Luc Vanneste Speech - April 8, 2010

An address by Luc Vanneste
Executive Vice-President and Chief Financial Officer
Scotiabank

Presentation to
the Scotiabank Annual General Meeting
St. John's, Newfoundland

April 8, 2010

Check Against Delivery

Thank you Mr. Chairman, and good morning everyone. It is my pleasure to be here in Newfoundland and have the opportunity to present our fiscal 2009 financial results to you.

Before I start, I would like to refer you to Slide #2 of this presentation, which contains Scotiabank's caution regarding forward-looking statements.

Clearly, the global economy slowed in 2009, and we were not immune. However, we have been very successful at managing through this challenging environment. Our financial results for 2009 were strong with net income of 3.5 billion dollars after-tax, or 3 dollars and 31 cents per share. The results benefited from record revenues, which were up 20 percent year over year.

We delivered a strong return-on-equity of 16.7 percent – this reflects a level of high and consistent profitability achieved by very few banks in Canada or, indeed, the world.

We've had a consistent 10 percentage point advantage in our productivity ratio compared to our peers for the past several years. 2009 was no exception, with a productivity ratio of 53.7 percent, while investing in future growth and revenue producing initiatives.

Each of our three business lines had record earnings in 2009, partially offset by higher funding costs and writedowns of securities.

Credit risk continues to be well managed. As expected, our provisions for credit losses in 2009 increased year-over-year, driven by global economic conditions. However, our credit portfolios are performing within our expectations, and better than in previous business cycles.

Our capital position remains strong. Our solid profitability and internally-generated capital enable us to continually strengthen our balance sheet and capital ratios.

It was very gratifying to see our common shareholders equity increase by 3 billion dollars in 2009 - without a public issue of our common equity, which would have diluted our shareholders' interests going forward.

Our strong capital also allows us to continue to invest in our businesses, and at the same time provide our shareholders with consistent dividends.

On this slide, you can see the distribution of our earnings by business line. In recent years, our mix has been relatively consistent, 40 percent of net income from Canadian Banking, and 30 percent from each of International Banking and Scotia Capital. This diversification of businesses is a key part of our strategy.

We have also been diversifying within each business line, by expanding our product and service offerings and entering new geographies. Our diversification strategy has been beneficial to the bank over the years, and we will continue to build upon this strategy going forward.

Canadian Banking had a strong year, with net income of 1.85 billion dollars, up 7 percent from the prior year. Canadian Banking benefited from substantial volume growth, a wider margin and good expense control.

We were particularly pleased to see strong growth in residential mortgages, up 9 billion dollars over last year - and market share gains of 18 basis points versus our major competitors. We have also seen personal loans increase by 16 percent year over year.

We have maintained very high asset quality – the Canadian retail portfolio is 92 percent secured and the mortgage portfolio is 53 percent insured. This adds up to a very stable and predictable base on which to move the business forward.

We are very pleased with the recognition that we have earned as a result of our strong performance in Canadian Banking. For example, Scotia Mutual Funds continued to deliver exceptional results in 2009, and we were ranked number 1 by the Investment Funds Institute of Canada for total net mutual fund sales.

Overall, the performance of the Canadian Banking business line has been strong with a compound annual growth rate in net income of 13 percent between 2006 and 2009. We plan to continue our strong track record in 2010. We are leveraging our past investments and are favourably positioned for the recovering economy.

Scotia Capital earned $1.5 billion, up 84% over the prior year. The exceptional performance this year was driven by record revenues. In 2009, both major business platforms, Global Corporate & Investment Banking and Global Corporate Markets had exceptional results that culminated in a record net income performance.

In Global Corporate and Investment Banking, interest income rose 49 percent reflecting strong growth in asset volumes and portfolio spreads in all lending markets.

The Global Capital Markets business experienced strong growth in trading revenues in most business units - with record revenues earned in fixed income, precious metals, and equities.

As you can see, Scotia Capital won numerous awards in 2009, both domestically and internationally. These awards illustrate the depth and range of our products, services, and markets, and clearly demonstrate our success in executing our strategy.

Looking forward to 2010, Scotia Capital expects to deliver strong results through expanding client coverage in key selected industries such as oil and gas, mining, and power. Scotia Capital is also expanding its efforts in emerging markets and bringing existing product lines to new geographies, such as fixed income in London and New York.

Our International Banking business unit achieved earnings of 1.3 billion dollars, up 11 percent over 2008. This record result validates our strategy of investing in high potential markets with diversification across products, segments and geographies.

We were pleased with the record revenues of 5.3 billion dollars which represented an increase of 656 million dollars or 14 percent over the prior year. In addition, earning assets grew by approximately 10 billion dollars or 13 percent.

International Banking operates in three principal geographies: 41 percent of its 2009 revenues came from the Caribbean & Central America, 35 percent were from Latin America & Asia, and 24 percent from Mexico.

We are committed to growing our international presence. For example, in 2009, we acquired an additional 24 percent of Thanachart Bank in Thailand - increasing our ownership to 49 percent, the local regulatory maximum allowed.

We recently increased our presence in the country by announcing the merger of Thanachart and Siam City Bank to form the fifth largest bank in Thailand.

We continue to be recognized for our commitment to excellence and customer satisfaction and loyalty in International Banking. For example, we were selected as the best trade bank in Central America and the Caribbean by Trade Finance magazine. We were also selected as the 2009 bank of the year in Jamaica by Euromoney magazine.

Looking forward, improving economic conditions and selective acquisitions should support continued growth in International Banking.

This chart shows the relative performance in specific provisions for credit losses over the past two years, as compared to our major Canadian peers. We have led our peer group each quarter during the downturn.

Clearly, our recent outperformance is largely due to the quality and diversification of the credit portfolios we have built and re-shaped over the past several years.

We are pleased that we have delivered consistent and predictable credit performance throughout the cycle.

As mentioned previously, we remain focused on achieving a high return on equity, with a target range of 16-20 percent.

We take great pride in delivering strong returns to our shareholders, and in 2009 we had the highest ROE among our Canadian peers, and were very strong globally.

We compared our 2009 ROE to the FTSE Global Banking Index which is an index of 50 of the largest banks in the world - based on reported full year 2009 results, our Return on Equity is in the top five banks.

The next chart shows that during 2009 Scotiabank outperformed both the TSX Composite Index and TSX Financials Index by an average of 15%.

Now turning to our 2010 results. Q1 was a very strong quarter for us, with net income of 988 million dollars, up 17 percent from the same quarter last year. Earnings per share were 91 cents, up 14 percent year over year. This strong performance was driven by our business line strategy of sustainable revenue growth, together with disciplined risk management and expense control.

This contributed to our very strong ROE of 17.4 percent.

As well, we had a record productivity ratio of 50.5 percent, which was considerably better than our target of less than 58 percent.

Moving to capital, you can see that our Tier 1 and tangible common equity ratios continued to move higher this past quarter. The Bank's capital position remains well above the regulatory minimums and strong by international standards. We will continue to prudently manage capital to support organic growth initiatives, make selective acquisitions and deal with evolving regulatory changes.

Looking forward at the remainder of 2010 and beyond, we remain cautiously optimistic. As markets and the economy continue to recover - and with our strong first quarter results - we are well positioned to meet our stated objectives for the year:

• Earnings per share growth of 7-12 percent.
• Return on equity of 16-20 percent.
• A productivity ratio of less than 58 percent.
• And, maintaining strong capital ratios.

Thank you. I would now like to call upon our President and Chief Executive Officer to say a few words. Ladies and gentlemen, please welcome Rick Waugh.