Global Market Access for Energy is Key to Canada’s Economic Future
Improving Access will Create Jobs and Make our Economy more Competitive
Address by Brian Porter
President and Chief Executive Officer, Scotiabank
To the 183rd Annual Meeting of Shareholders
April 9, 2015
Good morning, Bonjour, and welcome to Scotiabank’s 183rd Annual Meeting of Shareholders.
As you may know, Scotiabank has strong roots in Eastern Ontario, having acquired the Bank of Ottawa almost 100 years ago.
This morning, I will address three topics:
2014 was a productive year for your Bank…
At last year’s Annual Meeting, I spoke about our sharpened focus on three areas that will create long-term value for shareholders.
Specifically, we introduced our three focus priorities:
I am happy to report that these focus priorities are resonating widely across your Bank..
In fact, an increased focus on our customers has become our most important priority.
In 2014, we refined some aspects of our strategy.
We re-shaped parts of our organization to be more customer-focused, and we enhanced our leadership team.
After careful thought, we also made the important decision to take a charge against our Q4 earnings.
As a result, we are better positioned to eliminate duplication and redundancies and, frankly, be more efficient.
For example, in Canada, we are leveraging technology to better serve our customers.
Similarly, in our international businesses, we are optimizing our branch footprint – which grew through numerous acquisitions over recent years.
As you know, we’ve spent the past several years building our wealth management platform, particularly here in Canada.
As a result of our stronger market position in wealth, we decided to monetize our investment in CI Financial.
This transaction bolstered our common equity Tier 1 capital ratio, and freed up capital to invest back in our core businesses.
Looking to our Latin American operations, we are particularly focused on building our businesses in the Pacific Alliance countries of Mexico, Peru, Colombia and Chile.
With more than 210 million people, the Pacific Alliance trading bloc forms the sixth largest economy in the world.
And we see significant opportunity in its middle class, which is young, under-banked, and growing rapidly.
In Chile, for example, we are acquiring a 51% stake in Cencosud’s financial services business.
Cencosud is a pre-eminent retailer in Latin America.
Our partnership with Cencosud will provide us with access to more than two million new customers in Chile.
In Canada, we invested $500 million into a unique partnership with Canadian Tire Financial Services.
Through this venture, we will actively partner on a number of customer initiatives with one of Canada’s most iconic brands.
For example, the more than six million members of our SCENE loyalty program can now earn points at nearly 200 SportChek stores across Canada.
SportChek is the second largest banner in Canadian Tire’s retail business.
This will help us make further inroads with an important and young customer segment.
We are excited about our partnership with Canadian Tire – and you’ll hear more about it in the coming months.
During 2014, we also made important changes to our organizational structure.
We simplified our operating model to bring decision-making closer to our customers, and to improve efficiencies.
In doing so, we reduced some organizational complexity by moving from four business lines to three.
On the retail side, we integrated our wealth and insurance operations with our personal and commercial businesses.
On the wholesale side, we consolidated a number of businesses within our Global Banking & Markets division.
This included our commercial banking operations in Asia, trade finance, and cash management.
And finally, we strengthened our leadership team.
We were particularly active in 2014 by promoting – and adding – leaders who will champion our desired culture of being more customer-focused and performance-oriented.
These changes also helped to build greater diversity in our current – and future – leadership teams.
But 2014 was not without its challenges.
The sharp decline in oil prices impacted Canada’s economic performance and the outlook for GDP growth.
Despite these challenges, we had strong performances in our mortgage and automotive lending businesses.
And we are on track to increase our credit card business significantly, having achieved double-digit growth in 2014.
We did so by focusing on increasing the number of Scotiabank customers who both carry and use our credit cards.
Internationally, we generated strong asset growth.
However, earnings from our personal and commercial operations are not yet growing at the same pace.
We experienced some headwinds that impacted our results over the course of the last year. These included:
We also saw increased volatility in some emerging market assets and currencies.
The good news, however, is that these headwinds are now largely behind us. Lower oil prices and a stronger U.S. economy are benefitting our Caribbean operations. As a result, we are well on our way to earning through many of these challenges.
As one of the world’s most international banks, we know that not all emerging markets were created equally.
But we are comfortable with our footprint, and confident in the priority markets where we have chosen to operate.
We made good progress in 2014 across our Canadian and International businesses.
And we took important actions to improve our operations and position us for growth over the medium and longer-term.
Before looking forward, I would like to briefly review our 2015 first-quarter results.
Our solid first quarter reflected our well-balanced portfolio of geographies and businesses:
In short, despite some challenging market conditions – our diversified business model enables us to continue to grow sustainable earnings.
Turning now to the second agenda item…
I’d like to touch on some of our plans to transform Scotiabank into an even better bank.
Increasing our customer focus has clearly become our number one priority.
But in today’s hyper-competitive world, all businesses are looking to be more customer-focused.
We are working hard to deliver all that Scotiabank has to offer in ways that our customers choose – whether that be in a branch, online, or – increasingly – on their smartphone or tablet.
One of the most important ways for us to become more customer-focused is to embrace a digital approach to banking.
And by digital, I mean using innovative technologies to improve our interface with customers and re-design our processes to reduce structural costs.
Both are critical to achieving long-term success.
The pace of change and innovation is rapidly accelerating. Let me give you a few examples.
Your Bank is taking a number of important steps to respond to these changes.
We are developing our capabilities to be much more responsive and nimble, particularly in mobile product development.
One of our key competitive advantages here is our Tangerine business, which is already Canada’s leading digital bank.
Tangerine customers benefit from several innovations including voice-enabled banking, fingerprint identification, and paperless onboarding.
Customers can access all of these features through Tangerine’s smartphone app.
Working closely with our colleagues at Tangerine, we are looking to deploy more innovative features for the benefit of all Scotiabank customers.
A second example is in our International Bank, where we are rolling out a new digital sales tool.
This innovative tablet-based application allows our mobile sales force to improve the customer experience and significantly reduce the time to on-board new customers.
Here in Canada, Scotiabank’s mobile customers now have access to a much wider array of features to manage their credit cards.
These features include applying for credit increases, enhancing card security while travelling, and receiving immediate notifications of card usage.
In short, your Bank’s management team is fully committed to using digital solutions to improve customer service and reduce costs.
On both fronts, we are continuing to make good progress.
But before I leave the subject of digital, I’d like to point out that trust remains critically important in providing financial services.
With 183 years of history, Scotiabank proudly serves more than 21 million customers today.
Clearly, we are a valued and trusted partner.
Confidence, trust, security, and a track record of reliability continue to be important advantages for your Bank in a rapidly shifting industry.
But we are not resting on our laurels.
I am confident that our commitment to digital will deepen relationships with our existing customers, and help us win new customers.
Now, I would like to move to my third topic.
Ottawa provides an excellent backdrop for me – both as a business leader and as a Canadian – to discuss an issue of national importance – market access for Canadian energy. Your Bank has been a longstanding lender and advisor to the energy industry here in Canada and abroad.
Scotiabank’s experience with producers, refiners, pipeline companies, and service entities provides us with an informed global perspective.
Canada has been described as an ‘Energy Superpower’.
In terms of our potential, I could not agree more.
Canada, for example, is the world’s fifth largest producer of both crude oil and natural gas.
Despite this potential, resource companies in Canada still do not have adequate access to tidewater for worldwide shipment.
As a result, virtually all of our exported oil and natural gas goes to one market – the United States.
And the U.S. is quickly becoming energy self-sufficient.
Canada’s inability to export meaningful quantities of energy efficiently is a significant constraint for one of the world’s largest energy producers.
The good news is that the solution to this problem is within our own control.
But it will take determination and leadership to achieve it.
Other resource exporting countries are rapidly developing their infrastructure and export capacity.
Here in Canada, our inability to access global markets constrains the price of our energy exports and economic growth across the country.
Without the ports and pipelines needed to deliver Canada’s energy products globally, importing nations will source their energy supply elsewhere.
This lack of sufficient energy infrastructure creates significant opportunity costs. We risk seeing investors shift their capital – as well as the job creation and economic growth that comes with it – to other markets.
Gaps in our infrastructure will have long-term consequences for our economy and for all Canadians.
Tax and royalty revenue from energy and energy-related businesses will be negatively impacted, regardless of commodity prices.
These lower revenues will constrain our federal and provincial governments’ ability to invest in important areas such as education and healthcare.
To close these infrastructure gaps, we must develop projects responsibly, and with due consideration for our environment and our communities.
These projects can be game-changers for many regions across the country – and not just in the oil patch.
One example is TransCanada’s Energy East Pipeline Project.
An independent study found that Energy East would increase Canada’s GDP by some $35 billion dollars.
Tens of thousands of jobs would be created over the course of its development, construction, and operation.
These are good, high-paying jobs – at a time when our national economy needs this type of job creation.
And these new jobs and economic benefits would be spread widely, from New Brunswick to Alberta.
The same study estimated that the largest share of job creation – almost 40% – would be right here in Ontario.
It is also worth noting that many of the projects currently contemplated – including Northern Gateway and LNG facilities on our West Coast – offer significant opportunity for Canada’s Aboriginal communities.
In my role at the Bank, I have the good fortune of travelling around the world.
In my conversations with businesses, governments, and policy-makers, Canada’s lack of energy infrastructure comes up frequently.
It is clear that our inability to deliver energy to world markets is detrimental to Canada’s economy.
It is also detrimental to our country’s brand and future economic prospects for all Canadians.
The time for inter-provincial bickering and political indecision has passed.
Global market access for Canadian energy must be a common objective that we pursue vigorously.
Now is the time for leaders to come together.
Through much of our history, we have seen true leadership when Canada has faced other challenges of national importance.
In these instances – whether it was building our national railway, keeping our country united, or negotiating historic trade agreements – our leaders ultimately found a way to overcome obstacles that would have otherwise held us back.
So today, I am calling on corporate, government, and community leaders to do the same.
We must make global market access for Canadian energy a national priority, and then make it a reality.
I would like to conclude my comments by highlighting a common theme that you heard throughout my remarks today.
To build a better bank for the long term, we are taking several key steps.
Importantly, we have:
Today, I also made a case for global market access for Canadian energy.
I am confident that improved market access will create long-term benefits for Canada, our international markets, and Scotiabank itself.
Scotiabank has a long and proud history.
Since 1832, your Bank has been resilient and adaptive.
These important traits will continue to serve us well.
More than 86,000 Scotiabankers care about the long-term interests of our customers, our communities and each other.
Our team is ready to tackle the challenges that lie ahead.
It is a privilege to serve our growing base of more than 21 million customers – a privilege that we do not take lightly.
Thank you very much.