Richard E. Waugh Speech - April 5, 2011

Challenges and Opportunities of the “New Normal”

Address by Richard E. Waugh

President and Chief Executive Officer

To the 179th Annual General Meeting of Shareholders

Halifax, Nova Scotia

April 5, 2011

“Scotiabank is well prepared to face the challenges ahead, and ready to take advantage of this unique window of opportunity that exists for us right now.”

Check Against Delivery

Good morning, ladies and gentlemen.

It is a pleasure to be holding our annual meeting once again here in Halifax where Scotiabank’s 179-year history began, and where we still have very deep roots and a thriving business serving the people of Nova Scotia.

Our Bank was the first chartered bank in Nova Scotia, and we owe a great deal of our success to the strong foundation that was built in this province, beginning in Halifax and then into Windsor, Pictou, Yarmouth, Annapolis and Liverpool.

Today, Scotiabank is in more than 50 countries and we have more than 71,000 employees, but our roots are still firmly planted here in Nova Scotia; the only place our Bank had operations for the first 48 years of our existence.

Our rich history and strong values, represented in our coat of arms that features a thistle, a unicorn and St. Andrew’s cross, are deeply entrenched in the proud heritage that we share with the province of Nova Scotia.

This past year was another successful one for Scotiabank. In fact, it was the best in our 179-year history. We reported a record net profit and turned in a performance consistent with what our shareholders have come to expect.

Over and above our financial results, we achieved many non-financial milestones related to our customers, our employees and the communities in which we operate.

As always, our employees make our success possible, and I would like to thank our entire team across Canada and around the world for your commitment to Scotiabank, and for driving our strong results.

I would like to thank our Board of Directors, whose guidance and commitment to Scotiabank’s ongoing success was once again central to our strong results in 2010.

On behalf of Scotiabank, I also extend my deepest gratitude to our customers and our shareholders, for your continued loyalty, and for placing your trust in Scotiabank.

We will continue to work hard to honour your trust, to meet the needs of our customers and our communities and build upon our record of strong results and sustainable and profitable growth.

My remarks today address two key areas of focus. One; the challenges facing Scotiabank and other financial institutions as the global financial landscape is being reshaped by re-regulation, and two; the opportunities arising from Scotiabank’s strength, our strong culture and our unique position, which have led us to make some significant and exciting changes to our organization.

Let me begin with the re-regulation of financial systems, which remains a key uncertainty for global growth, financial markets and financial institutions.

The decisions being made during this important process will impact the global economy for years to come, so it’s critical that it’s done right.

The focus must be on looking ahead to prevent the next crisis, not focusing on protecting against the last one.

It must also be kept in mind that two of the key focal points of re-regulation – capital and liquidity – are needed once we’re in a crisis, but it is sound risk management and funding that prevents a crisis in the first place.

The right approach to strengthening the global financial system and preventing further crises is ensuring strong, sustained profitability with a low to moderate risk appetite of all the participants. Sustained, risk-adjusted profitability keeps banks from ever having to use capital as a buffer.

However, in my view, the approach currently being taken is in danger of placing too much emphasis on overly prescriptive rules and requirements, which have never proven effective in preventing crises.

Prescriptive rules can be like the “Maginot Line,” which was a complex system of defences built prior to World War II, based on experiences from World War I, and not effective in stopping newer methods of attack.

Of particular concern are the Basel III regulatory framework and other regulations, such as Dodd/Frank, being put in place to govern the global financial sector.

Many of these regulations impose a one-size-fits-all set of rules that work against countries with strong financial and business models like Canada’s.

Worldwide regulation of banks (i.e. Basel) has very seldom averted a banking crisis. It didn’t stop the most recent subprime crisis, nor any of the major financial crises over the past several decades.

The next crisis isn’t likely to look like the last one, and it’s impossible to design rules for every scenario. That’s why the focus needs to be on strong principles of sound supervision and risk management not rules.

Significant questions remain about how to ensure global coordination and consistent application by regulators to create a level playing field for everyone.

Implementation will be different across each jurisdiction and those that were hurt much worse than others in the crisis will require greater changes and oversight.

In addition, while we are supportive of requirements to maintain a strong capital position, the very high levels of capital and liquidity required going forward as well as the accompanying changes in the definition of capital have the potential to stifle economic growth.

This is one of the key reasons why G-20 leaders have delayed final implementation to 2018.

As a financial institution, we can’t control what happens in the regulatory landscape nor can we control future economic downturns or surprises. But what we can do is prepare for them, by building and running our business in a way that focuses on ensuring stability and long-term growth.

At Scotiabank, this is something we do well. We have a straightforward business model that strikes an effective balance, allowing us to provide very strong returns to our shareholders at acceptable risk levels.

Fundamental to Scotiabank’s long-term success is our tremendous culture, which permeates our entire organization and guides every one of our decisions.

The foundation of our approach and our culture, based on strength, integrity and service, began right here in Halifax 179 years ago.

Having a strong culture is extremely important, and we are proud that our culture positions us as a leader in best practices related to board governance, compensation practices, auditing, compliance and prudent risk management and appetite.

Our culture is rooted in our understanding that Scotiabank has a responsibility and a very important role to play in driving sustainable growth in the economy by providing products, services and loans to our customers by offering great careers for our employees and most importantly, by growing and being profitable in a sustainable, prudent manner, while contributing appropriate taxes.

It also means balancing this with a strong risk culture, which implies an appropriate risk appetite and the ability to execute it throughout the organization.

That’s what it means to be a responsible corporate citizen, and it’s why we manage our Bank for the benefit of all our stakeholders; our customers, our shareholders, our employees and our communities; to find the right balance.

We’ve worked very hard to build and maintain our culture over many decades. It has evolved over the years, but it has withstood the test of time and kept our Bank strong and stable through the ups and downs of the economy, as well as through many different crises.

During the most recent crisis, no regulation or rule prohibited us from participating in subprime lending, CDOs, high-yield bonds or covenant-light loans. We consciously chose not to participate, or at very low levels, because of our unease with the risks.

Similarly, no rules prohibited us from investing in sovereign debt or European banks. In fact, regulators actually encouraged investment by not requiring high capital for these securities.

Scotiabank not only avoided material exposures prior to the crisis, we took specific steps over the course of several years to mitigate these risks. We instituted major changes to improve our risk management by increasing our diversification and reducing our concentration levels in higher-risk areas. Well before the crisis, we changed our international focus and reinvested in more diversified areas of higher growth and less risk – a decision that has proven to be the right one.

More importantly, we went into the crisis with capital well above regulatory requirements, and we maintained strong levels during the crisis. Basel required 4%, the Office for the Supervision of Financial Institutions (OSFI) 7% and we chose to hold well over 10%, primarily core equity.

Scotiabank’s return on capital was at industry-leading levels before and during the crisis. We did not have to raise capital to offset bad loans or to pay interest or dividends, and we certainly required no subsidies or bailouts from the government.

We attribute our solid performance over this past business cycle to key priorities, including effective capital strategies and our continued strong focus on prudent risk management, finding the right balance in our risk appetite.

For financial institutions, good risk management is absolutely fundamental to our success and for Scotiabank it is a defining advantage.

As I mentioned, in strengthening the financial system, regulation alone cannot produce tangible lasting change. Rather, it must support and guide a change in behaviour of the industry itself toward a broad, enterprise-wide risk model rooted in sound fundamentals and supported by a strong risk culture.

At Scotiabank, our deeply embedded risk culture and appetite stretches from top to bottom in our organization and it’s one of our key strengths. We have a business model with ensured accountability and sound underwriting. We also have vigilant, independent monitoring and controls, both internal and external.

We take managing risk seriously. Our risk culture takes the view that everyone at the Bank is a risk manager, right up to our Board and senior management who are all actively involved to ensure we adhere to strong risk governance.

Our risk management framework is effective and it operates with an enterprise-wide view. This centralized approach allows us to manage our extensive international operations and tailor them as necessary, with highly coordinated control functions.

We constantly work to strengthen and evolve our risk management procedures to ensure that they are as strong as they can be. Our approach has been effective, and our results demonstrate that good risk management works.

As our last several years show, we have an industry-leading position in profitability, risk management and capital, both in Canada and globally.

Our capital strength has provided us with a cushion in uncertain times, but has also allowed us to pursue our growth strategy and take advantage of opportunities.

2010 was a pivotal year for our Bank, during which we made some very important and exciting investments in the future of our organization.

Given our results, it could have been tempting to sit back and expect a continuation of our success. But that indicates complacency and we have often said that we can never be complacent or rest on our laurels.

Instead, to seize a window of opportunity for long-term growth, we made substantial changes to our organization and our executive management team.

Our fourth pillar, Global Wealth Management, was created by combining our Wealth Management, Insurance and Global Transaction Banking businesses.

In addition, we broadened the mandate of our wholesale operation, Scotia Capital, to include more involvement in emerging markets and the development of more fixed income and energy products in the G7 countries.

In May, we will open a state-of-the-art trading floor in London, at the site of our new European headquarters.

And in our traditional personal and commercial business, which is the foundation of our Bank here in Canada, we have implemented several initiatives to build market awareness.

Internationally, along with key acquisitions in emerging markets, we are investing in our branch network, technology and talent development.

And finally, our best-in-class support functions are actively engaged with the four business lines in the execution of their exciting new mandates.

In this unique time in the global financial sector, Scotiabank’s strong capital position, diversified international presence, and straightforward business model present us with significant opportunities in all of our markets. Our reorganization allows us to take full advantage of these opportunities, which we have already begun to do.

Our record results in the first quarter of 2011 demonstrate that we are on the right track.

Our continued success depends upon the full collaboration of our entire team across all of our businesses and in every one of our countries.

We have taken a number of very important steps to ensure that we are working together, and fully accountable for providing seamless and unified solutions and service to our customers. We enhanced our Balanced Scorecard, which is how we measure our success, to take into account how well we are collaborating, for the Bank as a whole, as well as for key members of our team.

In addition, we have appointed Leadership Teams in each of our key markets to facilitate the collaboration process.

We have tremendous diversity, depth and expertise across our team. When we combine our collective strengths and work together, we are much stronger than the sum of our individual parts.

I have strong faith in our team, and I am confident that we will continue to be successful.

We will continue to focus on our strategy of diversification by business, geography and risk and we remain committed to our five strategic priorities, which are clearly outlined in our Annual Report.

In conclusion, when we look at the challenges confronting financial institutions, there is no question that they are significant, but in those challenges there is also great opportunity.

We are now at a most critical point in industry reform, which is to find the right balance between risk and regulation or, more specifically, effective internal risk management practices guided by supportive, relevant regulation and Board oversight.

Finding the right mix is critical to building a sound, effective financial system that is not only safe and prepared for future challenges but also supports economic growth.

As global efforts continue among regulators, governments and financial institutions, all participants must have a clear goal: to ensure that our financial systems and institutions are prudently run, while contributing to the economic well-being of our stakeholders and to the economies and societies of the countries where we operate.

To prevent further crises, our collective focus needs to be on strengthening the fundamentals of an effective system, sound risk management and funding with sustainable, risk-adjusted, profitable revenue, supplemented by independent audit and experienced, principles-based regulations.

History has shown us that no amount of prescribed regulation can replace sound management and principles-based governance or a board and management team who are accountable for results to all stakeholders.

At Scotiabank, we understand this, and our consistently strong results are a product of this successful model.

As always, in the coming months and years we will keep a close watch on regulatory developments and manage our business accordingly with the interests of all of our stakeholders in mind.

The new initiatives we announced this year are an investment in the future; a bright future. They build on our excellent track record, our competitive advantage anchored in a strong, values-based organizational culture of risk and cost management, and most importantly, the depth and breadth of our team.

I am confident that Scotiabank is well prepared to face the challenges ahead, and ready to take advantage of this unique window of opportunity that exists for us right now.

Thank you.