Presentation to
the Scotiabank Annual General Meeting
Edmonton, Alberta

An address by Richard E. Waugh
President and Chief Executive Officer
Scotiabank

March 4, 2008

Check Against Delivery

Good morning, ladies and gentlemen – it’s a pleasure to be here today, holding the Bank’s Annual Meeting for the first time ever in the great city of Edmonton.

You just heard Luc talk about the financial performance of our Bank in 2007 – and the first quarter of 2008. The past year was certainly a good one for our Bank. We had record earnings. And all our key financial and operational targets were met.

But the first quarter undoubtedly has been a challenge. The turbulence in global financial markets has created many unforeseen dislocations and valuation issues for financial institutions. While not of the magnitude or significance of many other financial institutions, Scotiabank has not completely escaped these effects. These conditions are still with us, but we are in good shape in terms of portfolios, our capital, our strategies and our team of Scotiabankers, not only to weather this storm but to move forward and seize the opportunities that are emerging. Crises do end, and this one will, too. And we are well positioned, as this particular crisis plays to our strengths of risk management, strong capital and diversification. As such, I remain confident about the future of our Bank and our ability to continue to provide our shareholders the results they expect of us.

What I want to talk about today is what we need to do to continue to succeed – in terms of our Bank; in terms of financial markets; and, in the long run – and at the highest level – in terms of how the private sector and government here in Canada need to focus to support growth.

Let me start with our Bank. I have confidence that we will continue to be successful, because of our strategy of diversification, our commitment to our priorities and the proven skills of our people to execute.

Our overarching strategy is to continually build on our current business model of three strong business lines. We are committed to growing each of our businesses, while maintaining a high level of diversification.

This diversification has enabled us to deliver sustainable earnings growth. And not just for one year – but over five years and 10 years. Our performance ranks among the best in the world. In fact, the consulting firm Oliver Wyman uses a shareholder performance index to measure financial institutions globally. Scotiabank ranked fifth in the world for most consistent performance over the past five years.

This performance is a tremendous testament to our One Team, One Goal philosophy – and, of course, to the great efforts of some 60,000 Scotiabank employees worldwide!

In addition to our strategy, we are committed to continuing to focus on our three over-riding priorities. Our top priority is sustainable revenue growth.

Sustainable earnings – and the dividend growth that comes with it – can’t happen without revenue growth. We are pursuing many initiatives across our business lines to drive this revenue growth – both organically and through acquisitions.

In Scotia Capital, which is being most affected by today’s market issues, we’re staying focused on executing our strategies. We’re leveraging our long-standing client relationships, building global industry specializations, expanding our trading businesses and, most important today, all managed and supported with proven risk management practices by proven risk managers. Balanced growth, with prudent risk diversification and underwriting, and maintaining strong capital are the keys to help us navigate through this current turmoil.

In International, we are expanding our branch network and other delivery channels through acquisitions and through organic growth, targeting high-growth markets and products and adding new customer segments. These emerging markets are growing today, despite the problems in the United States. For example, in Peru, through both our long-term presence and recent acquisitions, we have become the country’s third-largest bank. Peru will experience six to seven per cent in real growth, due to its domestic consumption and rich natural resources in gold, copper and oil and gas.

And here in Canada, through our retail and commercial and wealth management initiatives, we’re achieving demonstrable success growing in several key customer segments, such as residential mortgages, personal deposits and mutual funds, targeting market share growth in these high-margin products.

Our second key priority is capital management. Because of our strong profitability and growing earnings, we have been successful in building and maintaining our capital strength – while providing top-tier dividend performance – which we will maintain, increasing dividends in line with earnings growth. But because we see so many opportunities, investing for business growth continues to be our first priority in terms of use of capital.

Finally, leadership remains as a key priority. In particular, we are focused on the development of senior and specialized talent, as well as greater development of the competencies that will drive innovation and accelerate growth here in Canada and around the world.

We have a tremendous pool of leaders across the Scotiabank Group. We have worked very hard to build strong teams. This ensures both depth and breadth of management expertise. We are continually looking for opportunities to move our leaders into different assignments to broaden their experience. We will continue to develop our bench strength, to solidify our talent sourcing strategies, and we will ensure we have more comprehensive development plans.

So our strategies are consistent, and our priorities are focused and have proven effective. That said, our strategies and priorities need to be continuously reviewed against an ever-changing business environment. We have to – and we do – assess what we’re doing and what needs to change, based on marketplace realities.

This constant reassessment confirms that not only are we well positioned to withstand shocks, such as the recent market turmoil, and other surprises that will surely come up, but that we are in a strong position to take advantage of opportunities that present themselves – opportunities that arise at uncertain times such as this.

Beyond our Bank, my confidence extends to the belief that we will overcome the challenges in financial markets that arose this past summer and have continued into this year. As I said, crises do come to an end. Today, virtually all financial markets participants have been affected – some significantly – some, such as ourselves, less so. The problems began with the meltdown in the U.S. sub-prime mortgage market. Our Bank has no direct exposure to U.S. sub-prime mortgages. And we have only nominal holdings in the areas of concern, including structured financing, CDOs and conduits, such as structured investment vehicles (SIVs) and asset-backed paper. In addition, we do not sponsor or manage any SIVs or conduits. That said, we are not immune to the effects of the severe volatility that has occurred.

Looking back, it’s clearer now what happened – in the U.S., Canada and elsewhere. But let me turn to why it happened.

In considering all that went wrong, it seems to me that one of the key root causes was a lack of attention to basic, proven principles of good risk management.

In my view, there needs to be a renewed focus on this. The principles sound relatively simple,and they are. For example, good risk management must include understanding the risk being financed and the probability of repayment from the underlying asset’s cash flow. In other words, know who or what you are really lending to or investing in. Know your borrower, and who is or is not accountable for delivering the necessary results. And ensure that, as an investor or financial institution, you are adequately diversified, given your risk appetite.

Financial institutions with good risk cultures that stuck close to these fundamental principles have been largely protected from the crisis. Unfortunately, few of us did it perfectly, and some didn’t do it very well at all.

Clearly, this is a global issue, and one that is being addressed through the participation of many groups in the public sector and private sector on a global scale. An important source for solutions will be the Washington, D.C.-based Institute of International Finance – the IIF – which includes the top 375 financial institutions in the world. I’m privileged to be on the Board, and the institute has struck a committee, called the Committee on Market Best Practices, which I now co-chair. Bob Brooks and Brian Porter are also important members.

The goal of the committee is to identify weaknesses and develop recommendations based on industry best practices, arising from the market challenges of the past year. We hope to present our report in the next few months.

The solutions, going forward, will not be found in overreaction or aggressive, rules-based regulations. It won’t be found in another Sarbanes-Oxley type of legislation. It will be found in rediscovering the fundamental principles of risk and liquidity management, and ensuring the necessary transparency and accountability by all market participants. Ultimately, the market will correct itself. But we must get back to the basics of risk and investing to ensure we don’t relive the same crisis and help us prepare for the next.

My confidence in the future also extends to our unique position in emerging markets, which continue to perform well, and, of course, to Canada – our place in the world – and the potential of Canadian business to grow and succeed in a global economy. One thing I wish to say is that Canadian companies that desire to grow need to take action, to look beyond their current horizons and look more aggressively to expand internationally, to look at the opportunities of a global market. I point with pride to the experience of Scotiabank in doing just that.

In addition to more globally focused companies, Canada will also be in a better position to win in global markets if our governments gear our public policies towards supporting the international competitiveness of Canadian businesses. In a global economy – and there is no denying that is what the world has become today – you can’t build walls, subsidize weakness and hope to be protected.

It was with this thinking that we made our recommendations to the Canadian Government’s Competition Policy Review Panel. The panel was established to discuss globalization and the implications for Canada – as well as the issue of the hollowing out of corporate Canada.

From our Bank’s perspective, the recent foreign acquisition binge involving some of Canada’s biggest and best companies is a clear signal that Canadian businesses must become more aggressive international acquirers.

It’s not surprising that some major Canadian businesses are being bought by big foreign firms. We have some great companies. We have some incredibly dynamic industries here in Alberta and across the country, in natural resources, transportation and telecommunications, financial services, manufacturing and more.

Large international firms look at Canada, as they do throughout the world, and recognize the value of our firms – and, in a free and open global world, are attracted to invest and acquire.

Our inward investment policies cannot act as a barrier to foreign takeovers, but at the same time, these policies must not disadvantage Canadian firms and their opportunities to develop into global corporations. In our experience, there are significant policy disparities between what is practiced in Canada and what applies in other jurisdictions. While the principle behind these practices – the shareholders’ interests – is absolutely sound, it is not clear that the national interest is always being served effectively. A global – yet practical – perspective is essential to compete and win.

At the same time, Canadian companies should aspire to be much more than the building blocks for the global aspirations of other countries’ firms. To do this, it is imperative that Canadian corporations should, as much as possible, gain scale through mergers and well thought-out acquisitions. Canadian businesses cannot ignore the competitive advantage that scale provides – greater diversification, spreading your risks and costs, and the ability to afford the best technology and to attract the best talent to succeed globally.

Truly global scale cannot be achieved unless Canadian firms participate in the global consolidation taking place across sectors. And there’s a clear benefit in doing this. The head offices of large, internationally oriented corporations will remain and grow here in Canada.

Why is this important? Because it brings considerable economic and social benefits, not the least of which are high-paying and rewarding careers and indirect employment for various supporting services. This, of course, adds to Canada’s personal and corporate tax base and provides our communities with people who can – and do – contribute significantly, socially and culturally.

We also must remember, it is far harder to grow mid-sized companies into the top tier than it is to support the success of the ones already there.

Other countries get this. Considering how volatile annual merger and acquisition activity is, our Bank is struck by the remarkable consistency in the fact that foreigners acquire larger companies in Canada than Canadian companies acquire abroad. While it is true new Canadian companies will emerge, it costs us every time we lose a large successful company with its head offices and people.

There must be a far greater recognition of consolidation and other processes of global commerce in our domestic policy. As a smaller economy, we have to play to our strengths and build on strategic sectors – like the financial services sector – like the energy and mining and telecommunications sectors.

We must take a long-term approach by moving our policies towards full and open competition, with appropriate transition periods for adjustment, including consolidation by Canadian firms. If you’re going to play in the big league, you’ve got to prepare your team first.

In the case of banking, the government should eliminate the specific ownership limits that prevent a foreign bank from acquiring a large Canadian bank. Instead of these specific limits, we should rely on the minister’s discretion to assess foreign bank investment to ensure overall control over the Canadian banking system is maintained. This will also ensure that any acquisition is made in the national interest by enhancing domestic competition. In addition, direct branching for foreign banks wishing to accept retail deposits in Canada should be considered, under the appropriate trade and prudential circumstances.

We put these recommendations forward with the qualifier that we must prepare our teams for the big leagues. Canadian banks should first be permitted to re-structure, including the option to merge. In doing this, Canadians can rest assured that any proposed bank merger will be subject to a review process that is significantly tougher than those in other jurisdictions.

Similarly, to prepare, our trade agenda must be driven by a strategic approach to building on Canada’s strengths. We should ensure Canadian corporations are on as strong a footing as possible when expanding into international markets.

Priority markets should be ones in which Canada has a comparative advantage - advantage related to geography, history, socio-economic policy expertise and industrial capabilities. We can’t afford to do everything.

The recent trade and investment focus of the federal government on the Western Hemisphere is the right one – but it should become a sustained and long-term strategy. That means being committed to creating more integrated relationships in North America, Central and South America, and the Caribbean. Canada has just signed two trade agreements for the first time in several years. Significantly for Canada and for our Bank, one of these agreements is with Peru, which I mentioned earlier is emerging economically and becoming an important country in this hemisphere.

Ladies and gentlemen, we are dealing today with tougher circumstances. But, as I said at the outset, I have confidence in the future. I have complete confidence in our Bank’s strategy and the priorities we have chosen. We have selected good markets that build on our strengths and present us with great opportunities to continue to grow. We will grow in Canada and globally, and our approach has consistently proven successful.

I believe the crisis in financial markets, like all crises, will dissipate, and it will create opportunities for us. Scotiabankers are aware of the risks, but also the opportunities, and we are all doing our part. There must be a continuous emphasis on the fundamentals of risk management, of diversification – finding the right balance of risk and reward to achieve sustainable long-term growth.

I also have confidence in our emerging markets and our home market, Canada, and Canadian business – and, most important, the skill level of Canadians. Both our private and public sectors need to orient a range of policies – market structure, competition, investment, trade – toward strategic sectors and the ability of firms to succeed as truly global competitors in international markets. At the same time, this will mean Canadian businesses need to be more aggressive in their pursuit of growth opportunities abroad.

From Scotiabank’s experience, we know the opportunities the world offers. And that’s why we’ll continue to focus on achieving our goal to be the best Canadian-based international financial services company.

Thank you.