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Scotiabank Reports Fourth Quarter and Full Year Results
Fiscal 2008 highlights (year over year)
- Earnings per share (diluted) of $3.05 versus $4.01, includes $0.82
from writedowns
- Net income of $3.14 billion, down from $4.05 billion, includes $822
million from writedowns
- ROE of 17%, versus 22%
- Annual dividends per share increased 10% to $1.92
- Tier 1 capital ratio of 9.3%, the same as last year
Fourth Quarter Highlights (versus Q4, 2007)
- Earnings per share (diluted) of $0.28, down from $0.95, includes $0.65
from writedowns
- Net income of $315 million, compared to $954 million, includes $642
million from writedowns
- ROE of 6%, versus 21%
- Quarterly dividend of $0.49, a 9% increase from last year and the same
level as last quarterTORONTO, Dec. 2 /CNW/ - Scotiabank today reported full-year earnings of
$3.14 billion compared to $4.05 billion last year. The 2008 results were
marked by solid core earnings in Canadian Banking, International Banking and
Scotia Capital, partially offset by writedowns related to volatile global
financial markets. Earnings per share (EPS) (diluted) were $3.05 compared to
$4.01 in 2007. Return on Equity (ROE) was 17%.
Net income for the quarter ended October 31, 2008, was $315 million
versus $954 million for the same period last year due to charges of $642
million after tax relating to the Lehman Brothers bankruptcy and valuation
adjustments, a result of unprecedented volatility in global financial markets.
Excluding these charges, we delivered solid core results as net income was
flat year over year. EPS (diluted) was $0.28, versus $0.95 for the same period
last year, with writedowns this quarter of $0.65 per share.
"Clearly, 2008 was a difficult year, particularly with the writedowns we
took in the fourth quarter. While Canadian banks have fared better than their
counterparts in other parts of the world, none of us have been immune to the
forces buffeting global markets," said Rick Waugh, President and CEO.
"However, our strategy of diversifying across geographies, business lines and
products continues to serve us well and gives us the strength of diversified
revenue streams. Our three growth platforms - Canadian Banking, International
Banking and Scotia Capital - demonstrated sustainable core earnings and the
outlook for our business lines remains solid.
"The Bank's full-year results reflect a strong increase in average asset
levels of $52 billion, or 13%, with contributions from all major business
lines. Year over year, Canadian Banking's average assets grew by $21 billion
or 14%, International Banking saw growth of $13 billion or 20% and Scotia
Capital's average assets grew by $12 billion or 8%.
"Canadian Banking, which includes Wealth Management and Commercial
Banking, had a good year, with market share growth in total personal lending
and deposits, mutual funds and small business, along with strong volume growth
in mortgages and commercial banking. The division's success reflected
broad-based organic growth as well as the impact of acquisitions, including
Dundee Bank and E(*)Trade Canada.
"Our solid results in International Banking reflected the impact of the
acquisition of Banco del Desarrollo in Chile, and particularly strong growth
in Peru. Mexico had strong retail loan growth, but was impacted by increased
loan losses, particularly in credit cards, and a higher tax rate, as tax loss
carry forwards were fully utilized in 2007.
"Scotia Capital's underlying performance was remarkably good, despite
charges on certain structured credit instruments, settlement losses on the
Lehman Brothers bankruptcy and generally weak capital markets. Highlighting
the strength of the division's diversification were record performances in our
foreign exchange, precious metals, ScotiaWaterous and fixed income businesses.
In addition, there was good volume growth in lending with minimal credit
losses.
"Overall, our assets remain in good shape and are well diversified. They
are monitored and stress-tested continuously and are well within our risk
tolerances.
"Despite challenging conditions, the overall strength of our capital and
core earnings continues to allow us to generate sustainable dividends for
shareholders. This year, we announced two quarterly dividend increases, with
dividends for the year totaling $1.92, an increase of 10% over 2007. Our
dividend remains well supported by both our earnings and high capital levels,
which remain strong by global standards.
"I also want to congratulate our employees for providing dedicated
service to our customers," Mr. Waugh added. "It is through their efforts that
we have been able to deliver solid core earnings this year, and we must ensure
in times like these that we continue to provide our customers with the
service, advice and products they need.
"The financial sector and the global economy will likely continue to
experience significant uncertainty in 2009. However, Scotiabank's diversity -
by business line, by product and by geography, including our presence in
higher-growth emerging markets - leads us to anticipate moderate overall
growth for the Bank in 2009.
"As we manage through these challenging times, we remain focused on our
priorities: driving sustainable revenue growth; dynamic capital management,
which means maintaining a strong capital position while seeking select
strategic growth opportunities and providing our shareholders with consistent
returns; and, continuous development of leadership at all levels of the
organization. In 2009, we will be emphasizing two of our traditional strengths
as key additional priorities: risk management and expense control. These
priorities will be key success factors in the current environment.
"With this clear focus - and by effectively executing our strategies - we
will be able to achieve our combined goals and objectives both in 2009 and
beyond."Financial Highlights
As at and for For the
the three months ended year ended
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October July October October October
31 31 31 31 31
(Unaudited) 2008 2008 2007 2008 2007
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Operating results ($ millions)
Net interest income 1,941 1,946 1,716 7,574 7,098
Net interest income (TEB(1)) 2,036 2,049 1,932 7,990 7,629
Total revenue 2,491 3,374 3,078 11,876 12,490
Total revenue (TEB(1)) 2,586 3,477 3,294 12,292 13,021
Provision for credit losses 207 159 95 630 270
Non-interest expenses 1,944 1,889 1,792 7,296 6,994
Provision for income taxes 2 287 204 691 1,063
Provision for income
taxes (TEB(1)) 97 390 420 1,107 1,594
Net income 315 1,010 954 3,140 4,045
Net income available
to common shareholders 283 978 938 3,033 3,994
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Operating performance
Basic earnings per share ($) 0.28 0.99 0.95 3.07 4.04
Diluted earnings per share ($) 0.28 0.98 0.95 3.05 4.01
Return on equity(1) (%) 6.0 21.0 21.0 16.7 22.0
Productivity ratio (%) (TEB(1)) 75.2 54.3 54.4 59.4 53.7
Net interest margin on total
average assets (%) (TEB(1)) 1.68 1.79 1.87 1.75 1.89
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Balance sheet information
($ millions)
Cash resources
and securities 125,353 124,079 118,030
Loans and acceptances 300,649 283,742 238,685
Total assets 507,625 462,407 411,510
Deposits 346,580 332,469 288,458
Preferred shares 2,860 2,560 1,635
Common shareholders' equity 18,782 18,801 17,169
Assets under administration 203,147 207,433 195,095
Assets under management 36,745 37,842 31,403
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Capital measures(2)
Tier 1 capital ratio (%) 9.3 9.8 9.3
Total capital ratio (%) 11.1 11.5 10.5
Tangible common equity to
risk-weighted assets(1) (%) 7.3 7.6 7.2
Risk-weighted assets
($ millions) 250,591 225,801 218,337
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Credit quality
Net impaired loans(3)
($ millions) 1,191 1,009 601
General allowance for
credit losses ($ millions) 1,323 1,323 1,298
Net impaired loans as a %
of loans and acceptances(3) 0.40 0.36 0.25
Specific provision for credit
losses as a % of average loans
and acceptances (annualized) 0.29 0.23 0.16 0.24 0.13
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Common share information
Share price ($)
High 51.55 52.51 53.49 54.00 54.73
Low 35.25 41.95 46.70 35.25 46.70
Close 40.19 49.98 53.48
Shares outstanding (millions)
Average - Basic 990 989 983 987 989
Average - Diluted 994 994 991 993 997
End of period 992 990 984
Dividends per share ($) 0.49 0.49 0.45 1.92 1.74
Dividend yield (%) 4.5 4.1 3.6 4.3 3.4
Market capitalization
($ millions) 39,865 49,475 52,612
Book value per
common share ($) 18.94 18.99 17.45
Market value to
book value multiple 2.1 2.6 3.1
Price to earnings multiple
(trailing 4 quarters) 13.1 13.4 13.2
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Other information
Employees 69,049 62,209 58,113
Branches and offices 2,672 2,557 2,331
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(1) Non-GAAP measure. Refer to Non-GAAP measures section of this press
release for a discussion of these measures.
(2) Effective November 1, 2007, regulatory capital ratios are determined
in accordance with Basel II rules. Comparative amounts for prior
periods were determined in accordance with Basel I rules.
(3) Net impaired loans are impaired loans less the specific allowance for
credit losses.
(4) Represents common dividends for the period as a percentage of the net
income available to common shareholders for the period.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; 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;
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 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.
The "Outlook" section in this document is based on the Bank's views and
the actual outcome is uncertain. Readers should consider the above-noted
factors when reviewing this section.
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.
Non-GAAP Measures
The Bank uses a number of financial measures to assess its performance.
Some of these measures are not calculated in accordance with Generally
Accepted Accounting Principles (GAAP), are not defined by GAAP and do not have
standardized meanings that would ensure consistency and comparability between
companies using these measures. These non-GAAP measures are used in our
Management's Discussion and Analysis below. They are defined below:
Taxable equivalent basis
The Bank analyzes net interest income and total revenues on a taxable
equivalent basis (TEB). This methodology grosses up tax-exempt income earned
on certain securities reported in net interest income to an equivalent before
tax basis. A corresponding increase is made to the provision for income taxes;
hence, there is no impact on net income. Management believes that this basis
for measurement provides a uniform comparability of net interest income
arising from both taxable and non-taxable sources and facilitates a consistent
basis of measurement. While other banks also use TEB, their methodology may
not be comparable to the Bank's. The TEB gross up to net interest income and
to the provision for income taxes in the current period is $95 million versus
$216 million in the same quarter last year and $103 million last quarter. The
TEB gross up was $416 million for the year compared to $531 million last year.
For purposes of segmented reporting, a segment's net interest income and
provision for income taxes are grossed up by the taxable equivalent amount.
The elimination of the TEB gross up is recorded in the "Other" segment.
Productivity ratio (TEB)
Management uses the productivity ratio as a measure of the Bank's
efficiency. This ratio represents non-interest expenses as a percentage of
total revenue on a taxable equivalent basis.
Net interest margin on total average assets (TEB)
This ratio represents net interest income on a taxable equivalent basis
as a percentage of total average assets.
Operating Leverage
The Bank defines operating leverage as the rate of growth in total
revenue, on a taxable equivalent basis, less the rate of growth in expenses.
Return on equity
Return on equity is a profitability measure that presents the net income
available to common shareholders as a percentage of the capital deployed to
earn the income. The Bank calculates its return on equity using average common
shareholders' equity, including all components of shareholders' equity.
Economic equity and Return on economic equity
For internal reporting purposes, the Bank attributes capital to its
business segments using a methodology that considers credit, market,
operational and other risks inherent in each business segment. The amount
attributed is commonly referred to as economic equity. Return on equity for
the business segments is based on the economic equity attributed to the
business segments. The difference between the economic equity amount required
to support the business segments' operations and the Bank's total equity is
reported in the "Other" segment.
Tangible common equity to risk-weighted assets
Tangible common equity to risk-weighted assets is an important financial
measure for rating agencies and the investing community. Tangible common
equity is total shareholders' equity plus non-controlling interest in
subsidiaries, less preferred shares, unrealized gains/losses on
available-for-sale securities and cash flow hedges, goodwill and other
intangible assets (net of taxes). Tangible common equity is presented as a
percentage of risk-weighted assets.
Regulatory capital ratios, such as Tier 1 and Total Capital ratios, have
standardized meanings as defined by the Office of the Superintendent of
Financial Institutions Canada (OSFI).
Group Financial Performance and Financial Condition
Full Year Review
Net Income
Scotiabank's net income was $3,140 million, a reduction of $905 million
from last year. Return on equity was 16.7%, compared to 22.0% in 2007.
Earnings per share (diluted) were $3.05 versus $4.01 in 2007.
The Bank's 2008 results were negatively impacted by unprecedented
volatility in global financial markets, which led to charges of $0.82 per
share. Please refer to the Items of Note section at the end of this release
for further details.
Notwithstanding these challenges and the higher funding costs experienced
in 2008, our three business lines' core earnings were solid.
Total revenue
Total revenue (on a taxable equivalent basis) was $12,292 million in
2008, a decrease of $729 million or 6% from the prior year. This change was
due primarily to charges of $1,221 million relating to certain trading
activities and valuation adjustments, reflecting unprecedented volatility in
global financial markets. As well, there was a negative impact of $301 million
due to foreign currency translation, compared to $199 million in 2007, as the
Canadian dollar continued to appreciate for much of the year against most
currencies in countries in which the Bank operates.
Canadian Banking revenue grew 6% over last year. This increase reflected
broad-based growth as well as the impact of the acquisition of Dundee Bank,
Travelers Leasing Corporation (now Scotia Dealer Advantage), TradeFreedom, and
E(*)Trade Canada, partially offset by the impact of the gain last year on the
global Visa restructuring.
International Banking revenues rose 15%, reflecting the impact of the
acquisition of Banco del Desarrollo in Chile, as well as strong growth in
Peru.
In Scotia Capital, revenue declined by 25%, mainly due to charges
relating to the Lehman Brothers bankruptcy, valuation adjustments and
generally weak capital markets. These were partially offset by record foreign
exchange and precious metals trading revenues, and strong growth in corporate
lending. Group Treasury was also impacted by the weakening global financial
markets, with lower realized gains on the sale of non-trading securities,
valuation losses on securities, and relatively higher liquidity costs.
Net interest income
Net interest income (on a taxable equivalent basis) was $7,990 million in
2008, up $361 million or 5% over last year, despite a negative impact of $275
million from adjustments in fair value on derivatives used for asset and
liability management purposes, $221 million from foreign currency translation
and $115 million from lower tax-exempt dividend income. Excluding these items,
underlying interest income grew by $972 million as a result of strong asset
growth driven by normal business operations and acquisitions.
The growth in average total assets of $52 billion or 13% was mainly in
business and government lending ($23 billion or 29%) and residential mortgages
($14 billion or 14%). All business segments contributed to the strong asset
growth.
Canadian Banking's average assets grew by $21 billion or 14%, primarily
in mortgages. There was also strong growth in personal revolving credit and
other personal loans, as well as in business lending to both commercial and
small business customers.
International Banking's average asset growth of $13 billion or 20% mainly
reflected the impact of the acquisition of Banco del Desarrollo in Chile and
strong growth in business lending in Asia and in Peru. Scotia Capital's
average assets grew by $12 billion or 8%, from strong growth in lending in the
U.S., Europe and Canada, as well as in trading assets.
The Bank's net interest margin (net interest income as a percentage of
average assets) was 1.75% in 2008, down from 1.89% last year. The decline was
due primarily to the unfavourable change in the fair value of derivatives used
for asset and liability management purposes, lower tax-exempt dividend income,
and higher volumes of non-earning assets. Excluding these items, the
underlying net interest margin on earning assets remained in line with the
prior year. The impact of the increased liquidity costs and shift in Canadian
Banking's assets to lower-yielding variable rate mortgages was offset by the
strong growth in existing businesses and acquisition-driven increases in
International Banking's assets, both of which have higher margins. Also
contributing was the widening of spreads in Scotia Capital's corporate lending
business.
Other income
Other income was $4,302 million in 2008, a decrease of $1,090 million or
20% from 2007, including a reduction of $80 million from foreign currency
translation partially offset by increased contributions from recent
acquisitions. The decrease primarily reflected charges related to certain
trading activities and valuation adjustments. In total, these charges were
$1,059 million in 2008 compared to a net gain of $54 million in 2007 as
detailed in the Items of Note section at the end of this release.
Card revenues were a record $397 million in 2008, an increase of 8% from
last year. International card revenues increased 11% due to strong growth in
Peru, the Caribbean and Mexico. Canadian revenues were up 6% year over year,
due mainly to higher transaction volumes.
Revenues from deposit and payment services, which represent revenues
earned from retail, commercial and corporate customers, grew 6% to $862
million in 2008. Canadian Banking revenues were 3% higher than last year,
mainly from new account growth and pricing changes. International revenues
increased by 14%, mainly from the acquisition of Banco del Desarrollo in Chile
and acquistions in Peru.
Mutual fund fees were a record $317 million in 2008, an increase of 7%
from 2007. This reflected higher average balances, which grew by 6% in Canada,
resulting mainly from net fund sales, particularly in the longer term funds.
International Banking mutual fund fees were 12% higher than last year, mainly
in Mexico and Peru.
Revenues from investment management, brokerage and trust services were
$760 million in 2008, in line with last year. Retail brokerage commissions
were $538 million, down 3% from 2007, despite the positive impact of the
acquisitions of TradeFreedom and E(*)Trade Canada during the year.
Credit fees of $579 million were $49 million or 9% higher than last year.
There were higher acceptance fees in Canada, from both corporate and
commercial customers. In the United States, credit fees were 8% above 2007,
reflecting stronger lending volumes. International Banking credit fees
increased 15%, due mainly to the acquisition of Banco del Desarrollo in Chile,
and strong growth in Peru.
Trading revenues were $188 million in 2008, a decrease of $262 million
from last year, mainly related to the bankruptcy of Lehman Brothers. In
addition, revenue from trading securities fell by $103 million, reflecting a
decline in debt and equity market conditions. Foreign exchange trading was $17
million above last year, with record revenue in Scotia Capital being partially
offset by declines in Group Treasury and International Banking. Precious
metals trading revenue was a record $160 million, an increase of $44 million
or 38% over last year, with higher revenues recorded in each of our major
centres.
Investment banking revenues were $716 million in 2008, a decrease of $21
million or 3% from last year. Notwithstanding record advisory fees in
ScotiaWaterous, underwriting fees fell by $88 million or 23%, due mainly to
lower new issue fees. Non-trading foreign exchange revenues were $75 million
or 32% above 2007 due to strong growth in both Canadian and International
Banking.
There was a net loss on non-trading securities of $374 million in 2008,
compared to a net gain of $488 million last year. The net loss this year was
due mainly to valuation adjustments of $783 million on certain structured
credit instruments and securities. These losses arose due mainly to market
conditions, including widening credit spreads and credit events in certain
previously highly rated reference assets which negatively impacted the fair
value of Collateralized Debt Obligations (CDO). This included a loss of $298
million 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. These
were partially offset by gains realized on the sale of both debt and equity
securities, which were lower than the prior year, reflecting the challenging
market conditions.
Securitization revenues of $130 million in 2008 were $96 million above
last year, largely from wider spreads and a higher volume of mortgage
securitizations under available government programs. Other revenues were $727
million in 2008, a decrease of $187 million from last year, primarily
reflecting the 2007 gains of $202 million on the global Visa restructuring and
$43 million on the sale of our bond index business.
Provision for credit losses
The provision for credit losses was $630 million in 2008, up from $270
million last year.
The provision for credit losses in Canadian Banking was $399 million in
2008, an increase of $104 million compared to last year. This was due to
higher provisions in both the commercial and retail portfolios. The former
related primarily to a small number of accounts compared to a very low level
of provisions in 2007. The increase in retail provisions related mainly to
asset growth in Scotia Dealer Advantage and the credit card portfolios,
partially offset by higher recoveries in other personal loans.
In International Banking, the provision for credit losses was $236
million in 2008, an increase of $135 million compared to last year. Retail
portfolios in Mexico, Peru, the Caribbean and, to a lesser extent Chile,
recorded increased provisions for credit losses, mainly related to growth in
lending portfolios, acquisitions, and rising delinquency in certain markets.
The International commercial portfolio continued to benefit from similar
levels of net reversals and recoveries as last year.
Scotia Capital had net recoveries of $5 million in 2008 versus net
recoveries of $101 million in 2007.
There was no reduction of the general allowance in 2008, compared to a
reduction of $25 million in 2007.
Non-interest expenses
Non-interest expenses were $7,296 million in 2008, an increase of $302
million or 4% from last year, including a benefit from the positive impact of
foreign currency translation of $146 million. Recent acquisitions accounted
for approximately $240 million of the growth in non-interest expenses.
Salaries and employee benefits were $4,109 million in 2008, up $126
million or 3% from last year, including the favourable impact of $72 million
due to foreign currency translation. Salaries increased 10%, reflecting both
acquisitions and new branches including 13 in Canada, 58 in Mexico, as well as
higher staffing to support growth initiatives. Performance-based compensation
was $104 million below last year, reflecting lower results, including in
Scotia Capital and retail brokerage. Stock-based compensation decreased by $44
million or 33% due to the decline in the Bank's common share price during the
year. Pensions and other employee benefit costs increased by $40 million or
8%, due in part to acquisitions.
Premises and technology expenses were $1,451 million in 2008, an increase
of $98 million or 7% from last year. The higher premises costs reflected both
acquisitions and new branches. Technology expenses increased by $47 million or
8%, mainly for a variety of new and ongoing project costs.
Communications expenses of $326 million rose $26 million or 8% year over
year, which in part reflected the impact of acquisitions, business volume
growth and new branches.
Advertising and business development expenses were $320 million in 2008,
an increase of $9 million or 3% over last year, due mainly to the impact of
acquisitions.
Business and capital taxes were $27 million or 19% lower than last year,
reflecting reductions to capital tax rates in Canada and lower income.
Other expenses were $747 million in 2008, an increase of $70 million or
11% from last year, due largely to the impact of acquisitions and higher
loyalty reward point costs.
Our productivity ratio - a measure of efficiency in the banking industry
- was 59.4% for the year. The ratio deteriorated from 53.7% last year, due
mainly to the impact of the items of note discussed earlier, as total revenue
fell 6% while expenses increased 4%.
Taxes
The provision for income taxes recorded in income was $691 million in
2008, a decrease of 35% compared to last year. This was due primarily to the
24% decline in pre-tax income and a drop of 2.1% in the statutory effective
tax rate year over year. The Bank's overall effective tax rate for the year
was 17.5%, down from 20.3% last year.
Non-controlling interest
The deduction for non-controlling interest in subsidiaries was $119
million in 2008, in line with last year.
Fourth quarter review
Net Income
Net income was $315 million in the fourth quarter, a decrease of $639
million or 67% from the same quarter last year, and $695 million below last
quarter. The decline reflected $642 million in after tax charges this quarter
related to certain trading activities and valuation adjustments, arising from
recent challenging market conditions and unprecedented volatility in global
financial markets. Please refer to the Items of Note section at the end of
this release for further details.
Total Revenue
Total revenue (on a taxable equivalent basis) was $2,586 million in the
fourth quarter, a decrease of $708 million or 21% from the same quarter last
year, notwithstanding a positive foreign currency translation impact of $46
million. Quarter over quarter, total revenue fell by $891 million or 26%,
despite a positive foreign currency translation impact of $17 million.
Net Interest Income
Net interest income (on a taxable equivalent basis) was $2,036 million in
the fourth quarter, an increase of $104 million or 5% over the same quarter
last year, but $13 million below the third quarter. There was a positive
impact of foreign currency translation of $70 million over the same quarter
last year, and $40 million compared to the third quarter.
The increase in net interest income from the same quarter last year
reflected solid growth in average assets of $72 billion or 18%. Canadian
residential mortgages grew by $12 billion or 11%. In Scotia Capital, assets
grew by $19 billion comprised of increases in corporate lending and capital
markets. International Banking average assets grew by $23 billion or 35%,
reflecting both acquisitions and growth in the Bank's existing operations.
The Bank's net interest margin was 1.68% in the fourth quarter, a
decrease of 19 basis points from last year, due to the negative impact of fair
value changes on derivatives used for asset/liability management purposes and
lower tax-exempt dividend income. The Bank's net interest margin narrowed by
11 basis points versus last quarter driven entirely by the negative impact of
fair value changes on derivatives and higher volumes of non-earning assets.
This more than offset the impact of widening margins throughout Latin America
and wider spreads in Corporate Lending.
Other Income
Other income was $550 million in the fourth quarter, a decrease of $812
million from the same quarter last year, including a negative foreign currency
translation impact of $24 million. This was due mainly to the charges noted
above. As well, the same quarter last year included the $202 million gain on
the global Visa restructuring and a $43 million gain on the sale of our bond
index business. Partially offsetting were record foreign exchange and precious
metals trading revenues in Scotia Capital, the impact of acquisitions, and
higher revenues from securitizations, credit fees, and various retail products
and services.
Quarter over quarter, other income fell by $878 million, due mainly to
the charges noted above. There were also declines in trading securities
revenue, underwriting revenue, credit fees, and mutual fund fees due to poor
market conditions, as well as a negative foreign currency translation impact
of $23 million. Partially offsetting were record foreign exchange and precious
metals trading revenues in Scotia Capital, and higher securitization and
non-trading foreign exchange revenues.
Provision for Credit Losses
The provision for credit losses was $207 million this quarter, up $112
million from the same period last year and $48 million compared to last
quarter. The higher level this quarter compared to a year ago was due to
higher provisions in the retail portfolios in International Banking, reversals
and recoveries in Scotia Capital last year, and provision increases in
Canadian Banking.
The general allowance for credit losses was $1,323 million as at October
31, 2008, unchanged from last quarter.
Non-Interest Expenses
Non-interest expenses were $1,944 million in the fourth quarter, an
increase of $152 million or 8% over the same quarter last year, including an
unfavourable impact of $47 million from foreign currency translation. Recent
acquisitions accounted for approximately $103 million of the growth in
non-interest expenses. The increases in salaries, premises, technology and
communications also reflected new branches in Canada and Mexico. Partially
offsetting were declines in performance-related compensation, professional
fees and capital taxes.
Quarter over quarter, non-interest expenses rose $55 million, including
an unfavourable impact of $31 million from foreign currency translation.
Recent acquisitions accounted for approximately $50 million of the growth in
non-interest expenses. Advertising expenses rose, due primarily to new
initiatives to drive revenue growth. Partially offsetting were declines in
performance-related compensation and capital taxes.
Taxes
The Bank's effective tax rate was 0.6% in the fourth quarter, compared to
17.1% in the same quarter last year and 21.7% in the previous quarter. These
declines were due mainly to lower income resulting from certain trading
activities and valuation adjustments, which were in higher-tax jurisdictions.
Non-controlling interest
The deduction for non-controlling interest in subsidiaries was $23
million for the quarter, down $10 million from the same period last year, and
$6 million from last quarter, due mainly to the acquisition of the additional
20% ownership of Scotiabank Peru.
Common Dividend
The Board of Directors, at its meeting on December 2, 2008, approved a
quarterly dividend of 49 cents per common share for the quarter ended January
31, 2009, payable on January 28, 2009, to shareholders of record at the close
of business on January 6, 2009. Annual dividends for 2008 rose 18 cents to
$1.92, an increase of 10%.
Outlook
The global economy decelerated during the second half of 2008. In the
Bank's major markets, with household, business and investor confidence at a
low ebb, economic activity will likely be weak through much of 2009.
Volatility in world financial markets is also expected to continue. In this
uncertain environment, we will carefully manage our risks and our expenses,
balancing both with selective investments in growth initiatives. Overall, we
expect moderate growth for the Bank this year, with ongoing contributions from
our three business lines and further acquisitions.In view of this outlook, we have established the following targets for
2009:
- Earnings per share growth: 7 to 12%;
- ROE: 16 to 20%;
- Productivity ratio of less than 58%; and
- Maintain strong capital ratios.Risk management
The Bank's risk management policies and practices are unchanged from
those outlined in pages 56 to 67 of the 2007 Annual Report.
Credit risk
The specific provision for credit losses was $207 million in the fourth
quarter, compared to $95 million in the same period last year and $159 million
in the previous quarter.
The provision for credit losses was $107 million in the Canadian Banking
portfolios, up from $78 million in the same quarter last year and $99 million
in the previous quarter. Both increases were due mainly to higher provisions
in the commercial portfolio. In the retail portfolio, higher provisions
attributable to asset growth and increased provisions for Scotia Dealer
Advantage were largely offset by increased recoveries in other personal loans.
International Banking's provision for credit losses was $90 million in
the fourth quarter, compared to $27 million in the same period last year and
$56 million last quarter. The increases were due primarily to higher retail
provisions related to asset growth, acquisitions and rising delinquency in
certain markets. In addition, commercial provisions increased from last year
due to acquisitions, and from last quarter due to lower recoveries this
quarter.
Scotia Capital's provision for credit losses was $10 million in the
fourth quarter, compared to net recoveries of $10 million in the fourth
quarter of last year and a provision of $4 million in the previous quarter.
The increase from the previous quarter was related primarily to one new
provision in the U.S., and to lower levels of reversals and recoveries.
Market risk
Value at Risk (VaR) is a key measure of market risk in the Bank's trading
activities. In the fourth quarter, the average one-day VaR was $20.1 million
compared to $13.2 million for the same quarter last year, as detailed in the
table below. Volatile market conditions during the fourth quarter were a major
contributing factor to this increase. The average daily VaR of $20.1 million
in the fourth quarter 2008 compared to $15.8 million in the prior quarter.
This increase was due primarily to market volatility, as noted earlier, as
well as increases in interest rate and equity positions.-------------------------------------------------------------------------
Average for the three months ended
October 31, July 31, October 31,
Risk Factor ($million) 2008 2008 2007
-------------------------------------------------------------------------
Interest rate 16.9 13.0 9.2
Equities 7.9 3.5 6.1
Foreign exchange 1.5 0.9 2.4
Commodities 3.0 3.0 1.5
Diversification effect (9.2) (4.6) (6.0)
-------------------------------------------------------------------------
All-Bank VaR 20.1 15.8 13.2
-------------------------------------------------------------------------There were 13 trading loss days in the fourth quarter, compared to 11
days in the previous quarter. With the exception of a single day during the
quarter when the actual loss exceeded the VaR, the losses were within the
range predicted. This exception occurred due to extreme volatility in the
equity markets.
Liquidity risk
The Bank maintains large holdings of liquid assets to support its
operations. These assets generally can be sold or pledged to meet the Bank's
obligations. As at October 31, 2008, liquid assets were $106 billion (2007 -
$103 billion), equal to 21% (2007 - 25%) of total assets. These assets consist
of securities 64% (2007 - 71%) and cash and deposits with banks, 36% (2007 -
29%).
Related party transactions
There were no changes to the Bank's procedures and policies for related
party transactions from those outlined on pages 72 and 122 of the 2007 Annual
Report. All transactions with related parties continued to be at market terms
and conditions.
Balance sheet
The Bank's total assets at October 31, 2008 were $508 billion, up $96
billion or 23% from last year, including a $38 billion positive impact from
foreign currency translation from the weaker Canadian dollar at the end of the
year. Retail, commercial and corporate loans grew by $62 billion and
derivative instrument assets were up $23 billion, with a corresponding
increase in derivative instrument liabilities.
Total securities declined slightly by $1 billion from last year,
including a $7 billion positive impact from foreign currency translation.
Trading securities declined $11 billion, due primarily to a reduction in the
size of the equity securities portfolio. There was an increase in
available-for-sale securities of $10 billion, primarily from higher holdings
of Canadian and foreign government debt securities. In the fourth quarter,
there was a reclassification of $394 million of certain trading securities to
available-for-sale securities as a result of amendments to accounting
standards issued in October 2008.
As at October 31, 2008, the unrealized loss on available-for-sale
securities was $1,228 million, compared to a $972 million unrealized gain in
the prior year. This includes unrealized losses of $36 million that arose
subsequent to the August 1, 2008, reclassification of certain bonds and
preferred shares from the trading portfolio to the available-for-sale
portfolio. The total unrealized loss was largely the result of the ongoing
deterioration of economic conditions and volatility in debt and equity
markets. Debt securities account for 78% of the unrealized loss.
The Bank's loan portfolio grew $62 billion or 27% from last year,
including the positive impact of $18 billion from foreign currency
translation. On the retail lending side, residential mortgage growth in
Canadian Banking was $13 billion, before securitization of $5 billion. In
addition, International Banking contributed $5 billion to this growth.
Personal loans were up $9 billion, or 22% from last year, with strong growth
in all regions.
Business and government loans increased $40 billion from last year. Loans
in Scotia Capital were up $17 billion, primarily in corporate lending.
Canadian Banking experienced growth of $4 billion. In International banking,
business and government loans increased $18 billion, primarily from the
acquisition of Banco del Desarrollo, which contributed $3 billion, and growth
in Asia and the Caribbean of $7 billion and $4 billion respectively.
Total liabilities were $486 billion as at October 31, 2008, an increase
of $93 billion or 24% from last year, including a $39 billion impact from
foreign currency translation. Deposits grew by $58 billion, obligations
related to repurchase agreements were up $8 billion and derivative instruments
liabilities were up $18 billion. The latter increase was similar to the change
in the derivative instruments assets and due primarily to recent changes and
volatility in interest and foreign exchange rates and credit spreads.
Total deposits grew by $58 billion, or 20% from 2007, including a $26
billion positive impact from foreign currency translation. Personal deposits
increased by $18 billion, led by $5 billion of growth in domestic personal
GICs. International deposits increased $5 billion with increases across most
regions. Business and government deposits were up $39 billion, primarily to
fund the Bank's strong asset growth.
Total shareholders' equity increased $3 billion in 2008. This was due
primarily to internal capital generation of $1 billion, the issuance of $1
billion of non-cumulative preferred shares, and an increase of $261 million in
accumulated other comprehensive income. The increase in unrealized foreign
exchange gains relating to the Bank's foreign operations, due to the weakening
of the Canadian dollar, was mostly offset by higher unrealized losses on other
components of comprehensive income, including those related to
available-for-sale securities.
Capital Management
The revised Basel Capital framework (Basel II) became effective for
Canadian banks on November 1, 2007. Basel II is designed to more closely align
regulatory capital requirements with the individual risk profile of banks by
introducing substantive changes to capital requirements for credit risk and an
explicit new capital charge for operational risk.
Under Basel II, there are two main methods for computing credit risk: the
standardized approach, which uses prescribed risk weights; and internal
ratings-based approaches, which allow the use of a bank's internal models to
calculate some, or all, of the key inputs into the regulatory capital
calculation. Users of the Advanced Internal Ratings Based Approach (AIRB) are
required to have sophisticated risk management systems for the calculation of
credit risk regulatory capital and the application of this approach could
result in less regulatory capital than the use of the alternative approaches.
Once banks demonstrate full compliance with the AIRB requirements, and OSFI
has approved its use, they may proceed to apply the AIRB approach in computing
capital requirements. However, in order to limit sudden declines in the
capital levels for the industry in aggregate, transitional capital floors were
introduced for the first two years after full implementation of AIRB. A
minimum capital floor of 90% of the Basel I calculation will apply in the
first year of full approval, and 80% in the second year. Since receiving
regulatory approval in the second quarter, the Bank has applied the 90% floor.
The Bank received approval, with conditions, from OSFI to use AIRB for
material Canadian, U.S. and European portfolios effective November 1, 2007.
The Bank is assessing the remaining credit portfolios for application of AIRB
in the future. The Bank uses the standardized approach for these portfolios.
As well, the Bank is using the standardized approach to calculate the
operational risk capital requirements. The capital requirements for market
risk are substantially unchanged for the Bank.
Capital ratios
The Bank continues to maintain a strong capital position. The Tier 1 and
the Total capital ratios as at October 31, 2008 under Basel II were 9.3% and
11.1%, respectively, compared to 9.3% and 10.5% at October 31, 2007.
The tangible common equity (TCE) ratio was 7.3% as at October 31, 2008,
compared to 7.2% at October 31, 2007. The TCE ratio remains strong by global
standards.
Financial instruments
Given the nature of the Bank's main business activities, financial
instruments make up a substantial portion of the balance sheet and are
integral to the Bank's business. There are various measures that reflect the
level of risk associated with the Bank's portfolio of financial instruments.
Further discussion of some of these risk measures is included in the preceding
Risk Management section.
The methods of determining the fair value of financial instruments are
detailed on pages 69 and 70 of the 2007 Annual Report. Management's judgment
is applied on valuation inputs when observable market data is not available,
and in the selection of valuation models. Uncertainty in these estimates and
judgments can affect fair value and financial results recorded.
During this quarter, changes in the fair value of financial instruments
generally arose from existing economic, industry and market conditions.
Total derivative notional amounts were $1,562 billion at October 31,
2008, compared to $1,287 billion at October 31, 2007, with the increase due
primarily to the effect of foreign currency translation. The percentage of
those derivatives held for trading and those held for non-trading or asset
liability management was generally unchanged. The credit equivalent amount
related to derivatives, after taking into account master netting arrangements
and eligible financial collateral, was $28.5 billion, compared to $20.6
billion last year end.
Financial stability forum disclosures
In April 2008, the Financial Stability Forum released its report on
recent conditions in the credit market. Among others, a key recommendation of
the report was to improve transparency by providing enhanced disclosures on
financial instruments that markets consider to be higher risk, including
off-balance sheet vehicles and structured products. Based on these
recommendations, the Bank has provided additional disclosures below in the
sections on Off-balance sheet arrangements and Selected credit instruments.
Off-balance sheet arrangements
In the normal course of business, the Bank enters into contractual
arrangements that are not required to be consolidated in its financial
statements. These arrangements are primarily in three categories: Variable
Interest Entities (VIEs), securitizations, and guarantees and other
commitments. No material contractual obligations were entered into during the
year by the Bank that are not in the ordinary course of business. Processes
for review and approval of these contractual arrangements are unchanged from
last year.
As at October 31, 2008, total consolidated assets related to VIEs were
$5.8 billion, compared to $6.1 billion at end of 2007. The amounts owed by or
to the consolidated VIEs were not significant. The Bank earned fees of $72
million and $65 million in 2008 and 2007, respectively, from certain VIEs in
which it has a significant variable interest at the end of the year but did
not consolidate.There are three primary types of association the Bank has with VIE's:
1. Multi-seller conduits sponsored by the Bank
2. Liquidity facilities provided to non-Bank sponsored conduits
3. Funding vehiclesMulti-seller conduits sponsored by the Bank
The Bank sponsors three multi-seller conduits, two of which are
Canadian-based and one in the United States. The Bank earns commercial paper
issuance fees, program management fees, liquidity fees and other fees from
these multi-seller conduits which totaled $70 million in 2008, compared to $56
million in the prior year.
The multi-seller conduits purchase high quality financial assets
primarily from clients and finance these assets through the issuance of highly
rated commercial paper (CP). For assets purchased, there are supporting
backstop liquidity facilities that are generally equal to 102% of the assets
purchased or committed to be purchased. The primary purpose of the backstop
liquidity facility is to provide an alternative source of financing in the
event the conduit is unable to access the commercial paper market.
As further described below, the Bank's exposure to these off-balance
sheet conduits primarily consists of liquidity support, program-wide credit
enhancement and temporary holdings of commercial paper. The Bank has a process
to monitor these exposures to ensure it is not required to consolidate the
assets and liabilities of the conduit.
Canada
The Bank's primary exposure to the Canadian-based conduits is the
liquidity support provided, with total liquidity facilities of $4.3 billion as
at October 31, 2008 (October 31, 2007 - $7.4 billion). A substantial reduction
in auto loans/leases in 2008 caused the year-over-year decline. As at October
31, 2008, total commercial paper outstanding for the Canadian-based conduits
administered by the Bank was $3.8 billion (October 31, 2007 - $6.7 billion).
At year-end, the Bank held approximately 6% of the total commercial paper
issued by these conduits. The following table presents a summary of assets
held by the Bank's two Canadian multi-seller conduits as at October 31, 2008
and 2007 by underlying exposure.Assets held by Scotiabank-sponsored Canadian-based multi-seller conduits
2008
----------------------------------------
Funded Unfunded Total
As at October 31 ($ millions) assets(1) commitments exposure(2)
-------------------------------------------------------------------------
Auto loans/leases $ 2,204 $ 299 $ 2,503
Equipment loans 969 63 1,032
Trade receivables 205 91 296
Canadian residential mortgages 89 2 91
Retirement savings plan loans 156 3 159
Loans to closed-end mutual funds 161 91 252
----------------------------------------
Total(2) $ 3,784 $ 549 $ 4,333
----------------------------------------
----------------------------------------
2007
----------------------------------------
Funded Unfunded Total
As at October 31 ($ millions) assets(1) commitments exposure(2)
-------------------------------------------------------------------------
Auto loans/leases $ 4,506 $ 531 $ 5,037
Equipment loans 1,227 79 1,306
Trade receivables 251 45 296
Canadian residential mortgages 113 2 115
Retirement savings plan loans 291 6 297
Loans to closed-end mutual funds 209 167 376
----------------------------------------
Total(2) $ 6,597 $ 830 $ 7,427
----------------------------------------
----------------------------------------
(1) Funded assets are reflected at original cost.
(2) Exposure to the Bank is through global-style liquidity facilities
and letters of guarantee.
(3) These assets are substantially sourced from Canada.Substantially all of the conduits' assets have been structured to receive
credit enhancements from the sellers, including overcollateralization
protection and cash reserve accounts. As at October 31, 2008, approximately
24% of the funded assets are externally rated AAA, with the balance having an
equivalent rating of AA- or higher based on the Bank's internal rating
program. There are no non-investment grade rated assets held in these
conduits. The funded assets have a weighted average repayment period of
approximately 1.1 years, with 69% maturing within three years. There is no
exposure to U.S. subprime mortgage risk in these two conduits.
United States
The Bank's primary exposure to the U.S.-based conduit is the liquidity
support and program-wide credit enhancement provided, with total liquidity
facilities of $12.8 billion as at October 31, 2008 (October 31, 2007 - $12.7
billion). Excluding the impact of foreign currency translation, total exposure
declined $2.7 billion year over year. As at October 31, 2008, total commercial
paper outstanding for the U.S.-based conduit administered by the Bank was $8.4
billion (October 31, 2007 - $7.9 billion). At year-end, the Bank did not hold
any commercial paper issued by this conduit.
A significant portion of the conduit's assets have been structured to
receive credit enhancements from the sellers, including overcollateralization
protection and cash reserve accounts. Each asset purchased by the conduit has
a deal-specific liquidity facility provided by the Bank in the form of an
asset purchase agreement. Program-wide credit enhancement is generally equal
to 10% of the assets purchased or committed to be purchased by the conduit.
This is available to absorb a portion of the losses on defaulted assets, if
any, in excess of losses absorbed by deal-specific credit enhancement. In the
fourth quarter, in line with current market practices, the Bank revised its
liquidity agreements with the conduit such that the Bank will fund full par
value of all assets including any defaulted assets, if any, of the conduit.
The following table presents a summary of assets purchased and held by
the Bank's U.S. multi-seller conduit as at October 31, 2008 and 2007 by
underlying exposure.Assets held by Scotiabank-sponsored U.S.-based multi-seller conduit
2008
----------------------------------------
Funded Unfunded Total
As at October 31 ($ millions) assets(1) commitments exposure(2)
-------------------------------------------------------------------------
Credit card/consumer receivables $ 1,318 $ 641 $ 1,959
Auto loans/leases 2,894 1,160 4,054
Trade receivables 2,161 1,855 4,016
Loans to closed-end mutual funds 690 652 1,342
Diversified asset-backed securities 932 19 951
CDOs/CLOs - - -
Mortgage-backed securities - - -
Corporate loans(3) 417 50 467
----------------------------------------
Total(4) $ 8,412 $ 4,377 $12,789
----------------------------------------
----------------------------------------
2007
---------------------------------------
Funded Unfunded Total
As at October 31 ($ millions) assets(1) commitments exposure(2)
------------------------------------------------------------------------
Credit card/consumer receivables $ 1,172 $ 513 $ 1,685
Auto loans/leases 2,774 1,462 4,236
Trade receivables 1,434 1,832 3,266
Loans to closed-end mutual funds 940 350 1,290
Diversified asset-backed securities 787 42 829
CDOs/CLOs 372 - 372
Mortgage-backed securities 114 536 650
Corporate loans(3) 260 111 371
---------------------------------------
Total(4) $ 7,853 $ 4,846 $12,699
---------------------------------------
---------------------------------------
(1) Funded assets are shown at original cost.
(2) Exposure to the Bank is through program-wide credit enhancement and
global-style liquidity facilities.
(3) These assets represent secured loans that are externally rated
investment grade.
(4) These assets are sourced from the U.S.Approximately 92% of the conduit's funded assets are rated A or higher,
either externally (16%) or based on the Bank's internal rating program (76%).
There are no non-investment grade assets held in this conduit. The funded
assets have a weighted average repayment period of approximately 1.4 years,
with 75% maturing within five years.
The conduit has investments in two pools of diversified asset-backed
securities. These pools are guaranteed by monoline insurers (refer to Exposure
to monoline insurers discussion below) and are rated investment grade based on
the Bank's internal rating program. The assets underlying these securities are
primarily retail loans, including U.S. home equity, student loans and
residential mortgage-backed securities. Exposure to U.S. subprime mortgage
risk within these securities was nominal at approximately $28 million as at
October 31, 2008.
On April 30, 2007, the Bank's U.S. Multi-seller Commercial Paper Conduit
issued a Subordinated Note (the "Note") to an unrelated party that absorbs the
majority of the expected losses. It was determined that the Bank was no longer
the primary beneficiary and as a result, the VIE was no longer recorded in the
Bank's Consolidated Balance Sheet as at April 30, 2007. On the date of
deconsolidation, this resulted in a decrease to both available-for-sale
securities and other liabilities of $7 billion, and a net increase in
guarantees and other indirect commitments of $8 billion.
In 2008, the Conduit transferred CDO and CLO assets to the Bank pursuant
to the terms of its liquidity asset purchase agreements. A pre-tax charge of
$298 million after considering recoveries was recorded during the year to the
Consolidated Statement of Income. This represents the difference between the
amounts paid (original cost of the assets) and the fair value of the assets on
the dates the assets were transferred to the Bank. After the transfer of the
above assets, the Conduit no longer has any direct holdings of structured
CDO/CLO exposures. In addition, the Bank, as the liquidity provider to the
Conduit, does not intend to allow the Conduit to purchase such asset types in
the future.
During the year, as a consequence of each transfer of assets to the Bank,
the Conduit increased its Note issued to an unrelated party. This Note
continues to absorb the majority of the expected losses of the remaining
assets of the Conduit as updated for current market conditions. Upon the
increase of the Note, it was determined that the Bank was not the primary
beneficiary and therefore does not consolidate the Conduit.
The Bank does not consider the transfer of assets from the Conduit to the
Bank to be an indicator of the Bank's intent to provide support to the Note
holder. Impairment losses from these assets, if any, will be allocated to the
Note holder in accordance with the provisions of the Note. The Bank has no
plans to remove any assets from the Conduit unless required to do so in its
role as administrator pursuant to the liquidity asset purchase agreements
(LAPA). In the future, if any asset transfer occurs pursuant to the terms of
the LAPA, the Bank would continue to allocate losses on such assets to the
Note holder.
Liquidity facilities provided to non-Bank sponsored conduits
For conduits not administered by the Bank, liquidity facilities totaled
$1.2 billion as at October 31, 2008 (October 31, 2007 - $2.4 billion), of
which $1.2 billion (October 31, 2007 - $1.8 billion) were for U.S. third-party
conduits and none (October 31, 2007 - $570 million) were for Canadian
third-party conduits. The assets of these non-Bank sponsored conduits, which
are not administered by the Bank, are almost entirely consumer auto-based
securities. Approximately 91% of these assets are externally rated AAA, with
the balance of the assets rated investment grade based on the Bank's internal
rating program. The majority of the liquidity facilities have an original
committed term of 364 days, renewable at the option of the Bank. The weighted
average life of the underlying assets of these conduits is approximately two
years. There is no exposure to U.S. subprime mortgage risk.
Funding vehicles
The Bank uses special purpose entities (SPEs) to facilitate the
cost-efficient financing of its operations. The Bank has two such SPEs:
Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust that are VIEs
and are not consolidated on the Bank's balance sheet, as the Bank is not the
primary beneficiary. The Scotiabank Trust Securities and Scotiabank Trust
Subordinated Notes issued by the Trusts are not reported on the Consolidated
Balance Sheet but qualify as regulatory capital. The deposit notes issued by
the Bank to Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust
are reported in deposits. Total deposits recorded by the Bank as at October
31, 2008 from these trusts were $3.4 billion (October 31, 2007 - $3.4
billion). The Bank recorded interest expense of $199 million on these deposits
in 2008 (2007 - $143 million).
Securitizations
The Bank securitizes a portion of its residential mortgages and personal
loans by transferring the assets on a serviced basis to trusts. Residential
mortgage securitizations are principally conducted through the Bank's
participation in the Government's Canada Mortgage Bond (CMB) program. If
certain requirements are met, these transfers are treated as sales, and the
transferred assets are removed from the Consolidated Balance Sheet. These
securitizations enable the Bank to access alternative and more efficient
funding sources, and manage liquidity and other risks. The Bank does not
provide liquidity facilities with respect to the CMB program. As such, the
Bank is not exposed to significant liquidity risks in connection with these
off-balance sheet arrangements.
The outstanding amount of off-balance sheet securitized mortgages was
$12.8 billion as at October 31, 2008, compared to $11.6 billion last year. The
change in 2008 was primarily from ongoing sales through the CMB program and
the Bank's participation in the new Government of Canada initiative (Insured
Mortgage Purchase Program). This initiative was implemented to enhance term
liquidity in the Canadian financial markets and the Bank sold $1.5 billion in
mortgage-backed securities pursuant to this program.
The amount of off-balance sheet securitized personal loans was $235
million as at October 31, 2008, compared to $414 million last year.
The Bank recorded securitization revenues of $130 million in 2008,
compared to $34 million in 2007. This change was due to the Bank's ongoing
sale of mortgages to the CMB program and the Bank's participation in the
Insured Mortgage Purchase Program discussed above.
Guarantees and other commitments
Guarantees and other commitments are fee-based products that the Bank
provides to its customers. These products can be categorized as follows:- Standby letters of credit and letters of guarantee: As at October 31,
2008, these amounted to $27.8 billion, compared to $18.4 billion last
year. These instruments are issued at the request of a Bank customer
to secure the customer's payment or performance obligations to a third
party. The year-over-year growth reflects a general increase in
customer business as well as the strengthening of the U.S. dollar.
- Liquidity facilities: These generally provide an alternate source of
funding to asset-backed commercial paper conduits in the event that a
general market disruption prevents the conduits from issuing
commercial paper or, in some cases, when certain specified conditions
or performance measures are not met. Within liquidity facilities are
credit enhancements that the Bank provides in the form of financial
standby letters of credit to commercial paper conduits sponsored by
the Bank. As at October 31, 2008, these credit enhancements amounted
to $1,269 million, compared to $1,187 million last year.
- Indemnification contracts: In the ordinary course of business, the
Bank enters into many contracts where the Bank may indemnify contract
counterparties for certain aspects of the Bank's past conduct if other
parties fail to perform, or if certain events occur. The Bank cannot
estimate, in all cases, the maximum potential future amount that may
be payable, nor the amount of collateral or assets available under
recourse provisions that would mitigate any such payments.
Historically, the Bank has not made any significant payments under
these indemnities.
- Loan commitments: The Bank has commitments to extend credit, subject
to specific conditions, which represent undertakings to make credit
available in the form of loans or other financings for specific
amounts and maturities. As at October 31, 2008, these commitments
amounted to $130 billion, compared to $114 billion a year earlier. The
majority of these commitments are short-term in nature, with original
maturities of less than one year. The year-over-year increase reflects
a general increase in customer business as well as the strengthening
of the U.S. dollar.These guarantees and loan commitments may expose the Bank to credit or
liquidity risks, and are subject to the Bank's standard review and approval
processes. For the guarantee products, the above dollar amounts represent the
maximum risk of loss in the event of a total default by the guaranteed
parties, and are stated before any reduction for recoveries under recourse
provisions, insurance policies or collateral held or pledged.
Fees from the Bank's guarantees and loan commitment arrangements,
recorded in credit fees in other income in the Consolidated Statement of
Income, were $240 million in 2008, compared to $213 million in the prior year.
Selected credit instruments
Mortgage-backed securities
Non-trading portfolio
Total mortgage-backed securities held as available-for-sale securities
represent approximately 1% of the Bank's total assets as at October 31, 2008,
and are shown in table below. Exposure to U.S. subprime mortgages risk is
nominal.
Trading portfolio
Total mortgage-backed securities held as trading securities represent
less than 0.1% of the Bank's total assets as at October 31, 2008, and are
shown in the table below.Mortgage-backed securities
As at October 31, 2008 As at October 31, 2007
-------------------------------------------------------------------------
Carrying value Non-trading Trading Non-trading Trading
($ millions) portfolio portfolio portfolio portfolio
-------------------------------------------------------------------------
Canadian NHA
mortgage-backed
securities(1) $ 6,294 $ 184 $ 4,435 $ 517
Commercial
mortgage-backed
securities 123(2) 47(3) 110(2) 38(3)
Other residential
mortgage-backed
securities 55 - 5 -
-------------------------------------------------------
Total $ 6,472 $ 231 $ 4,550 $ 555
-------------------------------------------------------
-------------------------------------------------------
(1) Canada Mortgage and Housing Corporation provides a guarantee of
timely payment to NHA mortgage-backed security investors.
(2) The assets underlying the commercial mortgage-backed securities in
the non-trading portfolio relate to non-Canadian properties.
(3) The assets underlying the commercial mortgage-backed securities in
the trading portfolio relate to Canadian properties.Montreal Accord Asset-Backed Commercial Paper (ABCP)
The fair value of Montreal Accord ABCP held by the Bank as at October 31,
2008 was $144 million (October 31, 2007 - $187 million). These securities are
currently subject to a restructuring which, if successful, will result in
converting these holdings into longer-dated securities. The Bank's ABCP
carrying value represents approximately 62% of par value. In valuing these
securities, the Bank considers the nature of the underlying assets, the impact
of current credit spreads on the value of similar structured asset type
exposure and other market factors. Net write-downs relating to ABCP recorded
this year were $44 million (2007 - $20 million).
As part of the proposed restructuring plan, the Bank will participate in
a margin funding facility, which is similar to an unfunded loan commitment.
Collateralized debt obligations and collateralized loan obligations
Non-trading portfolio
The Bank has collateralized debt obligation (CDO) and collateralized loan
obligation (CLO) investments in its non-trading portfolio which are primarily
classified as available-for-sale securities. CDOs and CLOs generally achieve
their structured credit exposure either synthetically through the use of
credit derivatives, or by investing and holding corporate loans or bonds.
These investments are carried at fair value on the Bank's Consolidated Balance
Sheet. Changes in the fair value of cash-based CDOs/CLOs are reflected in
Other Comprehensive Income, unless there has been an other-than-temporary
decline in fair value which is recorded in net income. Changes in the fair
value of synthetic CDOs/CLOs are reflected in net income. Substantially all of
the referenced assets of the Bank's CDO and CLO investments are corporate
exposures with no U.S. mortgage-backed securities.
As at October 31, 2008, the remaining exposure to CDOs was $420 million
(October 31, 2007 - $565 million) of which $83 million is included in
Accumulated Other Comprehensive Income (AOCI). This portfolio is well
diversified, with an average individual CDO holding of $13 million and no
single industry exceeding 21% of the referenced portfolio on a weighted
average basis. Based on their carrying values, the CDOs have a weighted
average rating of AA. More than 18% of these investments are senior tranches
with subordination of 10% or more and 17% of the investments are in equity
tranches. During the year, the Bank recorded a pre-tax loss of $516 million in
net income (2007 - $35 million) and a pre-tax loss of $76 million in Other
Comprehensive Income (2007 - $7 million), reflecting changes in the fair value
of the CDOs. The decline in fair value of CDOs was driven by the widening of
credit spreads, coupled with recent credit events in certain previously
highly-rated reference assets.
As at October 31, 2008, the fair value of the Bank's investments in CLOs
was $660 million (October 31, 2007 - $675 million), net of $436 million
recorded in AOCI. This portfolio is well diversified with an average
individual CLO holding of $6 million and no single industry exceeding 12% of
the referenced portfolio on a weighted average basis. These CLOs are primarily
investment grade and have a weighted average rating of AA. More than 94% of
these investment holdings are senior tranches with subordination of 10% or
more. Only 2% of the investments are in equity tranches. During the year, the
Bank recorded a pre-tax loss of $35 million in net income (2007 - $3 million)
and a pre-tax loss of $432 million in Other Comprehensive Income (2007 - $4
million), reflecting changes in the fair value of the CLOs. The above
movements in fair value relating to CLOs reflect changes in asset prices
arising mainly from liquidity challenges and some change in underlying credit
quality of the loans. Although these investments have experienced a decline in
fair value, the Bank has the ability and intent to hold these securities until
there is a recovery in fair value, which may be at maturity. These unrealized
losses are considered temporary in nature.
The key drivers of the change in fair value of CDOs and CLOs are changes
in credit spreads and the remaining levels of subordination. Based on
positions held at October 31, 2008, a 50 basis point widening of relevant
credit spreads would result in a pre-tax decrease of approximately $12 million
in income and $21 million in Other Comprehensive Income.
Trading portfolio
The Bank also holds synthetic CDOs in its trading portfolio as a result
of structuring and managing transactions with clients and other financial
institutions.
To hedge the net exposure, the Bank purchases or sells CDOs to other
financial institutions, along with purchasing and/or selling index tranches or
single name credit default swaps (CDSs). The main driver of the value of
CDOs/CDSs is changes in credit spreads. Based on positions held at October 31,
2008, a 50 basis point widening of relevant credit spreads in this portfolio
would result in a pre-tax increase of approximately $3 million in income.
More than 79% of these CDO exposures are investment grade equivalent.
Substantially all of the Bank's credit exposure to CDO swap counterparties is
to entities which are externally or internally rated the equivalent of A- or
better.
The referenced assets underlying the trading book CDOs are substantially
all corporate exposures, with no mortgage-backed securities.Collateralized debt obligations (CDOs)
Trading portfolio
-------------------------------------------------------------------------
As at October 31, 2008 As at October 31, 2007
-------------------------------------------------------------------------
Positive/ Positive/
Outstanding Notional (negative) Notional (negative)
($ millions) Amount fair value Amount fair value
-------------------------------------------------------------------------
CDOs - sold protection $ 6,647 $(3,368) $ 4,003 $ (216)
CDOs - purchased
protection $ 6,550 $ 3,187 $ 3,025 $ 74
------------------------------------------------
------------------------------------------------Structured Investment Vehicles
As at October 31, 2008, the carrying value of the Bank's investments in
Structured Investment Vehicles (SIVs) was nil (October 31, 2007 - $125
million). The reduction resulted from a combination of write-offs and asset
exchanges during the year. The Bank does not sponsor, manage or provide
liquidity support to SIVs.
Exposure to monoline insurers
The Bank has insignificant direct exposure to monoline insurers. The Bank
has indirect exposures of $2.8 billion (October 31, 2007 - $4.0 billion) in
the form of monoline guarantees which provide enhancement to public finance
and other transactions, where the Bank has provided credit facilities to
either the issuers of securities or facilities which hold such securities. The
Bank's public finance exposures of $1.5 billion (October 31, 2007 - $2.9
billion) are primarily to U.S. municipalities and states. The securities
related to these facilities are primarily rated investment grade without the
guarantee, and represent risk the Bank would take without the availability of
the guarantee. More than 81% of these securities are rated A or above.
Other indirect exposures to monoline insurers were $1.3 billion (October
31, 2007 - $1.1 billion). These exposures are primarily comprised of $0.9
billion (October 31, 2007 - $0.8 billion) of guarantees by the monolines on
diversified asset-backed securities held by the Bank's U.S. multi-seller
conduit (as discussed in the earlier section on Multi-seller conduits
sponsored by the Bank). The two monoline insurers providing these guarantees
are currently externally rated investment grade. Without these guarantees,
certain of the underlying assets of the diversified asset-backed securities
would not be rated investment grade.
Exposure to Alt-A
In the U.S., loans are classified as Alt-A when they have higher risk
characteristics such as lower credit scores and/or higher loan-to-value
ratios. As at October 31, 2008, the Bank had insignificant direct and indirect
exposure to U.S. Alt-A loans and securities. In Canada, the Bank does not have
a mortgage program which it considers to be an equivalent of U.S. Alt-A.
Leveraged loans
The Bank may provide leveraged financing to non-investment grade
customers to facilitate their buyout, acquisition and restructuring
activities. The Bank's exposure to highly leveraged loans awaiting syndication
as at October 31, 2008 was nominal.
Auction-rate securities
Auction-rate securities ("ARS") are long-term, variable rate notes issued
by trusts referenced to long-term notional maturity but have interest rates
reset at predetermined short-term intervals. ARS are issued by municipalities,
student loan authorities and other sponsors through auction managed by
financial institutions. The Bank does not sponsor any ARS program and does not
hold any ARS.
Automotive industry exposure
The Bank's direct (corporate and commercial) loan exposure to the North
American and European automotive industry as at October 31, 2008, was
comprised of the following:($ billions)
Original equipment manufacturers (OEM) $0.5
Financing and leasing 1.2
Parts manufacturers 0.7
Dealers 2.8
---
Total $5.2Approximately 63% of this exposure is rated investment grade, either
externally or based on the Bank's internal rating program, and loans are
typically senior in the capital structure of the borrowers. The loss ratio -
loan losses as a percentage of average loan exposures - on this portfolio was
9 basis points in 2008, unchanged from 2007.
The Bank is actively managing its exposure to this sector. Regular stress
tests are performed on this exposure, covering a number of different
scenarios, including the potential default of a North American OEM. In
addition, the Bank has focused on large multi-dealer relationships and parts
manufacturing customers with geographic and OEM diversity, and has lowered its
exposure to North American OEMs.
Consumer auto-based securities
The Bank holds $7.8 billion (October 31, 2007 - $6.2 billion) of consumer
auto-based securities which are classified as available-for-sale. Of the year-
over-year growth, half arose from foreign currency translation. These
securities are almost all loan-based securities, with only 2% of these
holdings representing leases. The loan-based securities arise from retail
installment sales contracts ("loans") which are primarily acquired through a
US$6 billion revolving facility to purchase U.S. and Canadian consumer auto
loans from a North American automotive finance company. This facility has a
remaining revolving period of approximately two years. This facility was
recently modified to allow the seller to sell Canadian-based loans to the Bank
for a limited period rather than U.S.-based loans. The facility is structured
with credit enhancement in the form of over collateralization provided at the
time of the loan purchases, resulting in no further reliance on the seller for
credit enhancement. For each subsequent purchase under the revolving credit
facility, the credit enhancement is a multiple of the most recent pool loss
data for the seller's overall managed portfolio.
The Bank conducts periodic stress tests on the loan-based securities.
Under different stress scenarios, the loss on this U.S. consumer auto
loan-backed securities portfolio is within the Bank's risk tolerance.
Approximately 80% of these securities are externally rated AAA and have a
weighted average life of approximately two years.
These securities are carried at fair value with the change in fair value
recorded in Other Comprehensive Income. The Bank has recorded a pre-tax
cumulative unrealized loss of $272 million in Accumulated Other Comprehensive
Income (2007 - unrealized gain $40 million). While there has been some
deterioration in credit quality, the unrealized loss was primarily
attributable to wider credit spreads. As the Bank has the ability and intent
to hold these securities until there is a recovery in fair value, which may be
to maturity, these unrealized losses are considered temporary in nature.
In addition, the Bank provides liquidity facilities to its own sponsored
multi-seller conduits and to non-bank sponsored conduits to support automotive
loan and lease assets held by those conduits. For details, see earlier
sections on Multi-seller conduits sponsored by the Bank and Liquidity
facilities provided to non-Bank sponsored conduits.Canadian Banking
For the For the
three months ended year ended
-------------------------------------------------------------------------
October July October October October
(Unaudited) ($ millions) 31 31 31 31 31
(Taxable equivalent basis)(1) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Business segment income
Net interest income $ 1,160 $ 1,122 $ 954 $ 4,324 $ 3,855
Provision for credit losses 107 99 78 399 295
Other income 554 564 663 2,174 2,248
Non-interest expenses 939 914 927 3,632 3,559
Provision for income taxes 202 210 173 743 685
-------------------------------------------------------------------------
Net Income(2) $ 466 $ 463 $ 439 $ 1,724 $ 1,564
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures
Return on equity(1) 38.0% 38.5% 37.0% 35.6% 33.0%
Average assets ($ billions) $ 185 $ 177 $ 163 $ 175 $ 154
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non-GAAP measure. Refer to Non-GAAP measures section of this press
release for a discussion of these measures.
(2) Commencing in 2008, the reporting segment profitability has been
changed from net income available to common shareholders to net
income. Prior periods have been restated.Full Year
Canadian Banking reported net income of $1,724 million in 2008, $160
million or 10% higher than last year. Return on equity was 35.6%. Canadian
Banking accounted for 55% of the Bank's total net income. Prior year results
included a gain of $92 million (net of applicable taxes) from the global Visa
restructuring. Excluding this gain, underlying net income growth was $252
million or 17%. Retail and small business banking, commercial banking, and
wealth management all generated solid performances.
Assets and liabilities
Average assets grew $21 billion or 14% in 2008. This was led by a
substantial increase in residential mortgage balances (before securitization)
of $14 billion or 15%. There was also a very good year-over-year increase in
personal revolving credit and other personal loans. This resulted in a market
share gain of 10 basis points versus last year in total personal lending.
Business lending, including acceptances, was 13% higher than last year.
Retail and small business deposits grew $10 billion or 12% due mainly to
an increase in term deposit balances and the impact of the Dundee Bank
acquisition. These strong results led to an industry-leading gain in total
personal deposit market share of 61 basis points from last year. Commercial
deposits, including current accounts and non-personal term deposits, rose 3%.
In wealth management, assets under administration declined 2% to $128 billion,
as market-driven losses were partially offset by net asset inflows. Assets
under management grew 2% to $26 billion.
Revenues
Total revenues were $6,498 million, up $395 million or 6% from last year.
Net interest income increased $469 million to $4,324 million, due to strong
volume growth in both assets and deposits. This was partially offset by a
decline in the margin of 5 basis points to 2.46%, due to a shift into
relatively lower yielding variable rate mortgages, as well as higher wholesale
funding requirements. This was partially offset by lower wholesale funding
rates. Other income for the year was $2,174 million, a decrease of $74 million
or 3%. Excluding the $111 million gain related to the global Visa
restructuring in 2007, other income rose 2% or $37 million.
Solid performances in retail and small business and commercial banking
were partly offset by a 2% decline in wealth management revenues reflecting
difficult market conditions.
Retail and small business banking total revenues were $4,014 million, up
$262 million or 7% from last year excluding the Visa restructuring gain. Net
interest income rose $219 million or 8% from strong growth in assets and
deposits, partially offset by a lower margin. Excluding the 2007 Visa gain,
other income rose $43 million or 5% due to higher foreign exchange, increased
service fees from chequing and savings accounts due to new account growth, and
higher credit card revenues, reflecting growth in cardholder transactions.
Commercial banking total revenues rose $275 million or 26% to $1,349
million in 2008. Net interest income was 34% higher than last year, driven by
strong growth in assets and a higher margin. Average assets rose 18% and
average deposits increased 3%. Year over year, other income rose 4% to $328
million.
Provision for Credit Losses
The provision for credit losses was $399 million in 2008, an increase of
$104 million compared to last year. This was due to higher provisions in both
the commercial and retail portfolios. The increase in the commercial
provisions related primarily to a small number of accounts and to increases in
small business banking, compared to a very low level of commercial provisions
in 2007. The increase in retail provisions related mainly to asset growth in
Scotia Dealer Advantage (formerly Travelers Leasing) and the credit card
portfolios, offset by higher recoveries in other personal loans.
Non-interest expenses
Non-interest expenses of $3,632 million rose modestly in 2008, up $73
million or 2% from last year. The increase was due mostly to the acquisitions
of Dundee Bank, Scotia Dealer Advantage and TradeFreedom, and the impact of
growth initiatives, including expansion of the branch network and sales force
and normal merit increases. Partially offsetting were lower commission-based,
stock-based and other performance-based compensation.
Fourth Quarter
Net income for the fourth quarter was $466 million, an increase of $28
million or 6% from the same quarter last year. Excluding the gain on the
global Visa restructuring, net income was up 35%. Quarter over quarter, net
income rose 1% as higher revenues were mostly offset by increases in the
provision for credit losses and non-interest expenses.
Year over year, net interest income rose by $206 million or 22% from
strong asset and deposit growth and a 16 basis point improvement in the
margin. Retail assets before securitization rose 11%, due primarily to growth
of $12 billion or 11% in residential mortgage balances. Quarter over quarter,
net interest income increased $39 million or 3% due to growth in both assets
and deposits.
Excluding the 2007 Visa gain, other income was in line with the same
quarter last year. Higher foreign exchange and transaction service fees were
mostly offset by declines in wealth management revenues due to difficult
market conditions, which impacted full-service brokerage, mutual funds and
private client revenues. Compared to last quarter, other income declined by 2%
due entirely to lower wealth management results arising from difficult market
conditions.
The provision for credit losses was $107 million up from $78 million in
the same quarter last year and $99 million in the previous quarter. Both
increases were due mainly to higher provisions in the commercial portfolio. In
the retail portfolio, higher provisions attributable to asset growth and
increased provisions for Scotia Dealer Advantage were largely offset by higher
recoveries in other personal loans.
Non-interest expenses rose $12 million or 1% from the same quarter last
year, due in part to normal merit increases, the acquisition of E(*)Trade
Canada, branch network expansion, the addition of sales staff, and other
growth initiatives. Partially offsetting these increases were lower
commission-based and stock-based compensation. Non-interest expenses rose $25
million or 3% quarter over quarter, due in part to the E(*)Trade Canada
acquisition, growth initiatives, and the timing of expenses. Partly offsetting
were lower pension and benefit expenses, as well as a decline in commission
and stock-based compensation.-------------------------------------------------------------------------
International Banking
For the For the
three months ended year ended
-------------------------------------------------------------------------
October July October October October
(Unaudited) ($ millions) 31 31 31 31 31
(Taxable equivalent basis)(1) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Business segment income
Net interest income $ 940 $ 847 $ 710 $ 3,315 $ 2,762
Provision for credit losses 90 56 27 236 101
Other income 228 389 380 1,282 1,227
Non-interest expenses 753 698 582 2,634 2,279
Provision for income taxes 75 118 89 422 241
Non-controlling interest in
net income of subsidiaries 23 29 33 119 118
-------------------------------------------------------------------------
Net Income(2) $ 227 $ 335 $ 359 $ 1,186 $ 1,250
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures
Return on equity(1) 10.5% 15.8% 21.3% 15.5% 19.5%
Average assets ($ billions) $ 88 $ 81 $ 65 $ 79 $ 66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non-GAAP measure. Refer to Non-GAAP measures section of this press
release for a discussion of these measures.
(2) Commencing in 2008, the reporting segment profitability has been
changed from net income available to common shareholders to net
income. Prior periods have been restated.Full Year
International Banking's net income was $1,186 million in 2008, a decrease
of $64 million or 5% from last year. Excluding $128 million in charges
relating to valuation adjustments, the $29 million gain from the IPO of the
Mexican Stock Exchange in 2008, as well as the $71 million in gains on the
global Visa restructuring in 2007, net income was up $106 million or 9% from
last year despite the $83 million negative impact of foreign currency
translation. The most significant contributors to this earnings growth were
Peru, Asia and the acquisition in Chile. Mexico also had strong retail loan
growth, but was impacted by increased loan losses and a higher tax rate, as
the remaining tax loss carry forwards were fully utilized during 2007.
International Banking accounted for 38% of the Bank's total net income and had
a return on equity of 15.5%.
Assets and liabilities
Average assets increased 20% during the year to $79 billion, despite the
6% negative impact of foreign currency translation. The increase was a result
of our normal business growth as well as from acquisitions. Commercial loan
growth from existing businesses of $8 billion or 29% was primarily in Asia and
the Caribbean and Central America. Similarily, strong retail loan growth of
21% was driven by credit cards and mortgages, up 32% and 25% respectively,
spread across the business line. Growth in low-cost deposits was also strong
at 11%, as balances rose due to acquisitions, as well as business growth
throughout the Caribbean, Peru and Mexico.
Revenues
Total revenues were $4,597 million in 2008, an increase of $608 million
or 15% from last year, including a $239 million negative impact from foreign
currency translation.
Net interest income was $3,315 million in 2008, an increase of $553
million or 20% from last year, despite a negative foreign currency translation
impact of $176 million. The underlying increase was a result of strong loan
growth across the division of 26%, as well as the impact of the acquisition in
Chile. The net interest margin was down slightly from last year, with small
increases in Mexico and the Caribbean, offset by a decrease in Peru.
Other income increased $55 million or 4% year over year to $1,282
million. Excluding the gains on the global Visa restructuring in 2007, the
charges relating to valuation adjustments, the gain from the IPO of the
Mexican Stock Exchange in 2008, and the negative foreign currency translation,
growth was a strong 28%. This was partly a result of the acquisitions in
Chile, Peru and the Caribbean and Central America, higher gains on non-trading
securities and widespread transaction-driven growth.
Caribbean and Central America
Total revenues were $1,712 million in 2008, an increase of $46 million or
3%, despite the negative impact of foreign currency translation and the gains
on the global Visa restructuring in 2007.
Net interest income was $1,289 million in 2008, an increase of $96
million or 8% from last year, or 17% excluding the negative impact of foreign
currency translation. The underlying increase was driven by asset growth
across the region, with a 12% increase in commercial lending, 31% increase in
credit cards and 21% increase in mortgages.
Other income of $423 million was down $50 million from last year. This
included the negative impact of foreign currency translation of $27 million
and the $63 million in gains from the global Visa restructuring in 2007. The
underlying 8% growth was due to acquisitions, a positive change in the fair
value of certain financial instruments, as well as increases in credit card
and personal banking fees.
Mexico
Total revenues were $1,381 million in 2008, an increase of $15 million or
1%. This included a negative impact of foreign currency translation of $70
million and $19 million in gains from the global Visa restructuring in 2007.
Net interest income was $903 million in 2008, an increase of $15 million
or 2% from last year, including a $45 million negative impact of foreign
currency translation. The underlying increase was driven by strong retail loan
growth, with 32% growth in credit card balances and a 29% increase in
mortgages. Net interest margins also rose from last year reflecting a change
in the mix of assets.
Other income was flat compared to last year, as the gain from the IPO of
the Mexican Stock Exchange this year was offset by the negative impact of the
gains from the global Visa restructuring in 2007 and foreign currency
translation. Organic growth in retail fees and other transaction driven
revenues was offset by lower investment banking revenues and commercial
banking fees.
Other Latin America and Asia
Total revenues were $1,504 million in 2008, an increase of $547 million,
due primarily to the acquisitions in Chile, Peru and Asia. The remaining
increase was due primarily to very strong widespread loan growth, including
63% in commercial loans, as well as increased investment banking revenues and
gains on non-trading securities. These were partly offset by lower other
income in Asia due to charges relating to valuation adjustments and the
negative impact of foreign currency translation.
Non-interest expenses
Non-interest expenses were $2,634 million in 2008, up $355 million or 16%
from last year. This included the $114 million favourable impact of foreign
currency translation and a $189 million increase from acquisitions. The
remaining growth was due to higher compensation expenses consistent with
business growth and new branch openings, volume driven increases in
communications and processing costs, higher credit card expenses, litigation
fees and advertising.
Provision for Credit Losses
The provision for credit losses was $236 million in 2008, an increase of
$135 million compared to last year. Retail portfolios in Mexico, Peru, and
Caribbean as well as, to a lesser extent Chile, recorded increased provisions
for credit losses mainly related to asset growth, acquisitions and rising
delinquency in certain markets. The International commercial portfolio
continued to benefit from similar levels of net reversals and recoveries as
last year.
Fourth Quarter
International Banking's net income in the fourth quarter of 2008 was $227
million, a decrease of $132 million or 37% from the same period last year, and
$108 million or 32% below last quarter. Excluding the charges relating to
valuation adjustments this quarter and the gain realized in 2007 on the Visa
restructuring, net income was up 14% year over year, but fell 2% quarter over
quarter. The increase from last year was due primarily to strong loan growth
across the division, partly offset by increased loan loss provisions and
taxes. The decline from last quarter was due primarily to the gain from the
IPO of the Mexican Stock Exchange last quarter, increased loan loss provisions
and taxes, partly offset by loan growth from existing businesses and
acquisitions.
Average asset volumes were $88 billion this quarter, up $23 billion or
35% from last year, including a positive foreign currency translation impact
of $5 billion. The underlying increase was a result of the acquisition in
Chile, a 34% rise in commercial loans, primarily in Asia and the Caribbean, as
well as robust growth in credit cards and mortgages, up 31% and 24%
respectively. Average assets were up $7 billion or 8% from last quarter,
including a positive foreign currency translation impact of $4 billion. This
was primarily a result of widespread commercial loan growth of 8%.
Total revenues were $1,168 million this quarter, an increase of $78
million or 7% from last year. However, compared to last quarter revenues fell
$68 million or 6%.
Net interest income was $940 million this quarter, up $230 million or 32%
from last year and $93 million or 11% from last quarter. This growth included
the positive impact of foreign currency translation of $49 million as compared
to last year and $29 million versus last quarter. These increases were driven
by very strong loan and deposit growth across the segment, as well as from
acquisitions. Interest margins were down five basis points from last year, but
rose 13 basis points versus last quarter.
Other income was $228 million this quarter, down $152 million or 40% from
last year, due to the gain in 2007 from the global Visa restructuring, and
valuation charges this quarter, partly offset by the positive impact of
foreign currency translation. The remaining increase of 16% was due to
widespread customer-driven transaction revenues, primarily in card and
personal banking fees, investment banking revenues, as well as the impact of
acquisitions. Quarter over quarter, other income decreased $161 million,
reflecting the charges this quarter noted above and the gains last quarter
from the IPO of the Mexican Stock Exchange. In addition, there were lower
gains on non-trading securities.
Non-interest expenses
Non-interest expenses were $753 million this quarter, up $171 million or
29% from last year and $55 million or 8% above last quarter. Excluding the
negative impact of foreign currency translation and the impact of
acquisitions, expenses increased 8% from last year and were unchanged from
last quarter. The increase from last year was due to increased compensation
and related expenses consistent with overall volume growth and branch
expansion.
Credit quality
The provision for credit losses was $90 million in the fourth quarter,
compared to $27 million in the same period last year and $56 million last
quarter. The increases were due primarily to higher retail provisions related
to asset growth, acquisitions and rising delinquency in certain markets. In
addition commercial provisions increased from last year due to acquisitions
and from last quarter due to lower recoveries this quarter.
Income Taxes
The effective tax rate this quarter was 24%, up 5% from the same period
last year and 1% lower than last quarter. The increase from last year was due
to the low effective tax rate on the Visa gains in 2007.Scotia Capital
For the For the
three months ended year ended
-------------------------------------------------------------------------
October July October October October
(Unaudited) ($ millions) 31 31 31 31 31
(Taxable equivalent basis)(1) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Business segment income
Net interest income $ 331 $ 269 $ 364 $ 1,120 $ 1,160
Provision for credit losses 10 4 (10) (5) (101)
Other income (99) 383 156 707 1,290
Non-interest expenses 249 254 225 937 1,013
Provision for income taxes (71) 97 76 108 413
-------------------------------------------------------------------------
Net Income(2) $ 44 $ 297 $ 229 $ 787 $ 1,125
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures
Return on equity(1) 3.6% 34.1% 24.2% 21.5% 29.0%
Average assets ($ billions) $ 169 $ 162 $ 150 $ 164 $ 152
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non-GAAP measure. Refer to Non-GAAP measures section of this press
release for a discussion of these measures.
(2) Commencing in 2008, the reporting segment profitability has been
changed from net income available to common shareholders to net
income. Prior periods have been restated.Full Year
Scotia Capital contributed net income of $787 million in 2008, a 30%
decrease from last year. However, underlying performance was solid given
market conditions. In 2008 Scotia Capital absorbed approximately $382 million
after tax ($632 million pre-tax) in charges relating to certain trading
activities and valuation adjustments. Revenues decreased 25%, due primarily to
the impact of these charges. However, market conditions also provided
profitable opportunities, including some specific transactions. There were
record performances in our foreign exchange, precious metals, fixed income and
ScotiaWaterous businesses, accompanied by revenue growth from the lending
portfolios. This mitigated the decline in revenues in other areas due to
difficult market conditions, and highlights the strength and diversification
of our businesses. Exposure to credit losses remained generally favourable,
although significantly lower net loan loss and interest recoveries were
realized than the prior year. Return on equity was 22%, lower than last year's
performance. Scotia Capital contributed 25% of the Bank's overall results.
Assets and liabilities
Total average assets rose to $164 billion, an increase of 8% compared to
last year. Average corporate loans and acceptances grew $7.2 billion, or 24%,
to $37.9 billion. This strong growth was achieved in the U.S., Europe and
Canada. There was also an increase of $2 billion in trading securities and
loans to support both client-driven activity and trading opportunities.
Revenues
Total revenues decreased to $1,827 million, down 25% compared to the
prior year, due primarily to the charges mentioned above. Revenues decreased
in both Global Capital Markets and Global Corporate and Investment Banking.
Net interest income decreased 3% to $1,120 million, due primarily to lower
interest from trading operations and lower interest recoveries on impaired
loans, which was partially offset by substantially higher interest from the
lending portfolios. Other income declined 45% to $707 million reflecting both
lower trading revenues and charges related to certain trading activities and
valuation adjustments. As well, lower investment banking revenues were partly
offset by higher credit-related fees.
Global Corporate and Investment Banking
Total revenues were $806 million, a decrease of 32% compared to last
year. This primarily reflected the writedown to fair value of CDOs in the U.S.
portfolio. Interest income rose a modest 3% as strong growth in asset volumes
and portfolio spreads in all lending markets was substantially offset by lower
interest recoveries from impaired loans. Loan origination fees also increased.
Other income decreased substantially from the prior year, reflecting the
writedowns mentioned above. New issue and advisory fees decreased due to the
lower level of market activity, despite record advisory fees in
ScotiaWaterous. Credit fees were higher, partly driven by growth in acceptance
fees in Canada.
Global Capital Markets
Total revenues decreased 18% to $1,021 million compared to last year.
This partly reflects the fourth quarter charge of $171 million in trading
revenues related to the bankruptcy of Lehman Brothers and the recognition in
2007 of $135 million of losses on structured credit instruments as well as a
$43 million gain on the sale of the bond index business. Interest income from
trading operations decreased 10%, due mainly to lower tax-exempt dividend
income. Other income declined 26% despite record revenues in our foreign
exchange, precious metals and fixed income businesses. In addition to the
items mentioned above, revenues from derivatives declined and losses were
incurred in equity trading.
Non-interest expenses
Non-interest expenses were $937 million in 2008, an 8% decrease from last
year, due largely to a substantial reduction in performance-related
compensation. This was partly offset by higher technology spending to support
business growth. Also, there were decreases in costs related to pensions and
benefits, travel and business development, professional fees and capital
taxes.
Provision for Credit Losses
Scotia Capital reported net loan loss recoveries of $5 million in 2008,
compared to $101 million in 2007. Recoveries in 2008 were realized primarily
in the Canadian, U.S., and European portfolios, partially offset by two new
provisions.
Fourth Quarter
Net income for the quarter was $44 million, a $185 million decrease from
last year, and $253 million below last quarter. Compared to last year,
revenues were significantly lower and there were modest increases in loan
losses and expenses. The decrease compared to the third quarter reflected
lower revenues.
Revenues were $232 million in the fourth quarter, a decrease of $287
million from the prior year and $420 million from the third quarter, primarily
reflecting the fourth quarter charges relating to certain trading activities
and valuation adjustments.
Global Corporate and Investment Banking
Revenues decreased $261 million from the same period last year and $275
million from the third quarter, primarily reflecting the writedown to fair
value of CDOs in the U.S. portfolio. Compared to the same period last year,
interest income increased 41% from volume growth in all lending markets
combined with higher credit spreads and loan origination fees. Other income
decreased $317 million from the fourth quarter of the prior year due to the
charges mentioned above; underlying revenues were flat. Compared to last
quarter, interest income was up 34% from higher lending volumes and spreads.
Other income, apart from the fourth quarter charges, was down slightly due to
lower new issue and advisory fees.
Global Capital Markets
Revenues decreased 11% from last year and 41% from the previous quarter.
The current quarter results reflect $171 million in charges related to the
Lehman Brothers bankruptcy and the prior year includes $135 million of losses
on structured credit instruments offset by the $43 million gain on the sale of
the bond index business. Interest income was lower than the same period last
year due to lower tax-exempt dividend income. Other income increased compared
to the fourth quarter last year due to record revenues earned in the foreign
exchange and precious metals businesses and higher underlying derivatives
revenues. The decrease compared to last quarter was more pronounced due to the
fourth quarter charges.
Provision for Credit Losses
There was a net loan loss provision of $10 million in the fourth quarter,
compared to a net loan loss recovery of $10 million last year and a net
provision of $4 million last quarter. The loan loss provision in the fourth
quarter relates primarily to one account in the United States, compared to net
recoveries recognized in the United States last year.
Non-Interest Expenses
Total non-interest expenses were $249 million in the fourth quarter, 11%
higher than last year but 2% lower than the third quarter. The increase
compared to last year primarily reflected higher hiring costs, as well as
increased pension and benefit costs. In addition higher expenses for
technology, support and clearing fees were partially offset by a decrease in
professional fees and travel and business development expenses. The decrease
from the previous quarter reflected lower performance-based compensation,
partially offset by increased hiring costs.Other(1)
For the For the
three months ended year ended
-------------------------------------------------------------------------
October July October October October
(Unaudited) ($ millions) 31 31 31 31 31
(Taxable equivalent basis)(2) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Business segment income
Net interest income(3) $ (490) $ (292) $ (312) $(1,185) $ (679)
Provision for credit losses - - - - (25)
Other income (133) 92 163 139 627
Non-interest expenses 3 23 58 93 143
Provision for income taxes(3) (204) (138) (134) (582) (276)
-------------------------------------------------------------------------
Net Income (Loss)(4) $ (422) $ (85) $ (73) $ (557) $ 106
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures
Average assets ($ billions) $ 39 $ 37 $ 31 $ 37 $ 31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes all other smaller operating segments and corporate
adjustments, such as the elimination of the tax-exempt income
gross up reported in net interest income and provision for income
taxes, differences in the actual amount of costs incurred and charged
to the operating segments, and the impact of securitizations.
(2) Non-GAAP measure. Refer to Non-GAAP measures section of this press
release for a discussion of these measures.
(3) Includes the elimination of the tax-exempt income gross-up reported
in net interest income and provision for income taxes for the three
months ended October 31, 2008 ($95), July 31, 2008 ($103), October
31, 2007 ($216), and the years ended October 31, 2008 ($416) and
October 31, 2007 ($531) to arrive at the amounts reported in the
Consolidated Statement of Income.
(4) Commencing in 2008, the reporting segment profitability has been
changed from net income available to common shareholders to net
income. Prior periods have been restated.Full Year
Net loss in the other segment was $557 million in 2008, compared to net
income of $106 million in 2007. Net interest income and the provision for
income taxes include the elimination of tax-exempt income gross up. This
amount is included in the operating segments, which are reported on a taxable
equivalent basis. The elimination was $416 million in 2008, compared to $531
million last year.
Revenues
Net interest income was negative $1,185 million this year, compared to
negative $679 million in 2007. This decrease was due primarily to
mark-to-market losses relating to derivatives used for asset/liability
management purposes that do not qualify for hedge accounting. These losses are
expected to reverse over the life of the hedges. (Please refer to the Items of
Note section at the end of this release for further details.) In addition,
there were higher costs associated with managing the Bank's interest rate
risk, including higher liquidity premiums in the wholesale funding market.
Other Income of $139 million was $488 million lower than last year. The
decrease was mainly attributable to lower gains on non-trading securities. In
addition, there were valuation adjustments totaling $280 million, compared to
$56 million in 2007. (Please refer to the Items of Note section at the end of
this release for further details.) These declines were partly offset by higher
securitization revenues.
Non-interest expenses
Non-interest expenses decreased by $50 million from last year to $93
million, mainly from lower litigation and property-related expenses.
Provision for Credit Losses
The provision for credit losses in 2007 included a $25 million reduction
in the general allowance. There was no reduction in the general allowance in
2008.
Income taxes
The provision for income taxes includes the elimination of the gross up
of tax exempt income, which was $115 million lower than last year.
Fourth Quarter
The net loss in the fourth quarter was $422 million, compared to a loss
of $73 million in the same quarter last year, and $85 million in the prior
quarter.
Net interest income and the provision for income taxes include the
elimination of tax-exempt income gross up. This amount is included in the
operating segments, which are reported on a taxable equivalent basis. The
elimination was $95 million this quarter, compared to $216 million in the same
period last year, and $103 million in the previous quarter.
Net interest income was negative $490 million this quarter, $178 million
below the same quarter last year, and $198 million below last quarter.
Contributing to this decline was the impact of certain derivatives used for
asset/liability management purposes that do not qualify for hedge accounting.
This was driven by continuing reductions 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 addition there were higher volumes of longer term
funding instruments including debentures versus the same period last year.
Other Income was a negative $133 million this quarter compared to $163
million last year and $92 million last quarter. The declines were attributable
to lower gains on non-trading securities. In addition, there were valuation
adjustments of $173 million related to available-for-sale securities and CDOs.
(Please refer to the Items of Note section at the end of this release for
further details.) The decrease was partly offset by higher securitization
revenues.
Non-interest expenses were $3 million this quarter, a decrease of $55
million from last year and $20 million from last quarter.-------------------------------------------------------------------------
Items of Note
For the years
ended October 31
(Pre-tax, $ millions) Q4-2008 Q4-2007 Fiscal-2008 Fiscal-2007
------------------------------------------------
Valuation Adjustments
Conduit CDOs(1) (245) (115) (298) (115)
Other CDOs(2) (152) - (218) -
SIVs/ABCP(3) (11) (76) (107) (76)
Other AFS Securities(4) (217) - (217) -
Trading Counterparty
Lehman Brothers(5) (171) - (171) -
Other(6) - - (48) -
ALM Hedging(7) (162) - (162) -
VISA Inc.
Restructuring Gain - 202 - 202
Sale of Bond Index Business - 43 - 43
------------------------------------------------
Total (958) 54 (1,221) 54
------------------------------------------------
------------------------------------------------
Total after tax (642) 65 (822) 65
------------------------------------------------
------------------------------------------------
------------------------------------------------
EPS Impact ($0.65) $0.07 ($0.82) $0.07
------------------------------------------------
(Pre-tax, $ millions) Q4-2008 Q4-2007 Fiscal-2008 Fiscal-2007
---------------------- ------------ ------------
Canadian Banking - 111 - 111
International Banking (120) 91 (147) 91
Scotia Capital (503) (92) (632) (92)
Other (335) (56) (442) (56)
------------------------------------------------
Total (958) 54 (1,221) 54
------------------------------------------------
------------------------------------------------
(Pre-tax, $ millions) Q4-2008 Q4-2007 Fiscal-2008 Fiscal-2007
---------------------- ------------ ------------
Securities Gains (592) (76) (783) (76)
Trading Revenue (171) (115) (219) (115)
Net Interest Income (162) - (162) -
Other/Other Income (33) 245 (57) 245
------------------------------------------------
Total (958) 54 (1,221) 54
------------------------------------------------
------------------------------------------------
-------------------------------------------------------------------------As a result of unprecedented volatility in global financial markets and
challenging market conditions in 2008, the Bank incurred charges relating to
certain trading activities and valuation adjustments of non-trading assets.
These conditions led to charges of $1,221 million ($822 million after tax) or
$0.82 per share in 2008, and $958 million ($642 million after tax) or $0.65 in
the fourth quarter.Valuation Adjustments
(1) Conduit Collateralized Debt Obligations (CDO): $298 million
($166 million after tax) relating to the purchase of certain assets,
primarily CDOs from the Bank's U.S. multi-seller conduit, pursuant to
the terms of a liquidity asset purchase agreement. This was caused by
the widening of credit spreads, coupled with recent credit events in
certain previously highly-rated reference assets. The remaining
direct CDO exposure in the conduit is nil.
(2) Other CDOs: $218 million ($176 million after tax) primarily due to a
significant increase in credit spreads. The remaining exposure
relating to non-trading CDOs is $420 million (US$348 million).
(3) SIV/ABCP: A mark-to-market writedown of $107 million ($72 million
after tax) with respect to the Bank's investments in SIVs and
non-bank ABCP subject to the Montreal Accord. This decrease was due
mainly to a significant widening of credit spreads and the disruption
of the ABCP market in Canada.
(4) Available-for-sale (AFS) securities: Writedowns of $217 million
($150 million after tax) as a result of the ongoing deterioration of
economic conditions and volatility in debt and equity markets. This
is $45 million after tax higher than the amount noted in the November
18, 2008 press release.
Trading counterparty losses
(5) The Bank incurred a charge in trading revenues related to the
bankruptcy of Lehman Brothers of $171 million ($117 million after
tax) in the fourth quarter. This loss was due primarily to a failed
settlement and the unwinding of trades in a rapidly declining equity
market shortly after the bankruptcy.
(6) The remainder of the losses in this category of $48 million
($32 million after tax) related to a valuation adjustment against a
swap exposure to a U.S. monoline insurer earlier in the fiscal year.
Asset/Liability Management (ALM) Hedging
(7) There were mark-to-market losses of $162 million ($109 million
after tax) in the fourth quarter relating to interest rate
derivatives used for asset/liability management purposes relating to
a specific loan portfolio that do not qualify for hedge accounting.
This was as a result of a decline in interest rates and is
expected to reverse over the average three-year life of the hedges
such that no economic loss should occur.
Share Data
As at
-------------------------------------------------------------------------
October 31
(thousands of shares outstanding) 2008
-------------------------------------------------------------------------
Common shares 991,924(1)
-------------------------------------------------------------------------
Preferred shares Series 12 12,000(2)
Preferred shares Series 13 12,000(3)
Preferred shares Series 14 13,800(4)
Preferred shares Series 15 13,800(5)
Preferred shares Series 16 13,800(6)
Preferred shares Series 17 9,200(7)
Preferred shares Series 18 13,800(8)(9)
Preferred shares Series 20 14,000(8)(10)
Preferred shares Series 22 12,000(8)(11)
-------------------------------------------------------------------------
Series 2000-1 trust securities issued
by BNS Capital Trust 500(12)
Series 2002-1 trust securities issued
by Scotiabank Capital Trust 750(13)
Series 2003-1 trust securities issued
by Scotiabank Capital Trust 750(13)
Series 2006-1 trust securities issued
by Scotiabank Capital Trust 750(13)
-------------------------------------------------------------------------
Scotiabank Trust Subordinated Notes -
Series A issued by Scotiabank Subordinated Notes Trust 1,000(13)
-------------------------------------------------------------------------
Outstanding options granted under the Stock Option
Plans to purchase common shares 23,123(1)(14)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) As at November 19, 2008, the number of outstanding common shares and
options were 991,954 and 23,072, respectively. The number of other
securities disclosed in this table were unchanged.
(2) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.328125 per share.
(3) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount $0.30 per share.
(4) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.28125 per share.
(5) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.28125 per share.
(6) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.328125 per share
except for the initial dividend paid on January 29, 2008, which was
in an amount of $0.39195 per share.
(7) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.35 per share except
for the initial dividend paid on April 28, 2008, which was in an
amount of $0.33753 per share.
(8) These preferred shares have conversion features.
(9) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly. The initial dividend was paid on
July 29, 2008, in an amount of $0.4315 per share. Dividends, if and
when declared, during the initial five year period ending on
April 25, 2013, will be payable in an amount of $0.3125 per share.
Subsequent to the initial five year fixed rate period, and resetting
every five years thereafter, the dividends will be determined by the
sum of the five year Government of Canada yield plus 2.05%,
multiplied by $25.00.
(10) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly. The initial dividend was paid on
July 29, 2008, in an amount of $0.1678 per share. Dividends, if and
when declared, during the initial five year period ending on
October 25, 2013, will be payable in an amount of $0.3125 per share.
Subsequent to the initial five year fixed rate period, and resetting
every five years thereafter, the dividends will be determined by the
sum of the five year Government of Canada yield plus 1.70%,
multiplied by $25.00.
(11) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly. The initial dividend, if and when
declared, will be payable on January 28, 2009, in an amount of
$0.4829 per share. Dividends, if and when declared, during the
initial five year period ending on January 25, 2014, will be payable
in an amount of $0.3125 per share. Subsequent to the initial five
year fixed rate period, and resetting every five years thereafter,
the dividends will be determined by the sum of the five year
Government of Canada yield plus 1.88%, multiplied by $25.00.
(12) Reported in capital instrument liabilities in the Consolidated
Balance Sheet.
(13) Reported in deposits in the Consolidated Balance Sheet.
(14) Included are 16,293 stock options with tandem stock appreciation
right (SAR) features.
Consolidated Statement of Income
For the For the
three months ended year ended
-------------------------------------------------------------------------
October July October October October
31 31 31 31 31
(Unaudited) ($ millions) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest income
Loans $ 4,321 $ 3,888 $ 3,668 $ 15,832 $ 13,985
Securities 1,054 1,193 1,071 4,615 4,680
Securities purchased under
resale agreements 183 170 320 786 1,258
Deposits with banks 255 249 303 1,083 1,112
-------------------------------------------------------------------------
5,813 5,500 5,362 22,316 21,035
-------------------------------------------------------------------------
Interest expenses
Deposits 3,201 2,904 2,968 12,131 10,850
Subordinated debentures 56 50 23 166 116
Capital instrument liabilities 9 10 13 37 53
Other 606 590 642 2,408 2,918
-------------------------------------------------------------------------
3,872 3,554 3,646 14,742 13,937
-------------------------------------------------------------------------
Net interest income 1,941 1,946 1,716 7,574 7,098
Provision for credit losses 207 159 95 630 270
-------------------------------------------------------------------------
Net interest income after
provision for credit losses 1,734 1,787 1,621 6,944 6,828
-------------------------------------------------------------------------
Other income
Card revenues 107 102 92 397 366
Deposit and payment services 222 225 204 862 817
Mutual funds 78 83 78 317 296
Investment management,
brokerage and trust services 189 196 185 760 760
Credit fees 142 164 126 579 530
Trading revenues (41) 150 (67) 188 450
Investment banking 189 193 164 716 737
Net gain (loss) on
securities, other than
trading (543) 90 148 (374) 488
Other 207 225 432 857 948
-------------------------------------------------------------------------
550 1,428 1,362 4,302 5,392
-------------------------------------------------------------------------
Net interest and other income 2,284 3,215 2,983 11,246 12,220
-------------------------------------------------------------------------
Non-interest expenses
Salaries and employee
benefits 1,058 1,068 963 4,109 3,983
Premises and technology 397 368 362 1,451 1,353
Communications 89 82 76 326 300
Advertising and business
development 96 77 94 320 311
Professional 59 55 81 227 227
Business and capital taxes 24 40 33 116 143
Other 221 199 183 747 677
-------------------------------------------------------------------------
1,944 1,889 1,792 7,296 6,994
-------------------------------------------------------------------------
Income before the undernoted 340 1,326 1,191 3,950 5,226
Provision for income taxes 2 287 204 691 1,063
Non-controlling interest in
net income of subsidiaries 23 29 33 119 118
-------------------------------------------------------------------------
Net income $ 315 $ 1,010 $ 954 $ 3,140 $ 4,045
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid 32 32 16 107 51
-------------------------------------------------------------------------
Net income available to
common shareholders $ 283 $ 978 $ 938 $ 3,033 $ 3,994
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common
shares outstanding (millions):
Basic 990 989 983 987 989
Diluted 994 994 991 993 997
-------------------------------------------------------------------------
Earnings per common share
(in dollars)(1):
Basic $ 0.28 $ 0.99 $ 0.95 $ 3.07 $ 4.04
Diluted $ 0.28 $ 0.98 $ 0.95 $ 3.05 $ 4.01
-------------------------------------------------------------------------
Dividends per common share
(in dollars) $ 0.49 $ 0.49 $ 0.45 $ 1.92 $ 1.74
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The calculation of earnings per share is based on full dollar and
share amounts.
See Basis of Presentation below.
Consolidated Balance Sheet
As at
-------------------------------------------------------------------------
October July October
31 31 31
(Unaudited) ($ millions) 2008 2008 2007
-------------------------------------------------------------------------
Assets
Cash resources
Cash and non-interest-bearing deposits
with banks $ 2,574 $ 2,914 $ 2,138
Interest-bearing deposits with banks 32,318 25,701 23,011
Precious metals 2,426 4,281 4,046
-------------------------------------------------------------------------
37,318 32,896 29,195
-------------------------------------------------------------------------
Securities
Trading 48,292 56,016 59,685
Available-for-sale 38,823 34,314 28,426
Equity accounted investments 920 853 724
-------------------------------------------------------------------------
88,035 91,183 88,835
-------------------------------------------------------------------------
Securities purchased under resale
agreements 19,451 17,774 22,542
-------------------------------------------------------------------------
Loans
Residential mortgages 115,084 113,830 102,154
Personal and credit cards 50,719 48,971 41,734
Business and government 125,503 111,921 85,500
-------------------------------------------------------------------------
291,306 274,722 229,388
Allowance for credit losses 2,626 2,477 2,241
-------------------------------------------------------------------------
288,680 272,245 227,147
-------------------------------------------------------------------------
Other
Customers' liability under acceptances 11,969 11,497 11,538
Derivative instruments 44,810 23,504 21,960
Land, buildings and equipment 2,688 2,542 2,271
Goodwill 2,273 2,134 1,134
Other intangible assets 282 287 273
Other assets 12,119 8,345 6,615
-------------------------------------------------------------------------
74,141 48,309 43,791
-------------------------------------------------------------------------
$ 507,625 $ 462,407 $ 411,510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits
Personal $ 118,919 $ 112,872 $ 100,823
Business and government 200,566 191,239 161,229
Banks 27,095 28,358 26,406
-------------------------------------------------------------------------
346,580 332,469 288,458
-------------------------------------------------------------------------
Other
Acceptances 11,969 11,497 11,538
Obligations related to securities sold
under repurchase agreements 36,506 29,116 28,137
Obligations related to securities sold
short 11,700 11,765 16,039
Derivative instruments 42,811 22,981 24,689
Other liabilities 31,063 28,725 21,138
Non-controlling interest in subsidiaries 502 455 497
-------------------------------------------------------------------------
134,551 104,539 102,038
-------------------------------------------------------------------------
Subordinated debentures 4,352 3,538 1,710
-------------------------------------------------------------------------
Capital instrument liabilities 500 500 500
-------------------------------------------------------------------------
Shareholders' equity
Capital stock
Preferred shares 2,860 2,560 1,635
Common shares 3,829 3,728 3,566
Retained earnings 18,549 18,784 17,460
Accumulated other comprehensive income
(loss) (3,596) (3,711) (3,857)
-------------------------------------------------------------------------
21,642 21,361 18,804
-------------------------------------------------------------------------
$ 507,625 $ 462,407 $ 411,510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See Basis of Presentation below.
Consolidated Statement of Changes in Shareholders' Equity
For the year ended
-------------------------------------------------------------------------
October October
31 31
(Unaudited) ($ millions) 2008 2007
-------------------------------------------------------------------------
Preferred shares
Balance at beginning of year $ 1,635 $ 600
Issued 1,225 1,035
-------------------------------------------------------------------------
Balance at end of year 2,860 1,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
Balance at beginning of year 3,566 3,425
Issued 266 184
Purchased for cancellation (3) (43)
-------------------------------------------------------------------------
Balance at end of year 3,829 3,566
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of year 17,460 15,843
Cumulative effect of adopting new accounting
policies(1) - (61)
-------------------------------------------------------------------------
17,460 15,782
Net income 3,140 4,045
Dividends: Preferred (107) (51)
Common (1,896) (1,720)
Purchase of shares (37) (586)
Other (11) (10)
-------------------------------------------------------------------------
Balance at end of year 18,549 17,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance at beginning of year (3,857) (2,321)
Cumulative effect of adopting new accounting policies - 683
Other comprehensive income (loss) 261 (2,219)
-------------------------------------------------------------------------
Balance at end of year (3,596) (3,857)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of year $ 21,642 $ 18,804
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Relates to the adoption of new accounting policies related to the
financial instruments adopted in the first quarter of 2007.
See Basis of Presentation below.
Consolidated Statement of Comprehensive Income
For the three For the
months ended year ended
-------------------------------------------------------------------------
October October October October
31 31 31 31
(Unaudited) ($ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Comprehensive income
Net income $ 315 $ 954 $ 3,140 $ 4,045
-------------------------------------------------------------------------
Other comprehensive income
(loss), net of income taxes:
Net change in unrealized
foreign currency translation
losses 1,375 (1,697) 2,368 (2,228)
Net change in unrealized gains
(losses) on available-for-sale
securities (1,075) 14 (1,588) (67)
Net change in gains (losses)
on derivative instruments
designated as cash flow hedges (185) (63) (519) 76
-------------------------------------------------------------------------
Other comprehensive income
(loss) 115 (1,746) 261 (2,219)
-------------------------------------------------------------------------
Comprehensive income (loss) $ 430 $ (792) $ 3,401 $ 1,826
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See Basis of Presentation below.
Condensed Consolidated Statement of Cash Flows
For the three For the
months ended year ended
-------------------------------------------------------------------------
October October October October
Sources (uses) of cash flows 31 31 31 31
(Unaudited) ($ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Cash flows from operating
activities
Net income $ 315 $ 954 $ 3,140 $ 4,045
Adjustments to determine net
cash flows from (used in)
operating activities 504 (86) 928 (57)
Net accrued interest
receivable and payable (187) 88 60 18
Trading securities 8,741 2,686 13,721 334
Derivative assets (16,884) (7,999) (15,292) (13,616)
Derivative liabilities 15,744 11,438 11,202 14,548
Other, net 1,911 (2,891) 6,353 (3,261)
-------------------------------------------------------------------------
10,144 4,190 20,112 2,011
-------------------------------------------------------------------------
Cash flows from financing
activities
Deposits (1,134) 13,566 28,106 41,746
Obligations related to
securities sold under
repurchase agreements 7,329 (1,964) 6,913 (3,858)
Obligations related to
securities sold short (383) (4,610) (5,020) 3,848
Subordinated debentures issued 950 - 3,144 -
Subordinated debentures
redemptions/repayments (266) - (691) (500)
Capital instrument liabilities
redemptions/repayments - (250) - (250)
Preferred shares issued 300 345 1,225 1,035
Common shares issued 89 20 234 112
Common shares redeemed/purchased
for cancellation (33) - (40) (629)
Cash dividends paid (517) (458) (2,003) (1,771)
Other, net (1,359) (139) (101) 3,391
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4,976 6,510 31,767 43,124
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Cash flows from investing
activities
Interest-bearing deposits
with banks (4,276) (1,063) (5,052) (7,087)
Securities purchased under
resale agreements (1,665) 3,484 3,793 1,897
Loans, excluding
securitizations (8,860) (14,094) (47,483) (42,028)
Loan securitizations 2,537 992 5,121 3,756
Securities, other than trading,
net (2,205) 265 (5,256) (851)
Land, buildings and equipment,
net of disposals (210) (87) (464) (317)
Other, net(1) (942) (271) (2,399) (390)
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(15,621) (10,774) (51,740) (45,020)
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents 161 (158) 297 (257)
-------------------------------------------------------------------------
Net change in cash and cash
equivalents (340) (232) 436 (142)
Cash and cash equivalents at
beginning of period 2,914 2,370 2,138 2,280
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Cash and cash equivalents at
end of period(2) $ 2,574 $ 2,138 $ 2,574 $ 2,138
-------------------------------------------------------------------------
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Cash disbursements made for:
Interest $ 3,692 $ 2,765 $ 14,544 $ 13,625
Income taxes $ 259 $ 69 $ 1,212 $ 905
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Certain comparative amounts have been reclassified to conform with
current period presentation.
(1) For the three and twelve months ended October 31, 2008, comprises
investments in subsidiaries, net of cash and cash equivalents
at the date of acquisition of nil and $37, respectively (October 31,
2007 - $3, and $6, respectively), and net of non-cash consideration
of common shares issued from treasury of nil and nil, respectively
(October 31, 2007 - $21, and $36, respectively).
(2) Represents cash and non-interest bearing deposits with banks.
See Basis of Presentation below.Basis of Preparation
These unaudited consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP),
except for certain required disclosures. Therefore, these consolidated
financial statements should be read in conjunction with the Bank's audited
consolidated financial statements for the year ended October 31, 2007. The
significant accounting policies used in the preparation of these consolidated
financial statements are consistent with those used in the 2007 year-end
statements, except as described below. Certain comparative amounts have been
reclassified to conform with the current period's accounting presentation.
New Accounting Policies
Reclassification of Financial Assets
On October 24, 2008, the CICA issued amendments to the accounting
standard on Financial Instruments - Recognition and Measurement. The
amendments permit the reclassification of non-derivative financial assets out
of the held-for-trading category under rare circumstances. For the period
ended October 31, 2008, the Bank is permitted to retrospectively reclassify
items from August 1, 2008. Any future reclassifications would need to be
applied prospectively. In accordance with these amendments, the Bank
reclassified specified assets out of trading securities to available-for-sale
securities effective August 1, 2008. These assets were comprised of $303
million of bond assets and $91 million of preferred shares that were no longer
traded in an active market and which management intends to hold for the
foreseeable future. If these reclassifications of bond assets and preferred
shares had not been made, the Bank would have recorded a pre-tax loss of $26
million and $10 million respectively during the fourth quarter relating to
fair value movements on these assets subsequent to August 1, 2008. Due to the
reclassifications, these amounts have been recorded in other comprehensive
income for the period ended October 31, 2008. As of the reclassification date,
the weighted average effective interest rate on the reclassified bond asset
portfolio was 4%, with expected recoverable cash flows of $366 million.
Capital Disclosures
The CICA has issued a new accounting standard that establishes
requirements for Capital Disclosures, effective November 1, 2007. It requires
disclosure of an entity's objectives, policies and processes for managing
capital, quantitative data about what is considered capital and whether an
entity has complied with any capital requirements and consequences of
noncompliance with such capital requirements.
Financial Instruments Disclosures
The CICA has issued two new accounting standards on Financial Instruments
that revise and enhance the current disclosure requirements but do not change
the existing presentation requirements for financial instruments. These new
standards were effective for the Bank commencing November 1, 2007. The new
disclosures provide additional information on the nature and extent of risks
arising from financial instruments to which the Bank is exposed and how it
manages those risks
Shareholder and Investor Information
Direct Deposit Service
Shareholders may have dividends deposited directly into accounts held at
financial institutions which are members of the Canadian Payments Association.
To arrange direct deposit service, please write to the Transfer Agent.
Dividend and Share Purchase Plan
Scotiabank's dividend reinvestment and share purchase plan allows common
and preferred shareholders to purchase additional common shares by reinvesting
their cash dividend without incurring brokerage or administrative fees.
As well, eligible shareholders may invest up to $20,000 each fiscal year
to purchase additional common shares of the Bank. Debenture holders may apply
interest on fully registered Bank subordinated debentures to purchase
additional common shares. All administrative costs of the plan are paid by the
Bank.
For more information on participation in the plan, please contact the
Transfer Agent.
Dividend Dates for 2009
Record and payment dates for common and preferred shares, subject to
approval by the Board of Directors.Record Date Payment Date
January 6 January 28
April 7 April 28
July 7 July 29
October 6 October 28Annual Meeting Date for Fiscal 2008
The Bank's Annual Meeting of Shareholders will be held at the World Trade
and Convention Centre in Halifax, Nova Scotia on March 3, 2009. The record
date for determining shareholders entitled to receive notice of and to vote at
the meeting will be the close of business on January 12, 2009.
Duplicated Communication
If your shareholdings are registered under more than one name or address,
multiple mailings will result. To eliminate this duplication, please write to
the Transfer Agent to combine the accounts.
World Wide Web Site
For information relating to Scotiabank and its services, visit us at our
Web site: www.scotiabank.com.
Conference Call and Web Broadcast
The quarterly results conference call will take place on December 2,
2008, at 2:00 p.m. EST and is expected to last approximately one hour.
Interested parties are invited to access the call live, in listen-only mode,
by telephone, toll free, at 1-800-732-9307 (please call five to 15 minutes in
advance). In addition, an audio Webcast, with accompanying slide presentation,
may be accessed via the Investor Relations page of www.scotiabank.com.
Following discussion of the results by Scotiabank executives, there will be a
question and answer session. Listeners are invited to submit questions by
e-mail to investor.relations@scotiabank.com.
A telephone replay of the conference call will be available from December
2, 2008, to December 16, 2008, by calling (416) 640-1917 and entering the
identification code 21288961 followed by the number sign. The archived audio
Webcast will be available on the Bank's Website for three months.General Information
Information on your shareholdings and dividends may be obtained by
writing to the Bank's Transfer Agent:
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone: 1-877-982-8767
Facsimile: 1-888-453-0330
Electronic Mail: service@computershare.com
Contact Information
Investors:
Financial analysts, portfolio managers and other investors requiring
financial information, please contact Investor Relations, Finance
Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H 1H1
Telephone: (416) 866-5982
Facsimile: (416) 866-7867
Electronic Mail: investor.relations@scotiabank.com
Media:
For other information and for media enquiries, please contact the Public,
Corporate and Government Affairs Department at the above address.
Telephone: (416) 866-3925
Facsimile: (416) 866-4988
Electronic Mail: corpaff@scotiabank.com
Shareholders:
For enquiries related to changes in share registration or address,
dividend information, lost share certificates, estate transfers, or to
advise of duplicate mailings, please contact the Bank's Transfer Agent:
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone: 1-877-982-8767
Facsimile: 1-888-453-0330
Electronic Mail: service@computershare.com
Co-Transfer Agent (U.S.A.)
Computershare Trust Company N.A.
350 Indiana Street
Golden, Colorado 80401 U.S.A.
Telephone: 1-800-962-4284
For other shareholder enquiries, please contact the Finance Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H 1H1
Telephone: (416) 866-4790
Facsimile: (416) 866-4048
Electronic Mail: corporate.secretary@scotiabank.comRapport trimestriel disponible en français
Le Rapport annuel et les états financiers de la Banque sont publiés en
français et en anglais et distribués aux actionnaires dans la version de leur
choix. Si vous préférez que la documentation vous concernant vous soit
adressée en français, veuillez en informer Relations publiques, Affaires de la
société et Affaires gouvernementales, La Banque de Nouvelle-Ecosse, Scotia
Plaza, 44, rue King Ouest, Toronto (Ontario), Canada M5H 1H1, en joignant, si
possible, l'étiquette d'adresse, afin que nous puissions prendre note du
changement.
The Bank of Nova Scotia is incorporated in Canada with limited liability.
%SEDAR: 00001289EF %CIK: 0000009631
For further information:
For further information: Kevin Harraher, Vice-President, Investor Relations, (416) 866-5982; Frank Switzer, Director, Public Affairs, (416) 866-7238