Sharpening our Focus and Building an Even Better Bank
Address by Brian Porter
President and Chief Executive Officer, Scotiabank
To the 182nd Annual Meeting of Shareholders
Kelowna, British Columbia
April 8, 2014
"Taken together, our Canadian and international operations make us one of the Top 20 banks in the world. And we will continue to build on these market positions."
Good morning and welcome.
As John just indicated, this is his last meeting as Chairman. He has been a member of the Scotiabank board since 1994. And he has served as Chairman since 2009, which was a challenging and unprecedented period for financial institutions around the world.
We have benefited from the wisdom and perspective he has generously shared over that time. John, we appreciate your leadership.
Our incoming Chairman is Tom O’Neill, who has been a Scotiabank director since 2008.
A former Chairman of PwC Consulting and current Chairman of BCE, he has a great deal to contribute to Scotiabank’s future. Tom – we all look forward to working with you in your new role.
I’d like to take a moment to recognize two of the bank’s former CEOs who are here with us today: Cedric Ritchie and Rick Waugh. Thanks to both of you for shaping Scotiabank into the organization it is today.
We also have members of our Board here, as well as many members of our senior executive team.
And of course, we are delighted to welcome our shareholders. Thank you for supporting Scotiabank and for joining us here in Kelowna.
At this time, I would also like to acknowledge all 83,000-plus Scotiabankers around the globe. Your dedication, commitment and pride have made our bank what it is today.
Our first quarter results, which we reported on March 4th, reflect our hard work for shareholders.
So as you can see, we’re off to a good start for the year.
As I speak to you for the first time as President and CEO at our Annual Meeting, I want to address three broad areas.
So what can you expect?
To begin with, I have a deep respect and appreciation for the history of this organization.
My connection to Scotiabank is deeply-rooted – members of my family played leadership roles within the bank many years ago.
This shared history adds to my personal sense of responsibility to the bank and our shareholders.
While people still tend to refer to me as the "new" CEO, I’ve spent my entire 33-year career working in different parts of Scotiabank.
Over this time, I have had the benefit of working in three of our four business lines and in the roles of Chief Risk Officer and President.
These varied experiences have afforded me countless opportunities to meet many of our customers, grasp the breadth and diversity of our businesses and understand our culture.
I’ve also been able to observe the many things that we do well and the areas where we need to improve.
To become better, we don’t need to make radical changes. We’ve got the big picture right. By that, I mean Scotiabank’s strategy is sound and will not change meaningfully.
Our unique strategy is based on a powerful combination of Canadian and international businesses.
In Canada, we have solidified our position as a Top 3 bank – up from number five, not so long ago.
Our international footprint provides excellent diversification and great growth potential.
Taken together, our Canadian and international operations make us one of the Top 20 banks in the world. And we will continue to build on these market positions.
One of management’s most important responsibilities is to allocate shareholder capital effectively – and we have a strong track record in this regard.
We have ample opportunities to continue earning attractive returns on that capital.
We will deploy it judiciously within our existing footprint and business lines.
Despite some ongoing pressure and expectations for short-term results, creating real and lasting shareholder value does not happen in a single quarter.
Rather, it is built over the medium and long-term, a view that is shared by our Board and our management team.
As evidence of this view, you may have noticed that we recently shifted our objectives for our financial results from annual to medium-term.
We will drive shareholder value, in part, by sharpening our focus on areas that will have the greatest impact on our results.
As CEO, one of my key responsibilities is to provide a strong sense of direction on those areas where we can become an even better bank.
So, while we are confident that we have the right strategy, there are still areas where we need to strengthen our focus and efforts.
Over the past year, we have identified three important priorities that will help drive our results over the medium term.
We refer to these as our Focus Priorities.
Our first priority is to be more focused on our customers.
We have earned the privilege of serving 21 million customers around the world.
Think about that: having 21 million customers is equivalent to serving two-thirds of Canada’s population.
Our customers have an unprecedented number of choices for financial services. Each one of them has chosen Scotiabank. So, we’re clearly doing a lot of things well.
But the question we must ask is: What more do we need to do for our customers?
In addition to serving our existing customers better, we also intend to grow our customer base.
We will do this primarily through organic initiatives. And we remain open to selective acquisitions within our footprint – provided that they are on strategy and meet our strict internal criteria.
As with all of our Focus Priorities, it’s critical that the management team lead by example.
Since becoming CEO, I have made a concerted effort to meet with our customers – and prospective customers. It is important for me to meet with our customers on a regular and frequent basis – and I will continue to do so.
I learn something new from every single customer conversation. It also gives me an opportunity to ask for the business.
That is something I want all Scotiabankers to do more often.
Let me give you an example.
Just last week, I met with a group of our long-time customers in the agricultural sector. They like Scotiabank. They like our people. And, they appreciate how well-informed we are about their respective businesses.
But I also heard from these customers that we need to improve our response time around their credit requests. We value that kind of feedback, we benefit from hearing it, and, I can assure you we will act on it.
Now I’d like to address our second Focus Priority, which relates to leadership.
One of the most important – if not the most important – parts of my job is to ensure that we have a deep and diverse talent pool at the bank.
To drive this approach, we need our senior team to play an important leadership role.
Having the right diversity of talent is critically important. We need our leaders – and all of our employees – to mirror the characteristics of our customers. This will help us see things through our customers’ eyes.
As a large organization, with 83,000 employees around the world, we have a tremendous competitive advantage, because we have such a broad and diverse talent pool.
We must increase our efforts to develop outstanding leaders. We want leaders who have sound judgment, who are results-oriented and who take a longer-term view. Our leaders need to serve as role models for our values and culture, each and every day.
We will invest more in leadership development and training for all employees. And we will also recruit externally on a selective basis.
By bringing in outside talent, we will add to the diversity of thought and experience in the Bank – and that’s a good thing.
As evidence of my commitment to leadership development since I became President in November 2012, we have moved more than 20% of our leaders into new roles.
Finally, this focus on leadership will ensure that Scotiabank remains a great place to work.
Turning to our third Focus Priority, our goal here is to be better organized to serve our customers while reducing our structural costs.
Scotiabank has long been known for our disciplined approach to managing expenses. But that isn’t the only way to be efficient.
We need to make greater use of more powerful levers. By that I mean innovative investments in technology and process improvements. These will benefit our customers and shareholders.
We also have considerable opportunities to achieve greater efficiencies from many of our recent acquisitions.
We still have room to leverage common platforms, address duplication and consolidate areas such as procurement, contact centres and middle office functions.
In short, our operations need to be faster, better and lower cost.
Now, let me comment on our businesses.
At last year’s Annual Meeting, when I talked about our operations, I reviewed each of our four business lines.
Today, I want to talk about our Canadian operations and then our international operations. That’s more meaningful and better reflects how customers see us.
So let me begin with Canada, where we have a strong foundation with good potential for growth.
We have significant strength in many businesses. Mortgage and automotive lending are two good examples.
Another great example is Tangerine, where we have a market-leading 40% share of the rapidly growing direct banking business.
But there are also several areas where we can do better. Credit cards is a perfect example.
Historically, our primary focus was on secured lending. As a result, we under-performed our potential in the credit card business.
Over the past two years, however, we increased our commitment to this business and have been making steady progress.
In an increasingly competitive environment, credit cards allow us to better serve existing customers – and attract new ones. They also provide us with an attractive risk-adjusted return.
In relatively short order, the Scotiabank American Express Card has distinguished itself in the travel rewards market. We have issued more than 250,000 cards in 18 months. This has been our most successful credit card launch ever.
But we’re not done yet.
This is a business we’re focused on and you should expect to see meaningful growth in our Canadian credit card business over the next several years.
Our partnership with American Express is a clear differentiator for us. We also have a distinct competitive advantage with some of our other unique channels.
This includes our indirect auto and mortgage brokerage channels. Together with our Scene program and our sponsorship of the National Hockey League, these channels drive 50 per cent of our new customer acquisitions here in Canada.
Now I’d like to comment on our wealth and insurance activities in Canada. Over the past few years, we have made great strides in these businesses and have built great momentum.
For example, less than ten years ago Scotiabank was a relatively small player in the Canadian mutual fund industry – with less than 3% market share.
Since 2006, without the benefit of acquisitions, our ScotiaFunds business had the highest growth rate among the Canadian banks. Our assets under management grew by an average annual rate of 12%.
Including our acquisition of Dynamic Funds – we’ve grown at three times the rate of other Canadian banks and more than four times the rate of the industry as a whole.
Now, let me turn to our international businesses.
Before I begin, I’d like to acknowledge the earthquake that happened off the coast of Chile last week.
I’m pleased to report that all of our employees in the region are safe and accounted for. Disruptions to our operations were minimal.
Unfortunately, with operations in so many parts of the world, we have experienced this type of event before. As always, we support our customers, we take care of our employees, and we assist the affected communities.
So, how are we doing with our international operations?
The breadth of these operations is often not fully understood. In fact, they include personal and commercial banking, wealth management, cash management, trade finance, insurance and capital markets solutions.
Many people are surprised to learn that we have almost 50,000 Scotiabankers outside Canada.
Our international operations are anchored in three broad regions: Latin America, the Caribbean & Central America and Asia.
However, in keeping with our increased focus on fewer things, going forward our primary emphasis is on Latin America. We will increase our presence in our chosen markets of Peru, Colombia, Mexico and Chile.
Despite some volatility over the past few months, not all emerging markets are equal. We have chosen well. We’re comfortable with our footprint in Latin America.
Each of these chosen markets has similar macro-economic fundamentals and disciplined fiscal management.
Each has a strong banking and regulatory system.
Each has a growing middle class as well as a young, under-banked and increasingly well-educated population.
As this middle class grows, more people will require financing for their homes and auto purchases. They will save more and want to make prudent investments.
Many other Canadian companies are drawn to the attractive fundamentals of the region.
I was part of Prime Minister Harper’s delegation to the recent Trilateral Summit in Mexico. I was reminded, once again, that there are almost three thousand Canadian companies doing business in Mexico today.
We’ve had good success following our Canadian customers as they’ve expanded into the region.
To capitalize on these opportunities fully, we are leveraging our areas of strength within Latin America.
For example, within the region, our Colombian operation, Banco Colpatria, is a clear leader in the credit card business. There are many opportunities for us to export that expertise to other countries.
A second example is our consumer and micro-finance operations, which originated with our acquisitions in Peru. This segment now stretches across our four markets in the region.
There are also opportunities for us to export our strengths from Canada.
In the case of auto lending and asset management – two real strengths for us in Canada – we are applying our expertise in other countries where these are fast growing segments.
To conclude on the international side, we remain confident that these businesses increase our growth potential going forward.
In closing, I want to leave you with the message that we are a unique bank, with an exceedingly bright future.
We will realize our potential by adhering to a longer-term view…and by executing against our three Focus Priorities...particularly by looking at things through our customers’ eyes.
As your CEO, I am personally committed – along with the entire management team – to doing what’s required to build an even better bank.
And I look forward to sharing that future success with all of you.