itself, and we’ve had a vibrant presence in Alberta’s communities for well over a century.
Even though Scotiabank has grown to be Canada’s international bank, we know that our roots are here in Canada.
We are a proud Canadian Bank, and the entrepreneurialism, determination and grit found right here in Alberta remains an important inspiration for our Bank’s culture.
We recognize that times are difficult right now for Alberta, and we remain committed to our customers here, and to the communities in which we live and work.
On this road to recovery, Scotiabank will continue to be a strong supporter and a reliable partner.