Bank of Nova Scotia Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ebrahim Huseini Poonawala - BofA Securities - Analyst : Good Morning. I guess maybe Raj for you. Just around the net interest margin outlook. So I heard your comments earlier if we get a series of rate cuts from the Bank of Canada, which is expected at this point, give us a sense of the trajectory of where you see both the Canadian NIM playing out over the next four to six quarters and the consolidated NIM. And I'm assuming the corporate segment has to play a role somewhere in there with wholesale funding costs coming down. Thanks.

Question: Ebrahim Huseini Poonawala - BofA Securities - Analyst : Got it. And I guess maybe it's a good question maybe for you, Scott. The investment you made, I think got -- folks by surprise, just I think to me the fact that Scotia was back to playing offence and just was wondering if you could give us an update like the two core pieces in terms of the strategic sort of priorities one, give us a mark to market on where we are in improving the deposit franchise within Canada, like early signs of success like outside of rates coming down, what's actually happening from an execution standpoint. And then with Travis coming on in the capital markets business, is there kind of a heightened focus in terms of growing the US dollar business going forward? Thanks.

Question: Ebrahim Huseini Poonawala - BofA Securities - Analyst : Yeah. Thank you very much.

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Hey, good morning. On the International segment, I think you were saying that the margin is going to be, kind of in and around this level for the foreseeable future. I don't know if you said anything similar about the loan loss ratio?

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Okay. Now if I look further ahead and your loss right now, is kind of in line-ish with historical levels, there's been obviously some volatility there over the years, but kind of eyeballing it looks at a normalized level, if you will. Yet your consumer portfolio, not the mortgage, but the mostly unsecured consumers, is still nearly 20% below where it was in the pre-COVID days. Just wondering why maybe beyond next quarter, if you factor in the rate cuts, you factor in the portfolio, the change to the portfolio mix. Why that that loss rate couldn't actually trend lower in the segment? Or is there some other factor I'm not considering?

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Okay. I wasn't that thorough, actually, but thanks for that. Have a good one.

Question: Paul Holden - CIBC Capital Markets - Analyst : Thank you. Good morning. A couple questions. Maybe just continuing with international. I think if you look at the macro backdrop, particularly in Chile and Peru, seems to be improving. And then, also there's a focus on the client primacy. So what I'm trying to figure out is, as the demand environment improves for loans. But put that against sort of your strategy. How should we think about balance sheet growth for international in 2025? Is this somewhere where balance sheet will still be flattish, or can we expect some decent growth next year? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2024 / 12:15PM, BNS.TO - Q3 2024 Bank of Nova Scotia Earnings Call

Question: Paul Holden - CIBC Capital Markets - Analyst : Understood. That's a helpful answer. Thank you for that. Second question, and I guess it's for Phil. If I look at slide 34, it shows Canadian retail PCL trends. And what I see here is sort of, I think it's suggesting that the impaired, are actually starting to improve. Well, I think you're pretty conservative still on total provision. So does that suggest that at a point in time, when macroeconomic forecasts start to improve, there's potential for performing allowance releases? Would that be a correct assessment? Thank you.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. That's it for me. Thank you.

Question: Jill Shea - UBS - Analyst : Good morning. Thanks so much for taking the question. So Raj, I appreciate all the color on the margin dynamics and just hoping to follow up on the corporate segment more specifically. You had the adjusted bottom line results coming out the negative 465 million this quarter, which was in line with the guidance that you had laid out previously. Just wondering if you could put a finer point on how to think about bottom line results as we move forward and get policy rate cuts. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2024 / 12:15PM, BNS.TO - Q3 2024 Bank of Nova Scotia Earnings Call

Question: Jill Shea - UBS - Analyst : Okay. Thank you for that.

Question: Mario Mendonca - TD Cowen - Analyst : Good morning. Phil, help me understand what proportion of your business, and government loan book would be on your watch list. And I'm curious as to what that is currently versus what it's been in the past?

Question: Mario Mendonca - TD Cowen - Analyst : It would be fair to say that it would be well below what, like far less than 5% - of your corporate -- of your business and government loan book. The watch list that is like well below 5%. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2024 / 12:15PM, BNS.TO - Q3 2024 Bank of Nova Scotia Earnings Call

Question: Mario Mendonca - TD Cowen - Analyst : Okay. Maybe sort of a follow-up question on the auto side. I like others have been waiting for unsecured Canadian consumer credit to accelerate materially at some point and drive, every bank's PCL is higher. And it just seems like that's not happening. And I guess what I want to ask you said that you've been surprised or encouraged by the resilience of the Canadian consumer. Do you think that rates have dropped sufficiently, or maybe the outlook for rates has the -- outlook for rates that they will be lower over the next say, 12 months? Is that sufficient that we could be looking at a bit of a no landing scenario for the unsecured Canadian consumer, that we will never see that spike in losses. Is that a possibility now?

Question: Mario Mendonca - TD Cowen - Analyst : Thank you.

Question: Mario Mendonca - TD Cowen - Analyst : Thank you for that1.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Hi, thank you. Good morning. My question is directed to Francisco. And I'm just trying to maybe get a gauge for where you are in your journey, with respect to maybe the proper term is deselecting clients. When I look at your revenue growth and I go back to Investor Day, and I think about kind of the way you were depicting it, there was a momentary point in time where there would be stress in your revenues, because you were reducing certain portfolios or selling things. And I just want to maybe think about that for a moment and get your perspective on whether or not there could be some revenue pressures coming up, or whether or not you're far enough along the journey that, maybe you don't have to do more. So I don't know if there's a proportion, you can tell me, I don't think you ever actually told us how much revenues you expected to lose from removing certain books of businesses and so on and so forth. Hopefully you get the idea of where -- what I'm asking, and you can give me some perspective on where revenues can go from here knowing that maybe there's some pressures around the corner, or maybe there isn't? Hopefully, my question makes sense, Francisco?

Question: Darko Mihelic - RBC Capital Markets - Analyst : And so, specifically then with respect to portfolios or businesses that you'd look to dispose of, would you say that you are kind of complete with that process or could there be a continuation on that process? And I'm just thinking about potential revenue headwinds from some dispositions that may or may not be coming in the next, say, year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2024 / 12:15PM, BNS.TO - Q3 2024 Bank of Nova Scotia Earnings Call

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Yeah, thanks. My first question maybe for Aris here. One of the things I've been watching closely is this evolution of mortgage growth at Scotia, to kind of suggest that we might be moving past some of these profitability actions, let's say, in the domestic retail business. This quarter, you guys mentioned that you've turned the corner on mortgage growth sequentially. So my question is, has Scotia then crossed an inflection point here in domestic P&C, because it sounds like you're trying to go in that direction? Or should we just look at it as you're happy on the progress, but it could be a bumpy road as we move forward in Q4 and into 2025? So thoughts there would be helpful?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Yeah that's helpful. And then what about like earnings growth at your segment level, like regardless of the mortgage business, just taking it up to the segment level. Should we expect increased earnings growth as we kind of move forward into 2025? Like, I'm just trying to think through that as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2024 / 12:15PM, BNS.TO - Q3 2024 Bank of Nova Scotia Earnings Call

Question: Nigel R. D'Souza D'Souza - Veritas Investment Research - Analyst : Good morning. Thank you for taking my question. I wanted to touch on the EPS accretion that you had on page 18, comparing the buyback versus KeyCorp. Could you just understand why $2.3 billion was used in that calculation rather than $3.9 billion for the buybacks, and the $80 million in net funding costs, what that represents?

Question: Nigel R. D'Souza D'Souza - Veritas Investment Research - Analyst : Okay. I guess where I was going with that is, I'm trying to understand why not look at the actual capital outlay and then you look at the Key accretion, why isn't the opportunity cost netted off against that as well to reduce the benefit by $80 million, but maybe something to follow-up offline? Thank you.

Question: Sohrab Movahedi Movahedi - BMO Capital Markets - Analyst : Okay. I appreciate we've gone over time. Thank you for squeezing me in. I have two hopefully quick questions. Scott, I think the 12.5% CET1 being the right level. And so does that suggests that the optimization exercise in GBM is complete now, we shouldn't expect to see further rationing of credit and RWA there? That's the first one.

Question: Sohrab Movahedi Movahedi - BMO Capital Markets - Analyst : And so, I guess that leads me into the Key investment and some of the tangential benefits over there. So is the expectation here that some of the balance sheet would reside with Key, for example, and you'll get some fee businesses? Is that the way to think about it, if this is executed on kind of to dreamlike levels?

Question: Sohrab Movahedi Movahedi - BMO Capital Markets - Analyst : Perfect. And Scott, a couple of times, I think, on this call -- on the August 12 call, I think, you've talked about the optionality that longer term, Key, I think, provides. Can you talk to prior experience of the bank with options like this and how shareholder accretive they've been over time?

Question: Doug Young - Desjardins Securities Inc. - Analyst : Yeah. I'll hopefully keep this relatively quick. Just focus on international banking. And I guess, there's two questions. One, there was -- there seems to be a bit of an uptick in PCLs in Mexico, just hoping you can give a little bit of color. Is this impaired or I mean is this corporate or retail? Just so you can give some color. And then second, Colombia still continues to lose money, and just hoping maybe you can provide a bit of an update on the plans for this particular region?