TORONTO, Nov. 18 /CNW/ - Scotiabank today announced that its results for
the fourth quarter ended October 31, 2008 will include charges of
approximately $595 million after tax ($890 million before tax) relating to
certain trading activities and valuation adjustments. These arose as a result
of recent challenging market conditions and unprecedented volatility in global
financial markets.
    First, there will be a charge of approximately $115 million after tax
($170 million before tax) in trading revenues related to the bankruptcy of
Lehman Brothers in September. The loss occurred primarily as a result of a
failed settlement and the unwinding of trades in rapidly declining equity
markets shortly after the bankruptcy. The Bank has submitted a bankruptcy
claim for losses.
    Second, there will be valuation adjustments of approximately $370 million
after tax ($560 million before tax). These will include writedowns of
approximately $105 million after tax in available for sale securities based on
current estimates of fair value. This was largely the result of the ongoing
deterioration of economic conditions and volatility in debt and equity
markets. The balance of $265 million after tax relates to mark-to-market
adjustments on collateralized debt obligations (CDOs). Included in this amount
will be a net fair value loss of approximately $135 million after tax on the
purchase of certain CDOs from the Bank's U.S. multi-seller conduit, pursuant
to the terms of a liquidity asset purchase agreement. With the widening of
credit spreads, coupled with recent credit events in certain previously
highly-rated reference assets, the market value of structured instruments
declined substantially during the quarter. Should these spreads improve in
future periods, a portion of the valuation adjustments would reverse and be
recorded as income. The remaining exposure relating to the Bank's investments
in CDOs will now be approximately US$348 million.
    Finally, there will be a mark-to-market loss of approximately $110
million after tax ($160 million before tax) relating to derivatives used for
asset/liability management purposes that do not qualify for hedge accounting.
This was driven by continuing declines in interest rates and is expected to
reverse over the average three-year life of the hedges such that no economic
loss should occur.
    In terms of the impact on the Bank's business lines, approximately $305
million after tax relates to Scotia Capital, about $90 million after tax to
International Banking and approximately $200 million after tax to the Other
business segment, which includes Group Treasury and Executive Offices.
    "We are disappointed to announce these writedowns. Both the equity and
fixed income markets have experienced significant declines in value and
extreme levels of volatility over the last several weeks, exacerbated by the
Lehman bankruptcy. Notwithstanding these challenges, our three business lines
are profitable and core earnings remain solid. We are confident that our
diversified businesses, strong, conservative risk management discipline and
prudent capital management position us well to manage through these
uncertainties and to achieve continued success," said Rick Waugh, President
and CEO. "As well, our tier 1 capital ratio and our tangible common equity
ratio will remain strong."
    Further details concerning these writedowns are included in a table
below.
    Scotiabank is in the process of preparing its fourth quarter and annual
audited results. The information above is based on current estimates and is
subject to change. Additional disclosures will be provided at the time of the
release of these results on December 2, 2008.Q4/08 Writedowns
                               ----------------

                                             Income
                                             Statement     Pre-tax  After-tax
    Category               Business Line(s)  Line            ($MM)      ($MM)
    --------               ----------------  ----------  ---------  ---------
                                             Trading
    1.  Lehman Brothers    Scotia Capital     Revenues        $170       $115

    2.  Valuation
         Adjustments
        a. U.S. Conduit                      Securities
            CDOs           Scotia Capital     Gains           $245       $135
        b. Other CDOs      Scotia Capital/   Securities
                            International/    Gains & Other/
                            Other(*)          Other Income    $165       $130
        c. AFS Securities  Scotia Capital/
                            International/   Securities
                            Other             Gains           $150       $105
                                                         ---------  ---------
                                                              $560       $370

                                             Net Interest
    3.  ALM Hedging        Other              Income          $160       $110
                                                         ---------  ---------
                                             All-Bank Total   $890       $595


                                             Business Line
                                             -------------
                                             Scotia Capital   $505       $305
                                             International    $110        $90
                                             Other            $275       $200
                                                         ---------  ---------
                                             All-Bank Total   $890       $595


                                             Income
                                             Statement
                                             Line
                                             ----------
                                             Securities
                                              Gains           $525
                                             Trading
                                              Revenue         $170
                                             Net Interest
                                              Income          $160
                                             Other/Other
                                              Income           $35
                                                         ---------
                                             All-Bank Total   $890

    (*) Other equals Treasury & Executive OfficesScotiabank is one of North America's premier financial institutions and
Canada's most international bank. With more than 60,000 employees, Scotiabank
Group and its affiliates serve approximately 12.5 million customers in some 50
countries around the world. Scotiabank offers a diverse range of products and
services including personal, commercial, and corporate and investment banking.
With $462 billion in assets (as at July 31, 2008), Scotiabank trades on the
Toronto (BNS) and New York Exchanges (BNS). For more information please visit
www.scotiabank.com.

    Forward-looking statements

    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 U.S.
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 may include
comments with respect to 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; the effect of changes in
monetary policy; legislative and regulatory developments in Canada and
elsewhere, including changes in tax laws; operational and reputational risks;
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 the results of
its operations, including uncertainties associated with critical accounting
assumptions and estimates; the effect of applying future accounting changes;
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 discussion starting on page 56 of the Bank's 2007 Annual Report. 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.

    %SEDAR: 00001289E          %CIK: 0000009631