Remarks for Rick Waugh
Outstanding Executive Leadership Award
Schulich School of Business
President and Chief Executive Officer,
Scotiabank

December 1, 2004
Toronto, Ontario

Thanks very much, Katie [Taylor]. It's a great pleasure for me to be back at the Schulich School of Business - and I'm very honoured to have been chosen for the Outstanding Executive Leadership Award. I had the opportunity to take a look at the previous honourees - it's a very impressive list - including my colleague at Scotia Capital, David Wilson. I'm in great company to be included in this group of alumni.

I couldn't have imagined I'd be standing here some 35 years ago, when I was backpacking through Europe. I had graduated from the University of Manitoba and was hitchhiking from town to town - city to city - with a few buddies of mine. The world of finance wasn't high on my list of priorities, that's for sure - but a job was because I was quickly running out of money! I was lucky enough to have received an offer from Scotiabank - and when I came back from my trip, I started as a teller at the Windsor Park branch in a suburb of my hometown, Winnipeg.

I always thought that I'd stay in Winnipeg - I loved it, and still do - but I ended up moving to Toronto, then later to New York - and then leading Scotiabank's operations in 50 countries as head of International Banking, travelling around and up and down the world, several times a year.

When I first got the call to come to Toronto, I reacted somewhat negatively - the deal with the Bank was to stay in Winnipeg. In those days in banking, there wasn't much room for debate. They summoned, you came. I was told on Monday to pack my bags and be in Toronto the following Monday.

Once I was actually here, as I discovered through most of my career, the opportunity to be challenged and to try something different exists and I love it.

But I recognized that I required some help on this journey that I was now on, and it was then I decided to attend York University at night while continuing on with my job at the Bank.

After three years of night classes, weekend assignments, and working at the Bank, I was privileged to receive my MBA from York University this was before Seymour Schulich had graciously donated to the business school!

Even then, the school had a focus on international business - a unique perspective among North American universities - as well as a key partnership with the business community. It taught then - and still teaches today - the importance of looking at global markets - and how they can affect business at home. Yes, they taught theory, but always with an eye to the pragmatic future and to what works in everyday business life. My MBA was invaluable in advancing my career - it's something I've always prized. And as it turns out, that way of thinking - that global perspective, and the business and practical perspective - became all the more critical upon joining Scotiabank.

Why? Well, Scotiabank has operations around the globe, and our strategy of international diversification is unique among the Canadian banks. I know from Dean Horvath that you're looking forward to hearing how we at Scotiabank apply our knowledge and expertise across our global operations - in fact, that's a distinct competitive advantage we have - it's one of Scotiabank's core competencies.

Today, I'll be talking about our bank - our base here in Canada and our international scope - I'll also talk about how we're exporting best practices to a number of key markets such as the Caribbean, Mexico and Chile. And, I'll show how the international business education gained at Schulich is a critical skill for many of our employees.

First of all, let me tell you a bit about our bank. Scotiabank is Canada's second-largest bank and third-largest company by market capitalization. We have more than 1,800 branches and offices in some 50 countries around the world - where we operate as a local bank - offering full services to our customers. And we generally operate under the Scotiabank banner for our retail and commercial operations - and Scotia Capital for our corporate and investment offerings.

Our bank has always seen international markets as tremendous growth opportunities. Our interests run deep - particularly in the Caribbean and Latin American regions. We are the oldest bank in the Dominican Republic - over 80 years - over 30 years in Haiti - and 115 years in Jamaica. We opened a branch in Kingston, Jamaica, before Toronto. We are the only large international bank in four of the seven countries in Central America - Panama, Costa Rica, El Salvador and Belize.

In fact, we just announced this week our successful acquisition of the third largest bank in El Salvador and will be merging it with our existing bank there, which we bought in 1997.

We're a leading bank in Mexico - a point I'll come back to. And in Asia, we've been in Malaysia for 30 years - India for about 20 years - and China for more than 20 years. Close to one-third of our earnings come from International Banking and about 40 per cent of our 48,000 employees are in our international operations - including many people here in Toronto - who help develop and execute our strategies. In fact, today, almost one-third of our employees speak Spanish as their first language. All these markets - and our people in them - not only play a fundamental role in our current success, but a significant role in our future plans.

At the same time, we are very much a Canadian bank. Canada is and will remain our core market - where our bank continues to have great success. Our Canadian retail and commercial operations contribute about 40 per cent of our net income - and have delivered over 30 per cent return on equity in the last five years. The Bank's overall performance is quite strong - in fact, it leads in shareholder returns over 5, 10, and 15-year time frames among major Canadian banks. We lead the market in many areas - according to independent market surveys, we're number one in online banking service, number one in retail credit quality, and we were recently rated highest in customer service among the major Canadian banks for the fifth consecutive year. We believe this is because we constantly reinvest in our operations - upgrading technology, processes and our branches, and constantly reinvesting in our people. Not only does this help to maintain our competitive position, it also makes it possible for us to export our strengths to win in other markets.

At Scotiabank, our day-to-day philosophy is "One Team, One Goal." Our goal is to be the best Canadian-based international financial services group. Now how do we do it? We achieve that goal by building strong relationships with our customers, employees and communities. Take, for example, our Sales and Service model. About five years ago, we rolled out a new, customer-centric approach to banking in our retail branches here in Canada. This was a massive undertaking - we upgraded everything from the look and feel of our branches to the computers our customer representatives use. We built - basically from scratch - an industry-leading customer data warehouse - an essential tool for targeted marketing, cross-sell and customer retention activities. We implemented powerful new customer tracking software - so that we could pro-actively initiate contact when, for example, a customer's GIC came up for renewal. And we implemented a Shared Services model where we were able to centralize administrative work - taking that function out of the branches - and let our branch staff focus on serving our customers.

The Sales and Service program has been a tremendous success. It totally changed the branch culture - focusing our branch staff completely on serving their customers. They now have sales goals, and are rewarded for key relationship-building activities, such as mortgage lending, day-to-day banking and creating a savings plan. Thanks to the productivity and technological initiatives we've implemented, we've nearly doubled the amount of time staff can devote to sales. As a result, we've increased our market share in key products and we're industry leaders in customer service.

It seems natural - and makes sound business sense - that we would want to take the best practices we've learned from Sales and Service in Canada and export them to our international operations - and in fact, that's one of our key initiatives at Scotiabank.

We are planning to roll our Sales and Service model in a phased approach throughout the Caribbean, Latin America and Mexico over the next couple of years.

But this is not a simple cut-and-paste initiative. Each market is different - and care must be taken to address their unique circumstances. As we say at Scotiabank, we think globally, but act locally. Let me share with you two examples - the English-speaking Caribbean and Mexico.

As I mentioned earlier, Scotiabank has been in the Caribbean longer than we've been in Toronto - since 1889, in fact, when we opened our first branch in Kingston, Jamaica. Today, we're the dominant bank in the region - twice the size of our nearest competitor - with 150 branches and offices and 4,500 employees in 19 countries. We have significant market share and strong brand recognition.

So while the Caribbean cannot be counted as a mature market in the way that Canada is - we still face similar challenges in building market share further. This means that we have to look to our existing customer base to build revenues. And the Sales and Service model now plays a key role.

To continue to build on our success in the Caribbean, we are focusing the local Sales and Service platform on enhancing our relationships with high-value customers - cross-selling insurance and wealth management products that are both needed and highly profitable. We'll also be expanding our trust business where local regulations permit.

We've seen great success at this early stage. In 2003, we were named Bank of the Year in Jamaica, and we have already increased our regional sales targets by more than a third from current levels - that's an indication of the success we expect from this initiative. Jamaica is a small country, but customers there, like customers everywhere, are responding to the Sales and Service model by buying more of our products.

Moving now to Mexico - a different scenario. The differences just begin with language - and extend to virtually all areas of business.

Scotiabank Inverlat - our subsidiary in Mexico - is one of many multinational banks - including Spanish giants like Santander, as well as Citibank and HSBC - competing for business. We have 420 branches, close to 7,000 employees and a million customers. But Mexico is an underbanked nation - penetration of banking services is much lower than in Canada or the U.S. Loans represent only 20 per cent of GDP, compared to more than 70 per cent for the United States and almost 90 per cent in Canada.

On top of this, the country's demographics are very appealing. Mexico has - by far - the youngest population in North America, with a median age of just 24, compared with 36 in the United States and 38 in Canada. Almost 60 per cent of Mexicans are under 30 years old.

Consider the potential this has for the future.

Over the next several decades, Mexico's labour force expansion and potential growth rate are forecast to remain well above both Canada and the U.S.

Young people entering the economic market consume - they buy toasters, then cars, and then houses. This spending - properly managed - fuels growth, producing more jobs, more projects, more prosperity and more profits. And from Scotiabank's perspective, they need banking services - lots of them.

In fact, retail banking markets are growing rapidly - at about three times the pace of economic growth. This is especially true in mortgages and personal loans.

Using some of our best Sales and Service model techniques and Canadian-designed products, we've rolled out in Spanish-speaking markets and adapted to meet local needs and regulations.

Thanks in part to these efforts, last year, Scotiabank Inverlat did one in three of all residential mortgages and car loans by banks last year in Mexico - an astonishing success. And there is potential for even more growth.

So for a different market, we are implementing a different focus to the Sales and Service model. In Mexico, because we currently have 5% of the market, unlike Jamaica, we will be focusing on customer acquisition programs to grow market share. We will also leverage the mortgage and auto loan customers we have acquired and form deeper, more complete banking relationships.

Again - as in the Caribbean - we are seeing excellent results at an early stage. We were just named the bank with the best customer service by a survey in El Economista, one of Mexico's leading journals.

But the Sales and Service model is just one example of how Scotiabank is working to succeed in international markets. We have plans to export other core competencies of the Bank - such as productivity, technology and risk management - to improve the returns of our overseas operations.

For example, to control costs and improve our productivity, we're expanding our electronic delivery channels - especially ABMs and Internet banking - allowing us to provide more cost-effective customer service. Because of the dramatic changes in telecommunications, we're also consolidating our international data centres, which have been spread out around the world. Three years ago, we had 16 centres - in 18 months, we plan to have two. And as I mentioned before, we are taking non-sales activities out of the branches and centralizing them through our Shared Services initiative. It's been a huge success in Canada - creating greater efficiencies and allowing us to handle higher volumes without adding costs - and we look to duplicate its record internationally.

As well, new credit adjudication and collection technology, including centralized underwriting and sophisticated credit scoring models, is being used to improve risk management.

We are also applying our expertise in capital markets to a joint venture between Scotia Capital, our Canadian and U.S. investment bank, and Scotiabank Inverlat - to create a seamless and unique NAFTA corporate and investment bank.

But in addition to these very practical examples, the most important aspect we bring to the developing countries, in addition to our technology and Canadian banking best practices, is our core fundamental values. Everywhere I go, in Canada and around the world, I speak to those core values - and, over the years, they have become the shared beliefs of all Scotiabankers - integrity, respect, commitment, insight and spirit. Our people in these countries - whether it be in Haiti, Mexico or India - all share the same Scotiabank values.

In closing, I'd like to mention one final way we're looking to succeed internationally - perhaps the only way - that's by attracting and retaining the right people. Over the years, Schulich has been an outstanding resource for top-notch talent - in fact, some 200 Schulich alumni are with Scotiabank. They work in all areas of the Bank - and include many of our top executives -contributing to our values and to our international perspective. At Scotiabank, we're proud of the long-standing relationship we have with the Schulich School of Business - we depend on the quality graduates we find here to advance our business and succeed on a global scale.

And, as I mentioned at the beginning of my remarks, I know that Schulich graduates have received a quality education - because I know this school very well - as an alumnus and a supporter. If Schulich can help make a bank President & CEO from a globe-trotting, hitchhiking, fun-loving Winnipeger - it can do even greater wonders! I'm very honoured that I was selected to receive the Executive Leadership Award - and yes, it's possible - even for a bank CEO - to be extremely humbled!

So thank you very much, once again, and enjoy the rest of the evening.