Fixed Income Investor Presentation
Third Quarter, 2014
1
Our public communications often include oral or written forward-looking statements. Statements of this type are included in this document, and may be included in other
filings with Canadian securities regulators or the United States Securities and Exchange Commission, or in other communications. All such statements are made
pursuant to the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation.
Forward-looking statements include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2013 Annual
Report under the headings “Overview – Outlook”, for Group Financial Performance “Outlook”, for each business segment “Outlook” and in other statements regarding
the Bank’s objectives, strategies to achieve those objectives, expected financial results (including those in the area of risk management), and the outlook for the Bank’s
businesses and for the Canadian, United States and global economies. Such statements are typically identified by words or phrases such as “believe”, “expect”,
“anticipate”, “intent”, “estimate”, “plan”, “may increase”, “may fluctuate”, and similar expressions of future or conditional verbs, such as “will”, “should”, “would” and
“could”. By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that
predictions and other forward-looking statements will not prove to be accurate. Do not unduly rely on forward looking statements, as a number of important factors, many
of which are beyond our control, could cause actual results to differ materially from the estimates and intentions expressed in such forward-looking statements. These
factors include, but are not limited to: the economic and financial conditions in Canada and globally; fluctuations in interest rates and currency values; liquidity; significant
market volatility and interruptions; the failure of third parties to comply with their obligations to us and our affiliates; the effect of changes in monetary policy; legislative
and regulatory developments in Canada and elsewhere, including changes in tax laws; the effect of changes to our credit ratings; amendments to, and interpretations of,
risk-based capital guidelines and reporting instructions and liquidity regulatory guidance; operational and reputational risks; the risk that the Bank’s risk management
models may not take into account all relevant factors; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely
development and introduction of new products and services in receptive markets; the Bank’s ability to expand existing distribution channels and to develop and realize
revenues from new distribution channels; the Bank’s ability to complete and integrate acquisitions and its other growth strategies; changes in accounting policies and
methods the Bank uses to report its financial condition and financial performance, including uncertainties associated with critical accounting assumptions and estimates
(see “Controls and Accounting Policies – Critical accounting estimates” in the Bank’s 2013 Annual Report); the effect of applying future accounting changes (see
“Controls and Accounting Policies – Future accounting developments” in the Bank’s 2013 Annual Report); global capital markets activity; the Bank’s ability to attract and
retain key executives; reliance on third parties to provide components of the Bank’s business infrastructure; unexpected changes in consumer spending and saving
habits; technological developments; fraud by internal or external parties, including the use of new technologies in unprecedented ways to defraud the Bank or its
customers; consolidation in the Canadian financial services sector; competition, both from new entrants and established competitors; judicial and regulatory
proceedings; acts of God, such as earthquakes and hurricanes; the possible impact of international conflicts and other developments, including terrorist acts and war on
terrorism; the effects of disease or illness on local, national or international economies; disruptions to public infrastructure, including transportation, communication,
power and water; and the Bank’s anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank’s business involves
making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries
could have a material adverse effect on the Bank’s financial results, businesses, financial condition or liquidity. These and other factors may cause the Bank’s actual
performance to differ materially from that contemplated by forward-looking statements. For more information, see the “Risk Management” section starting on page 60 of
the Bank’s 2013 Annual Report. Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2013 Annual
Report under the headings “Overview – Outlook”, and for each business segment “Outlook”. These “Outlook” sections are based on the Bank’s views and the actual
outcome is uncertain. Readers should consider the above-noted factors when reviewing these sections. The preceding list of important factors is not exhaustive. When
relying on forward-looking statements to make decisions with respect to the Bank and its securities, investors and others should carefully consider the preceding factors,
other uncertainties and potential events. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to
time by or on its behalf. Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at
www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.
Caution Regarding Forward-Looking Statements
2
Agenda
• Canadian Economy
• Scotiabank Overview
• Risk
• Mortgage Market
• Funding
Canadian Economy
4
Canada Well Positioned Among G7 Despite Slower Growth
Canada
• 13th largest economy in the world with a growing 35 million population, driven mainly by immigration
• Consistent record of meeting or exceeding average G7 GDP trends
• Manageable Canadian government deficits, strong fiscal position among G7
Real GDP Growth
General Government Net Financial Liabilities Government Financial Deficits as % of GDP
0
1
2
3
U.S. U.K. Canada Japan Euro zone
2000-2012
2013-2015F
Annual %
change
Forecasts as at July 31, 2014. Source: Scotiabank Economics.
0.0
-3.0 -3.0
-4.2
-5.8
-7.3
-8.4-10
-8
-6
-4
-2
0
2
Germany Canada Italy France United
Kingdom
United
States
Japan
Source: IMF (2013 estimates);
Scotiabank Economics. As at August 22, 2014.
40.449.1
65.4 69.1 73.681.2
116.5
137.5
0
20
40
60
80
100
120
140
160
Canada Germany U.K. OECD France U.S. Italy Japan
% o
f nom
inal G
DP
Source: OECD (2013 estimates); Scotiabank Economics. As at August 22, 2014.
5
Strength of the Canadian Financial System
Relative bank share price performance Strengths
• Effective regulatory framework
o Single regulator for major banks
o Conservative capital requirements
o Proactive policies and programs
• Risk management practices
o Few sub-prime mortgages
o Relatively little securitization
o Primarily originate to hold model
• Canadian banks well capitalized and
profitable
-10
-5
0
5
10
15
Canadian
Banks
Australian
Banks
Japanese
Banks
U.S. Banks U.K. Banks Swiss
Banks
5 year
10 year
% c
hange
Source: Bloomberg; as at August 22, 2014.
Canadian Banking System ranked World’s Soundest by World Economic Forum for 6th consecutive year
Global Competitiveness Report (2013 – 2014)
Scotiabank Overview
7
Scotiabank – Canada’s Most International Bank
As at Q3, 2014 (C$) Scotiabank
Total Assets $792B
Risk-Weighted Assets $308B
Market Capitalization $87B
Q3/14 Net Income1 $1.8B
YTD Q3/14 Net Income1 $5.3B ($6.6B in full F2013)
ROE
20.6%
Productivity Ratio1, 2
52.9%
Capital Ratio3
10.9%
Geographic Footprint >55 countries
# of Employees 86,949
Scotiabank Credit Ratings4
Moody’s Fitch DBRS S&P
Senior Rating Aa2 AA- AA A+
Outstanding Covered Bonds Aaa AAA AAA Not Rated
Outlook Negative Stable Stable Negative (1) Excludes notable CI gain in Q3/14
(2) Taxable Equivalent basis
(3) Basel III “all-in” Common Equity Tier 1 Ratio
(4) A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revisions or withdrawals at any time
8
Strong Canadian Base Presence in High Growth Markets
19%
34%
22%
24%
Global Wealth & Insurance
Canadian Banking
International Banking
28% 72%
57%
43%
Wholesale
International Canada
Diversification creates stability and
lowers risk
Central America Asia
Latin America
Business Line Diversification of earnings Focus on Lower Risk P&C
Personal & Commercial
Global Banking & Markets
Target: 70/30
Target: 50/50
Four Diversified and Growing Platforms
* All figures based on YTD Q3, 2014 net income (excludes notable CI gain in Q3/14)
9
Canadian Banking
Strong Core Canadian Base
Total Revenue (YTD 2014)
As at Q3 2014 In C$
Total Assets (avg.) $281B
Total Deposits (avg.) $188B
Q3/14 Net Income1
$565MM
Productivity Ratio 51.4%
Branches 1,038
# of Employees 19,899
23% 77% Retail & Small
Business Banking
Commercial Banking
Net Income1
As at Q3 2014 In C$
Total Assets (avg.) $139B
Total Deposits (avg.) $69B
Q3/14 Net Income1 $410MM
Productivity Ratio 56.3%
Branches2 1,954
# of Employees2
47,022
Latin America3
Total Revenue (YTD 2014)
C$ millions
Asia
$1,558$1,726
$1,227
2012 2013 YTD 2014
Net Income1
Presence in Higher Growth Markets
(1) Attributable to equity holders
(2) Excludes affiliates
(3) Includes Mexico
Caribbean & Central America
International Banking
C$ millions
$1,798
$2,151
$1,705
2012 2013 YTD 2014
26%
64%
10%
10
$1,132
$1,455$1,443
2012 2013 YTD 2014
$984
$1,207$1,095
2012 2013 YTD 2014
Global Wealth & Insurance
Significant Growth in GWI
Total Revenue2
(YTD 2014)
C$ millions Net Income1, 2
Insurance Wealth
Management 14% 86%
Niche Focus in GBM
Total Revenue (YTD 2014)
C$ millions Net Income1
51% 49%
Global Corporate & Investment
Banking
Global Capital Markets
Global Banking & Markets
As at Q3 2014 In C$
AUM $165B
AUA $365B
Q3/14 Net Income1, 2 $312MM
Productivity Ratio2 63.5%
# of Employees
7,546
As at Q3 2014 In C$
Total Assets (avg.) $286B
Total Deposits (avg.) $49B
Q3/14 Net Income1 $408MM
Productivity Ratio 43.6%
# of Employees 2,049
(1) Attributable to equity holders
(2) Excludes notable CI gain in Q3/14
Risk
12
Strong Focus on Risk Management
Strengths
PCL Ratio as a % of Average Loans & BAs
Loans & Acceptances by Borrower as at July 31, 2014
• Business model is to originate
and hold assets
• Minimal off-balance sheet assets
• High proportion of on-balance
sheet assets are “low risk”
residential mortgages
• Corporate loan book is
diversified with a focus on
Investment Grade clients
49%
19%
32%
Residential
Mortgages
Business &
Government
Personal &
Credit Cards
0.54%
0.48%
0.34% 0.36%
0.32% 0.36%
0.00%
0.15%
0.30%
0.45%
0.60%
2009 2010 2011 2012 2013 Q3/14 YTD
Mortgage Market
14
Canadian Mortgage Market
Strengths
Canadian Residential Mortgages in Arrears
Mortgage Debt Service Ratio
• Canadians have a significant and stable amount of
equity in their homes
• Mortgage interest is not tax deductible thus reducing
the incentive to borrow
• Residential mortgages in arrears remain low
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
90 92 94 96 98 00 02 04 06 08 10 12 14
%
35
40
45
50
55
60
65
70
75
80
90 92 94 96 98 00 02 04 06 08 10 12 14
Real estate equity as % of
Total Real estate assets
Source:CBA. Source: Statistics Canada & Federal Reserve.
High Percentage of Equity
United States
Canada
Source:Statistics Canada.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
% of disposable income
Mortgage Interest Payments
15
Scotiabank’s Mortgage Strategy
Total portfolio: $189B at Q3/14
• Mortgages are a core banking product and are integral to the Canadian Banking
group’s profitability and customer acquisition capability
• With intense competition in a moderating housing market, managing profitability and
maintaining a high level of quality originations is key
• Build customer relationships for retention and cross-sell additional products and services.
All customers are serviced by domestic branches. Current mortgage retention is 94%
• Business model is originate to hold
Average LTV of uninsured
mortgages is 55%
Freehold Condominium
$20 B
$ 169 B
Uninsured 48%
Insured 52%
Funding
17
Scotiabank Funding Strategy and Programs
Diversified Funding Programs
Short-Term Funding
• USD 20 billion Bank CP program
• USD 3 billion Subsidiary CP program
• CD Programs (Yankee/USD, EUR, GBP, AUD, HKD)
Term Funding & Capital
• CAD 7 billion ABS shelf (unsecured lines of credit)
• CAD 8 billion capital shelf (preferred shares, subordinated debt, common equity)
• Canada Mortgage Bonds and Mortgage Back Securities
• USD 1 billion Singapore MTN program
• USD 15 billion global registered covered bond program (uninsured mortgages)
• USD 18 billion shelf (preferred shares, subordinated debt, common equity)
• USD 20 billion global public covered bond shelf (in run-off, CMHC insured mortgages)
• USD 20 billion EMTN shelf (includes subordinated debt)
Funding Strategy
• Build core deposits in all of our key markets
• Diversification of funding by currency, program, tenor and markets
• Maintain pricing relative to peers
18
Contact Information
For additional public information, including our Annual Report and Quarterly Results please visit:
http://www.scotiabank.com/investorrelations
Michael Lomas
Managing Director, Treasury Sales & Market Development, Group Treasury
416 866 5734 | [email protected]
Mark Michalski
Director, Strategy & Market Development, Group Treasury
416 866 6905 | [email protected]
Peter Slan
Senior Vice President & Head, Investor Relations
416 933 1273 | [email protected]