CEO Brian Porter and other senior Scotiabank executives were in Santiago, Chile, this week for the Bank's Investor Day. Below is Porter's opening address at the event.
Good afternoon everyone.
I want to extend my thanks to each of you for joining us in person and via webcast.
It is great to be here in Santiago and the city looks great. It is a visible demonstration of Chile’s resilience.
Special thanks to Chile’s Minister of Finance, Mr. Ignacio Briones, for joining us at Investor Day tomorrow.
Over the next day-and-a-half, you will hear from many of our leaders who are responsible for executing the Bank’s growth strategy.
All of our sessions will provide you with important updates on our progress to date and our growth opportunities.
The underlying message of each presentation is the same: we are operating from a position of strength and we have significant opportunities for growth.
In Canadian Banking, we are improving our business mix.
We are also enhancing our products, our digital banking platform, and our branch network.
Our Global Wealth Management business is well-positioned to grow in Canada and across our Americas footprint.
Our repositioned Global Banking and Markets business line has been experiencing strong growth in Latin America with further growth opportunities across the United States.
Our International Bank continues to deliver an outstanding performance, benefitting from the stronger economic fundamentals of the Pacific Alliance region. It’s worth noting that when we held our International Banking Investor Day in Mexico City in 2016, International Banking’s Net Income was $2.1 billion. Today, that figure is $3.2 billion, a 52% increase.
Our scale and competitive advantages in each of our six core markets – Canada, the United States, and the Pacific Alliance countries of Mexico, Peru, Chile and Colombia – is the culmination of years of disciplined focus and heavy lifting.
Taken together, we are confident in our future as a Leading Bank in the Americas.
There are three main principles that unite our leadership team and guide our efforts:
1. Firstly, our focus. We are clearly focused on our six core markets in the Americas.
2. Secondly, our customers. We are committed to understanding our customers’ expectations and creating a more personalized banking experience.
3. And, thirdly, our team. We have built a winning team and you will see the quality and depth of our leaders over the course of the next two days.
I want to begin with our focus on the Americas because the changes we have made to simplify our footprint and operations have been substantial.
Six years ago, the Bank operated in more than 55 countries. Today, we are considerably more focused.
Our six core markets represent more than 85% of our earnings. If you include our refocused Caribbean and Central American operations, that number rises to 95%.
Our focused footprint is a strategic differentiator and we are uniquely positioned as a hemispheric bank.
We are the only bank with a significant presence in Canada, the U.S., Mexico, Peru, Chile and Colombia.
These are high-quality, stable democracies with strong institutions, open economies, and – importantly – free trade agreements, which are essential to their long-term growth and prosperity.
With regard to the U.S., unlike many of our competitors, we are not in the crowded P&C banking market.
Our Americas footprint provides optionality for capital deployment as well as diversification in markets with a higher Return on Equity.
The Pacific Alliance countries and Canada are delivering a much higher ROE for the banking sector than the United States, Asia and Europe.
These numbers illustrate that we have chosen our core markets well.
In the Pacific Alliance countries, the middle class is expanding and thriving, and the standard of living is rising rapidly. This is driving significant growth in consumption, which is helping to fuel economic growth.
Compared to Canada and other advanced economies, consumption is a much more important driver of growth in the Pacific Alliance countries.
Further, as consumption grows, the demand for banking services increases.
Today, in the Pacific Alliance, only half of the population of 225 million has a bank account, creating huge opportunities for growth.
The transformation that has taken place in the region is one of the greatest success stories of the modern era, with tens of millions of people lifted out of poverty.
Here, in Chile, poverty has fallen from 40% in 1990 with the end of military rule, to 8% today.
That’s not to say there haven’t been bumps along the road. But as Nacho Deschamps will discuss tomorrow, the Pacific Alliance has demonstrated that it is inherently resilient.
The growth and long-term attractiveness of the region is undiminished by one-off events or negative headlines.
We have a long history and proven track record of earning through short-term challenges to produce strong, longer-term results.
We have achieved significant scale in each of our core markets, and we have considerable room to grow.
In banking today, scale is critical to enhancing profitability, driving growth and creating efficiencies.
When a bank has scale, it can invest consistently, diversify appropriately, and grow.
Tomorrow, Francisco Sardon, our country head here, in Chile, and Miguel Uccelli, our country head in Peru, will provide examples of how we have leveraged scale to drive returns.
Chile is a perfect example of a market where we have increased our scale and improved ROE while diversifying.
Six years ago, we failed to cover all market segments and weren’t delivering a full set of products to our customers. As such, our ROE was stuck in low single digits.
In 2015 we acquired the credit card business from Cencosud, one of Latin America’s largest retailers. That transaction made us a much more competitive buyer when BBVA Chile came up for sale a few years later.
Through prudent management and increased scale, we have driven down our productivity ratio and tripled our return on equity.
That is our template, and we see further opportunities to grow and drive greater returns across each of our core markets.
Maintaining our focus on the Americas has had other critically important benefits, including higher quality earnings and lower operational and credit risk.
Tomorrow, Daniel Moore, our Chief Risk Officer, will speak in greater detail about the Bank’s risk culture and profile, and how we successfully combine global oversight with local strength.
For now, let me say that our decision to exit certain jurisdictions and businesses was not only necessary, it was the right thing to do.
In some instances, we lacked scale, the markets were too small, or they had unfavourable operating environments.
Among the entities that we divested or exited, the average credit loss ratios were meaningfully higher and more volatile than the all-Bank ratio.
Take Puerto Rico and El Salvador for instance. By exiting these two jurisdictions, which represented 0.3% of our assets, we reduced the Bank’s gross impaired loans by 10%.
Our risk profile was also improved by exiting other high-risk jurisdictions, such as Egypt, Haiti, Turkey, and Russia.
At the same time, we thoughtfully redeployed $9 billion into our core markets.
We moved capital from low or shrinking-growth, low-return P&C markets into higher-growth, higher-return P&C and Wealth Management businesses.
We are confident that our divestures and acquisitions have positioned the Bank for a better future.
Moving on to our enhanced Business Mix, Global Wealth Management is a critically important business where we are focusing on growth.
As you will hear from Glen Gowland tomorrow, since 2014, assets under management have doubled. We now have the required scale and products to further build Wealth Management businesses in the Pacific Alliance markets.
Our recent decision to report Wealth Management as an independent business line reflects the greater breadth of our business, as well as our confidence in our ability to grow it.
In fact, in the near future, we are targeting our Wealth Management business to generate approximately 15% of the Bank’s overall earnings.
We are very pleased with the performance of our three major acquisitions – Jarislowsky Fraser, MD Financial, and BBVA Chile.
They have generated earnings and delivered cost and revenue synergies in line with our expectations, while profitably growing market share.
Later today, Raj Viswanathan will be providing additional commentary on our targeted business mix and the financial impact of our acquisitions and divestitures.
As I noted at the beginning of my remarks, the second principle guiding us on our journey to build a better, more focused Bank has been our unwavering commitment to our customers.
Our significant technology investments have enabled us to better manage data and develop a deeper understanding of our customers’ expectations and financial goals.
A good example is our network of Digital Factories. Today, we have five digital factories in our core markets, including here, in Santiago. The talented teams in Toronto, Santiago, Lima, Bogota, and Mexico City continuously collaborate with one another, sharing best practices and new innovations.
They are developing software that our customers want to use and providing them with experiences tailored to the local market, as you will see in the technology demonstrations tomorrow.
Everywhere we operate, digital and mobile banking is growing quickly. We aspire to be the best in this space and offer a great experience to our customers.
Just last year in Canada, we were recognized for having the top banking app in the JD Power Mobile App Study.
While we are proud of this recognition, for our investments in technology to be truly successful they must pay financial dividends.
As Shawn Rose and Michael Zerbs will explain tomorrow, our technology strategy is focused on business impact.
Put another way, it must deliver lower unit costs, a better customer experience and faster service.
The best evidence of a “digital dividend” is satisfied customers and a lower productivity ratio.
You will see several examples of our “digital dividend” during your time here, in Chile.
Building a winning team is the third and most important guiding principle.
I believe a strategy is only as good as the team that’s implementing it.
In recent years, we have made a considerable effort to cultivate and develop our people, while attracting a number of industry leaders to the Bank.
From my perspective, our team is stronger than it has ever been.
It is well aligned and brings energy, confidence, and commitment to delivering high-quality, consistent and predictable earnings to our shareholders.
Over the course of your time in Chile, we will be showcasing many of our business leaders, some of whom will be newer faces and some who you know very well.
Here, in the Pacific Alliance, we have a strong team with a deep knowledge of their countries.
Francisco Sardon leads our Chilean business. He and his team have done a tremendous job integrating Scotiabank and BBVA Chile. Today, we are running the third largest bank in the country.
Miguel Uccelli has overseen the growth of our Peruvian operations to become a market leader.
Adrián Otero, who joined us from BBVA, has managed the significant upgrades to our core banking system in Mexico and driven important growth in our capital markets business.
Lastly, Jaime Upegui leads our business in Colombia – a country of almost 50 million people where we see tremendous potential for growth over the medium and longer term.
You have been generous with your time and attention so let me close with this:
At our International Banking Investor Day four years ago in Mexico City, we made a number of bold commitments. In almost every case, we have met or significantly exceeded our commitments.
While we still have work to do, we are pleased with the progress we have made.
We have radically simplified the Bank’s operations, removed distractions, and focused on the Americas.
Today, we are a highly competitive player in each of our core markets, with multiple avenues for growth.
Execution has required alignment and discipline, and I’m very proud of the leaders who have executed on our key priorities.
Over the course of the next two days, our team will be updating you on our medium-term objectives.
We are confident that at our Investor Day in four years time, we will be able to demonstrate the same degree of success.
Let me once again thank you for being here. We hope you enjoy your time in Chile.