Dear fellow shareholders,
By any measure, 2020 was an extraordinary year and, against that challenging backdrop, we hope you and your families are staying healthy and safe. We thank you for your ongoing trust in the Bank as we navigate these difficult times.
The COVID-19 pandemic has had an adverse impact on economies, households, businesses, and financial institutions around the world. While we could never have predicted the nature or extent of the crisis we currently face, the Bank was on sound footing operationally and financially going into the crisis. Our years-long effort to build and maintain strong capital levels gave us the flexibility to serve as an economic shock absorber for our customers during this time of need.
The Bank has demonstrated tremendous financial and operational resilience during a period of intense stress. Not only did we enter the crisis well-capitalized and with robust levels of liquidity, our efforts over the past few years to strategically reposition the Bank’s footprint, focus on asset quality, and reduce risk have positioned us well to weather the current storm.
Operationally speaking, we were pleased with our state of readiness. As we have seen during this period of instability, our significant, multi-year investments in our people, processes, and technology proved to be the right ones.
The past year has demonstrated the vital, positive role that banks play across society. Indeed, without strong institutions, such as banks, you cannot have a strong society. The COVID-19 pandemic has unquestionably reinforced the role that your Bank plays as an enabler of economic stability, an advocate for positive social change, a partner in development, and a driver of growth and prosperity across our Americas footprint - from the top of Canada’s Arctic, through the United States and the Caribbean, and down to the southern tip of Latin America.
The public health crisis we have faced in 2020 has underscored the importance of a strategic, coordinated response from the private, public, and charitable sectors, as well as the broader population, in tackling a crisis of such scale and severity. The pandemic has highlighted the necessity of strong collaboration between financial institutions and all levels of government in supporting families and businesses during this time of acute need. You will learn about specific Bank-wide support measures in the following pages and, I hope, take pride in the ways your Bank responded during the pandemic.
2020 will also be remembered for historic conversations focused on addressing racial inequality around the world. We know that our Bank is only as successful as the societies in which we operate, and when there are individuals and communities that feel left out, we cannot be strong. We are committed to calling out injustice of all kinds when we see it and striving to use every opportunity to make better, stronger societies today, and for generations to come.
While the economic impact of the COVID-19 crisis is yet to be fully realized, we remain confident in the Bank’s strength and stability, and hopeful that better days lie ahead.
Before commenting on business line performance in 2020, I want to take a moment to address the Bank’s share price and valuation multiple. I want to be clear that our executive management team is committed to improving our share price in order to provide better returns to our shareholders. Employees and senior management are shareholders too, and we make decisions with a shareholder mindset.
While our share price is not where we want it to be - or where we think it should be - having successfully repositioned the Bank, we are in a better position to produce consistent earnings growth. We are also encouraged by steadily improving customer satisfaction indicators across our core markets. The Bank’s Net Promoter Score (NPS) in Canadian branches is up 11% and internationally we’re seeing improvement of up to 52% across the Pacific Alliance (PAC) markets of Mexico, Peru, Chile, and Colombia. We’re especially proud of our improved competitive NPS ranking in Canada, moving from fourth to third place. Better customer satisfaction is a clear indication that our considerable investments in people, processes, and technology are working, and should soon be reflected in the Bank’s share price.
With regard to our financial performance in 2020, our results demonstrate the power of our diversified business model in a challenging environment.
Canadian Banking reported adjusted earnings of $2.6 billion. The Canadian Bank’s two largest loan portfolios – Mortgages and Commercial Banking – delivered strong growth in Canada this year. We continue to support our customers through the uncertainty of the COVID-19 pandemic with extensive customer relief on banking options and by delivering award-winning products and services. Growth in Canadian Banking is expected to be driven by an increase in both retail and business banking, underpinned by assets and deposits growth.
International Banking has been repositioned to focus on a diversified presence across the high-growth markets of Mexico, Peru, Chile, and Colombia. The outlook is positive as GDP is poised to grow during calendar 2021 in all four of these core markets. While adjusted earnings for the year decreased to $1.1 billion, our competitive position, balance sheet, and capital ratios remain strong.
Global Banking and Markets (GBM) benefited from strong trading and financing activity in 2020 generating strong fee revenue for the Bank and record adjusted earnings of $2.0 billion. We have also made significant advances in league table standings during the fiscal year. In Canada, we ranked first in Loans and in Latin America, we were number one in Loans and we maintained our top-five ranking in Debt Capital Markets. The Business is now operating from a stronger platform and is expected to continue this momentum in 2021.
Global Wealth Management delivered strong results in 2020 with adjusted earnings of $1.3 billion, in part due to their fee-based business models. In 2019, we made the decision to report Wealth Management as a stand-alone business line and it has continued to deliver record results. Our goal is for Wealth Management to generate approximately 15% of the Bank’s overall earnings, which will further enhance earnings stability and diversification.
We are confident that our strategy will deliver better returns for our shareholders in all of our core markets in the future. While the environment remains uncertain, we are beginning to see positive signs, which is cause for optimism.
LEADING BANK IN THE AMERICAS
We have a clear mission: to be a Leading Bank in the Americas. Our mission is supported by three core pillars: putting Customers First; having a Winning Team; and Lead in the Americas. We are confident that through the execution of our mission we will deliver consistent returns for our shareholders over the long-term.
Putting Customers First is not just something we say – it’s a mindset. It’s who we are and how we thrive as a business. It’s about making it easier for our customers to do business with us, enabled by our investments in our people and digital capabilities, while generating consistent returns for our shareholders.
We are very proud of the Winning Team we have built by attracting, retaining, and investing in strong leaders who are focused on superior execution. People are drawn to our inclusive, high-performance culture and want to contribute to our future success.
Leading in the Americas means leveraging our global presence across some of the strongest, most stable growth markets in the Americas. We are focused on outperforming our competitors in these core markets over the long term.
Our mission is the product of our efforts to focus on a smaller number of core markets where we can compete and succeed to become a Leading Bank in the Americas. Seven years ago, we shifted our focus towards growing scale in countries with better operating environments and superior outlooks that were less risky, and where we knew we could win. We redeployed capital from smaller, low-growth countries and non-core businesses in favour of countries that offered greater stability, higher growth, and higher returns.
In total, we reduced our geographic footprint from 54 to 30 countries (including announced divestitures) while still growing earnings. Today, our focused and simplified Bank generates more than 90% of its earnings from six core markets – Canada, the United States, Mexico, Peru, Chile, and Colombia – with significant room to grow.
Business conditions continue to improve across our Latin American footprint, although some challenges remain due to the timing of COVID-19 and uneven impact of the recovery. Our outlook today remains positive, and we are confident in the countries in which we operate.
At our January 2020 investor day in Santiago, Chile we explained why our core markets are attractive and why we will continue to invest in and grow there. For example, in 2019 in Mexico, Peru, Chile, and Colombia, the leading banks in each market produced a 19% return on equity, compared to the market average of 15% in Canada, 12% in the US, 11% in Asia, and 7% in Europe. These countries have young, dynamic, growing, and relatively unbanked populations. The untapped potential of these markets is significant.
Our team has a deep history in and understanding of our core markets. Moreover, we bring high operating standards and have invested significantly in our risk and regulatory capabilities in each of those jurisdictions. Our diversified footprint and access to these high-quality growth markets is a unique differentiator and a distinct competitive advantage over our competitors.
PROUD TO BE THERE FOR OUR CUSTOMERS, EMPLOYEES, AND COMMUNITIES
While we could never have predicted the nature or extent of the crisis we currently face, we were prepared for it and were well positioned to provide much-needed support for our customers, employees, and community partners.
Delivering for our Customers
In response to challenges caused by the COVID-19 pandemic, we undertook the most ambitious customer relief program in Scotiabank’s history. As a result of strong teamwork and collaboration across all of our channels, and supported by our enhanced digital capabilities, a program that would have typically taken more than a year to design and roll out took our team a matter of weeks. Our investments to bolster the accessibility and reach of our mobile app and online channels have made it easier for our customers to do business with us. What’s more, these investments reduced pressure on our contact centres and kept branch traffic at safe levels.
In response to our efforts to support our customers and our employees throughout the pandemic, Scotiabank was one of just a handful of global banks recognized for “Outstanding Crisis Leadership” by Global Finance Magazine. We were also recognized for “Innovation in Digital Banking in North America” by The Banker Magazine.
Throughout the COVID-19 pandemic, on average, we kept open 98% of our branches in Canada, and approximately 90% across our international footprint, to continue providing important financial advice and services to those who preferred to use our branch network. In Canada, we had the largest number of open and operating branches during the early months of the COVID-19 pandemic. Appropriate precautions were taken to ensure the health and safety of our onsite teams and our customers.
Supporting our Employees
Scotiabankers have demonstrated tremendous resilience over the past year, and have shown that, regardless of the circumstances, they will go over and above to support our customers, communities, and one another, while working to deliver for our shareholders.
We moved quickly to provide tailored support to employees across our footprint to help them manage through the pandemic. Our Technology and Operations team deserves special mention as they worked tirelessly to ensure that more than 80% of our non-branch employees globally were able to work from home, while keeping our systems stable and secure. Our digital investments and progress against our digital targets over the past several years have helped us manage through the crisis and positioned us to continue to execute our strategy. Our Human Resources team also deserves our thanks for the wellness and benefits support they delivered for our employees over the past year.
Across the Bank, our teams are working together better than ever before. In fact, we were very proud to be the only Canadian bank recognized as one of the Top 25 “World’s Best Workplaces” in 2020 by Great Place to Work. We also recently received two awards from Benefits Canada recognizing us for the support we provided to employees throughout COVID-19. The health and wellbeing of our employees continues to be of the utmost importance to us and we are proud to do what we can to support them, as they support our customers.
Despite working through the operational challenges presented by the pandemic, there were no significant impacts to key strategic initiatives. As an example, in June, we concluded a very successful integration following our 2019 acquisition of Banco del Progreso, positioning us as the Dominican Republic’s third largest private bank. Our success in the Dominican Republic builds on our highly successful integration of BBVA Chile last year. That integration was completed in just 18 months, which is record time, and earned the Bank two awards from Euromoney Magazine: “Chile’s Best Bank” and “Latin America’s Best Bank Transformation.”
The best investments we can make are in our people. This is true in good times, and it is especially true in challenging times. Since the start of the COVID-19 crisis, I have been very proud of the way that our team has been there for our employees as they worked to deliver for our customers.
Building Strong, Inclusive Communities Across our Footprint
In response to the COVID-19 pandemic, we deliberately focused our philanthropic investments on community-based donations that supported those most impacted. Your Bank contributed more than $16 million to support people and communities most at risk during the pandemic, including direct contributions for COVID-19 relief, as well as support of hospitals and healthcare professionals. We have been proud to be there for our communities when they needed us most.
As a Leading Bank in the Americas, we view diversity as a competitive advantage, and we want to contribute to the removal of barriers to inclusion within our Bank and throughout society.
As part of our ongoing efforts to build a more diverse and inclusive workplace, several months ago in Canada, we conducted the most complete and comprehensive employee diversity survey in our history. We plan to do the same across our international footprint in the coming year. The survey revealed areas where we are ahead of the labour market, and areas for improvement. Using the Canadian survey data, we launched a set of ambitious targets to increase the diversity of our employee population over the next five years. We know that building a more diverse workforce, enables us to become a better Bank and a stronger partner in our communities.
Over the past year, we were proud to stand up for causes we believe in and support key community partners, with a particular focus on equipping the next generation to lead by making education, training, and career opportunities more widely available for our own employees and for people across our communities.
While our work to build a truly inclusive organization is never complete, we are pleased with the progress we have made. We are committed to becoming the Bank of choice for the diverse communities we serve. Not all members of society have equal access to opportunity, and we are confident that our investments will remove barriers and build a stronger and more inclusive society.
DIFFICULT TIMES BRING OUT THE BEST IN PEOPLE
I want to close by extending my thanks to our highly engaged and supportive Board of Directors. Their experience and wise counsel during this difficult time has been appreciated by me and by our leadership team. I also want to warmly welcome our two newest Directors who joined the Board in 2020: Lynn Patterson and Calin Rovinescu. Both Lynn and Calin add tremendous depth, robust expertise, and experience to our Board and we are very fortunate to have them. Sincere thanks to our outgoing Director, Tiff Macklem, for his many contributions to our Bank during his time on our Board.
I want to take this opportunity to highlight the innumerable and significant contributions of our late former Chairman, Tom O’Neill. Tom passed away earlier this year and is greatly missed by those who were fortunate enough to know him.
Above all, I want to thank our winning team of Scotiabankers for going above and beyond in 2020. As I said during the Bank’s Annual Meeting in April: difficult times bring out the best in people. We have seen that to be true, time and again, and I know that I speak on behalf of our Board and leadership team in expressing my sincere thanks.
Over the past year, we have faced a profound crisis – not one that we created, nor one that we can solve alone – but a crisis we have faced up to nonetheless with courage, conviction, and resilience. I remain optimistic about what lies ahead for your Bank, and I believe we can all be confident in our future as a Leading Bank in the Americas.
Brian J. Porter
President and CEO