Richard E. Waugh Speech - April 8, 2010
An address by Richard E. Waugh
President and Chief Executive Officer
the Scotiabank Annual General Meeting
St. John's, Newfoundland
April 8, 2010
Check Against Delivery
Good morning ladies and gentlemen. It's a pleasure to be holding Scotiabank's Annual Meeting in Newfoundland and Labrador for the first time in our history.
Scotiabank has proudly been a part of Newfoundland's history since 1894, which makes us the oldest active bank in the province. Our time here began under difficult circumstances, after a banking crisis that caused the failure of the two incorporated banks on the island.
Wasting no time, two young Scotiabankers, an Inspector (Daniel Waters) and an Assistant Agent (J.A.McLeod) boarded the S.S.Barcelona bound for St. John's. They arrived and set up business in a mere two days (on Dec. 15) and, true to the good old Scotiabank way, ahead of our competitors!
They soon set up a temporary headquarters in an office that belonged to a steamship company, but it wasn't long before the Bank opened its first permanent branch not far from here, at the corner of Water Street and McBride's Hill.
For more than a century, Scotiabank has proudly served our customers here, shared in their rich culture and stood by them through many ups and downs over the years. Our customers have responded and we are the leading bank – as measured by number of customers – on the island.
I'm very pleased to have the opportunity to speak with you today. As I mentioned, this is the first time we've held our meeting here and it's been far too long a wait.
Scotiabank's results in 2009 reflect the ongoing strength and stability of our Bank, despite the difficult economic environment that persisted throughout the year.
During this challenging time, Scotiabank performed well. We were able meet or exceed all of our targets, and each of our three business lines had record earnings.
We continued a level of high and consistent profitability achieved by very few banks in Canada or indeed the world, and we led our peer group with the highest return on equity.
We maintained our strong capital position and our record of consistent high quality dividends; one of only two Canadian banks to increase our dividend payout in 2009, while continuing to invest in our business organically and through acquisitions to drive future growth.
I would like to begin by thanking every one of our employees from across the bank and around the world for contributing to our strong performance.
Given that this crisis was a banking crisis our customers were concerned and worried, and you were on the front lines to reassure them and meet their concerns.
As Scotiabankers do, you pulled together and helped each other under extreme circumstances. You were enthusiastic about your jobs and about helping your communities, and you worked hard for our customers throughout a challenging time.
The strength of our team, especially during adversity, gives me confidence that Scotiabank will continue to grow and succeed even as challenges remain in the global economy.
We entered the downturn stronger than many of our competitors and we are emerging in a stronger position than when we went in.
Scotiabank follows an international model based on a strong home market, with niche areas of global expertise and local retail and wholesale operations in 50 countries. But we are proudly based in Canada. This is our foundation and it has played an important role in our success.
Our country's performance during the financial crisis and our relative strength in the wake of the global recession have garnered Canada and the Bank global attention.
Certainly, Canada was not immune to the recession. Many people have lost their jobs here in Newfoundland and across the country, and it continues to be a challenge.
But we endured, better than others, and we are returning to growth. Our economy is again creating jobs. Our currency and our Banks are strong; and we are among the top places in the world to invest.
Canada has a brand that represents who we are, what we stand for and how we are perceived around the world.
The "Canadian brand" has never been stronger on the world stage than it is right now. That's a tremendous advantage, which other countries don't enjoy.
Today, I'd like to discuss why it is critical that we take advantage of our strong brand, and why if we don't, we not only lose out on this window of opportunity, we also jeopardize this perhaps once-in-a-century opportunity to shape our future prosperity.
Furthermore, we must not be complacent about the need to compete and to compete on a level playing field.
It is time for our political leaders, policy makers, businesses leaders – and each of us as Canadians – to seize the opportunities we have in front of us.
Canada's first course of action is to recognize our strengths – not dilute them, but have confidence in them – and put them to work! We must use our strengths to reach for success in the global economy of the future.
We have a strong and diverse economy, with world-class sectors in mining, energy, science and technology and financial services.
We have a diverse and highly educated workforce, and abundant land, water and natural resources.
We also benefit from strong democratic governments with a record of financial discipline in our public finances, and we compare most favourably to our G7 counterparts in many key areas, including GDP growth and debt to GDP ratio.
To top it off, we enjoy rights and freedoms that are the envy of the world, and we have a strong "civil society" – a society that tries to address the needs of all of its members in a fair and equitable way. It is because of this, we see so many Canadians committed to giving back to their communities in return for the benefits they received.
We do some very important things very well. These are tremendous strengths that we need to nurture, invest in and take to the world.
With these strengths, Canada has the ability to create global centres of excellence that can become hubs of innovation – attracting capital, talented people, corporate head offices and jobs. All of these things benefit the entire country, and contribute to a higher standard of living for everyone.
The recent federal budget recognizes Canada's leadership in financial services and in risk management in particular. It voices support for Ontario's initiative to develop a global financial centre in Canada, with a planned centre of excellence in risk management that positions Canada as the world leader in this area. It also calls for a national securities regulator – and all of these things are progressive steps that provide leadership for both national and international best practices.
As shareholders of Scotiabank, you can be proud that the Bank has proven to be one of the best in the world at managing risk. The performance of Scotiabank during the financial crisis underscored one of our key competencies: the ability to prudently manage our risks, while still investing wisely in the future.
At Scotiabank, risk management is one of our fundamental strengths and stated priorities, and an important part of our own brand. We do it well, but we don't take it for granted and we constantly work on improving our capabilities.
Taking Canada's strength in this area to the rest of the world is a good start, but we must do more in this and other sectors, and with the co-ordination and co-operation of all levels of government.
Part of building on the Canadian brand is to believe in it ourselves, open our doors to external competition and at the same time, get out and look for new markets.
Canada has the ability to be a leader in the world in areas where we have experience and expertise such as energy, mining, telecommunications and of course, financial services. We have these tremendous strengths, and we need to have confidence in them. We've proven and demonstrated that we've got what it takes. But we must also have the vision and the commitment to make it happen, and to understand that our future prosperity depends on it.
We must continue to remind the world that Canada's model works in good times and bad. Our financial system received key endorsements from global organizations such as Standard and Poor's, Moody's, and the IMF during the crisis. For two years running Canada's banking system has been ranked the World's soundest by the World Economic Forum.
Modesty is a virtue – and a Canadian value – but to compete, we have to market ourselves and let people know what we're about. I've talked to political and business leaders at all levels, and they agree with this. But now is the time to come together and present a unified front to promote foreign investment in Canada, to attract the best talent and to nurture our comparative strengths, like banking.
As we move beyond the financial crisis, we are now at the beginning of a new era in the global financial services industry – one of opportunity, but also of dangers. In particular, regulatory reforms are currently being debated and will be put into place worldwide over the next several years.
What is decided upon and how reforms are implemented will fundamentally impact how financial services are delivered around the world, with direct and potentially significant effects on our customers and, by extension, prospects for future economic growth. The consequences will endure for years to come.
While Canada's model is not perfect and it's continually being improved, it has been tested through the most severe financial crisis in our history and it has proven to be effective. It is not one based on stringent rules and restrictions. It's a model based on discipline, rooted in effective legislation, and with strong regulatory oversight and prudent management at all levels.
While regulators' governance was, and is, important, it was the Canadian financial institutions themselves prior to the crisis that chose to hold capital levels far exceeding the requirements of our Canadian regulators – requirements which already went significantly above and beyond the global standard. In addition, we chose – not the regulators – because no rules prohibited us – we chose not to invest in heavily toxic assets and derivatives as so many others did.
One of the key strengths of Canada's system is that it includes a strong, principles-based, values-based backstop to ensure its stability even in a crisis, without clamping down on innovation and without sacrificing banks' ability to lend and support economic growth.
This balance has served our country very well. But we must protect it from being swept up in the global push for stringent rules and constricting taxes that do not fit our unique Canadian circumstances.
No amount of regulation can replace sound management and principles-based governance or a board and management who are accountable for results to all stakeholders. Therefore, we must all be careful that over-regulation does not stifle economic growth at a time when a fragile economic recovery is beginning to take hold.
Certainly many reforms are necessary, especially in raising global capital. Global coordination will be essential for effective policies to emerge among key developed and emerging economies, particularly relating to systemic and inter-connected risks.
But there is a real danger that Canada will perhaps inadvertently be significantly weakened by these reforms. In particular, it's not the call for more capital. Canadian banks have lots of high quality capital, and we can handle the rising international capital levels. Rather, it's the many detailed prescriptive rules presented under what is now called Basel III, that threaten Canadian banks' ability to achieve growth, and our ability to provide our customers with mortgages, credit cards and business loans.
For example, our unique Canadian mortgage market was one of the important reasons why we did so much better than others. And this may be in peril, due to several proposed rules that go over and above requirements for more capital. Canadian banks could actually be forced to securitize and sell our mortgages – one of our best assets, and a key factor that allowed us to manoeuvre through the crisis.
Today, in Canada, our financial system and strong capital encourage banks to hold mortgages – to know our customers and establish deep relationships with them – to ensure the mortgages are of high quality – and to ensure that our depositors and shareholders are not at risk. As a former branch manager, I believe I am one of the very few bank CEOs in the world who knows first hand how important it is to sit across from a potential customer to form the foundation for a long term relationship that will be profitable for both of us, and yet be a safe and prudent loan.
Many American banks did not hold any of their mortgages on their books. They initially sold them without even meeting the customers or trying to establish a relationship. They just wanted the quick and certain fee.
We must remember the crisis started with poor quality of certain assets, particularly U.S. sub-prime mortgages and structured derivatives. Then this developed into a liquidity, funding and capital crisis. Focus must be on ensuring better capital and risk management, proper compensation and global integration of markets rather than prescriptive global rules which work against Canada's well-functioning banking industry.
Our model has worked well, and we should make sure it is not damaged as others try to cover the failures of their financial sectors. The devil is in the detail, and there are many potential risks of unintended consequences in Basel III.
Thankfully, our government leaders, our policy makers and our regulators are not only aware of these dangers but, I believe, are willing to take a lead position to protect Canada's interests while still trying to implement needed changes in the global financial sector. Scotiabank, and I'm sure others, will strive to work with the government on these details.
So, at the coming G20 in Canada; at the meetings of the Financial Stability Board, on which our policy setters and regulators are represented; and at Basel, we have to – all of us, but particularly our regulators and government – rigorously state our case and protect our interests.
We all have a responsibility to make Canada's voice heard to ensure a level playing field for everyone and yet not compromise and give away the very strengths that make our system work.
This brings me to my last point: Canada must embrace this new era of globalization, seek opportunities beyond our borders and keep our own borders open for business.
Here in Newfoundland and across Canada, we're still facing major challenges with regards to unemployment as we pull out of this recession.
While stimulating domestic demand is important, it can only go so far. To achieve sustained long-term growth, we can no longer simply look inward for solutions or for markets. We must turn our sights outward and take advantage of the phenomenal growth that is happening in developing markets, both for trade and for investment.
In Canada, we've relied on domestic consumption and U.S. consumption to provide growth. However, in the next few years it will be the growing middle class of emerging markets that will provide growth – and opportunities for us in trade and investment.
Other countries are forging ahead with bold plans. In the United States, President Obama has announced a target of doubling U.S. exports over five years. Mexico and other Latin American countries have entered free trade agreements, and Asia is opening for business more and more.
Canada must set its own aggressive targets, and Canadian companies must do the same because the opportunities are huge, and the cost of inaction is that these opportunities will be forever lost.
For example, in less than 30 years, just one percent of the import market for only four countries – Brazil, Russia, India and China – is expected to be about $290 billion dollars.
If we can increase Canada's market share in those countries by just one tenth of a percent over the same time frame, it would mean a boost of $29 billion to our exports for that year. To put it in perspective, that's about eight per cent of our total exports for 2009.
That would be a big help to our economy but, unfortunately, over much of the last decade Canada's market share has actually declined in these markets. We must reverse this trend.
Trade has been a cornerstone of Canada's economic growth and development throughout our history, primarily in commodities. We need to continue to pursue open trade and ensure that its benefits are shared, and broadened, to services and technology.
Our government has made good progress on several important trade agreements. It must continue to move towards ratifying the free trade agreement with Columbia, and securing deals with Brazil, India and China. It must also continue to develop NAFTA and Canada's relationship with Mexico. And again, it must involve not only manufactured goods and commodities, but also services, international technology and research.
The private sector must also do its part. As a country our brand is strong, but Canada does not have a good record of taking our expertise global.
Scotiabank is meeting this challenge head on by investing in new and emerging markets, forging ties and building strong relationships.
Early in our history, at about the same time we ventured to Newfoundland, we branched out into the Caribbean and we are now a leading bank there, with operations in 20 countries.
We moved on to Latin America and Central America and now nearly half of our employees speak Spanish as their first language.
We have great management and employees in these countries.
We're now looking to accelerate our operations in Asia. This began over 30 years ago and we expanded even during the Asian crisis. Now we are expanding again, as Asia takes a more important place in world growth.
We have small but solid roots in Asia developed over many years. We have strong local management in 11 countries supported by our regional office in Hong Kong, which was established in 1987, as well as significant expertise and experience from our Head Office in Toronto.
In Thailand, we are building our presence through our affiliate, Thanachart Bank, which we just announced will soon merge with Siam City Bank.
In China, we recently increased our investment in Xi'an City Commercial Bank to 14.8% which follows our initial investment that began in the late 90s. We've been in China since opening our first representative office in Beijing in 1982. We now have three branches there; our most recent in Shanghai, which opened in 2006.
We've opened more branches in Malaysia, as well as new representative offices in Vietnam, Turkey, Russia and Australia. Scotia Mocatta, our precious metals dealer, has expanded significantly throughout Asia, including a new office in Dubai. And we will continue to make strategic investments to boost our presence.
One might say we learned some of the lessons about expanding into new countries from our early experience here in Newfoundland 116 years ago. We can proudly say that Newfoundland was one of our first forays into international banking, just after Jamaica. It took us many years to understand the language here, and some might say we still have a ways to go!
But, our experience here and elsewhere taught us to successfully manage our business in different cultures and economies, prone to ups and downs but filled with great potential if one uses discipline, local experience and Canadian best practices.
Most importantly, we also learned to develop our people in Canada and in the countries where we operate, to manage risks in new markets and to look for opportunities to grow our business – remembering to be prudent, staying diversified and using our expertise in risk management.
Scotiabank will continue to look beyond our borders for good opportunities to invest in growth markets, but we need business and government leaders here in Canada to do the same.
So in conclusion, Canadians must have the confidence that we can take on the world and win. We've more than proven our ability to do so. Our Olympic athletes showed that confidence in Vancouver. They went for the gold and came back with more than we've ever won, and more than any other country has ever won.
Canada must follow their example. We have come in to our own and shown that our unique Canadian model works, even through crisis.
When I joined Scotiabank in 1970, I could not have imagined that in my career, our Bank would be in some 50 countries and that nearly half of our employees would be Spanish speaking. Nor could I have imagined our Bank would rank 21st in the world by size based on our current market value and, most importantly, be recognized as world class in its field.
Today, the world of the future is a place we can't even begin to imagine. So we have to recognize opportunities for investment and trade, and make sure we are prepared and nimble enough to capitalize on them when they present themselves. This is the key to our success. It has been, and it will continue to be.
So I call on the great team here at Scotiabank, my colleagues in the business world, our partners in government and across this great country called Canada, to be ready, willing and equipped to seize those opportunities!
Now is our time. The window of opportunity is open but it will not stay open for long. So we must go for the gold now!
Before I finish, I would like to thank all of our customers for placing your trust in our bank. Customer loyalty is what we all try to achieve and we must always work at it.
And thank you to the Board. In 2007 we knew it was going to get tough, but none of us realized how tough. The support and guidance you gave to me and the management team through this unprecedented time in our history made a difference.
And of course, thank you to our shareholders for your continued confidence and support.
Our future is bright!