Bank of Nova Scotia Barclays 24th Annual Global Financial Services Conference

Well, before I get to that, I just want to mention, two years ago, I was on this stage, and early in my tenure, we talked about the plans we had for Canadian Banking. At that time, I laid out the strategy really about building the foundation and focusing on primacy. Fast-forward two years, and we'll talk about it, I'm sure. We're making really strong progress across all the dimensions we talked about. I'm very pleased to be here again. On your question on tariffs, what are we seeing on tariffs? Tariffs aren't new. A year ago, we've been dealing with tariffs for the last year, and all the noise around it.

What we've seen in our commercial bank is our clients are very resilient, and they find a way to keep going and adjust, and we're seeing actually the strongest deal pipeline we've seen in a long time in our commercial business. On our retail side, we're also very vigilant. We're watching which clients are vulnerable, and we're close to them, of course. We're managing, and I think the investment summit this week by our prime minister this week is a very important one for Canada in terms of gathering the interest around investment. We saw the GDP figures also recently among very strong. By and all, we manage, and we continue to be vigilant, and we're confident that we can continue to build the business, and we're seeing it.

Right. Particularly in oil and gas defense, we're already heavily engaged with our clients in that area. Obviously, the commitment we're making is not only on our current book but also going forward, and we're obviously building up our presence in Western Canada in the areas and regions we believe will benefit from this commitment. We're very confident that this will be a big plus for our bank and big plus for Canada, and we're going to be right lockstep with that.

So as you saw in the third quarter the results very visible on the progress we're making, and that progress didn't happen last quarter. It's been a culmination of two years of effort across the entire Canadian bank, and the effort really is about building a more diverse business, a business that's focused first and foremost on driving primacy with their clients versus volume and market share. Third, bringing in a culture of discipline and consistency. The ROE expansion that we saw in the third quarter driven by four key levers, which will continue into the foreseeable future. One is the business mix, changing the business mix, moving from being a mortgage kind of driven bank to a diversified bank that gets diversification not just in mortgages, but in small business, commercial banking, credit cards, and diversifying the asset side. Second, diversifying the liability side.

When I talk about liabilities, I talk about the whole savings rainbow moving from just GICs to day-to-day savings and investment funds. We're seeing that business shift happening, having a very strong impact on NIM and revenues. The second aspect is improving the RAM, the risk-adjusted margins, particularly in our mortgage and auto business, which is 70% of our loan volume. There's a huge repricing going on in our mortgage book this year and next year, almost to the tune of CAD 80 billion in mortgages going to be repriced. Some of these mortgages were booked five, three years ago at thin spreads. There'll be a huge RAM opportunity also in auto, where we see lower RAM cohorts falling off and new business being booked. So the whole RAM improvement and being very disciplined on our pricing will have a big uplift in ROE, particularly in F27.

The third aspect, and you should have seen it in the results, the growth in fees. We've historically punched under our weight in fee income. That's about to change, and we've seen it in the last two quarters where fee revenue is actually growing above 20%, driven by card fees, mutual fund fees, and insurance. We want to continue along this vein because we know that in terms of ROE accretion, fee income is very important. No surprise, finally, the fourth lever is productivity. When we talk about productivity, what I mean by productivity is about how we're changing the channel mix, less physical, more digital, how we're adding salespeople, how we're reducing non-salespeople, how we're actually reducing the FTEs we have in the bank, yet growing sales.

Between those four levers, you will see ROE not only going up, which you mentioned, NIM expanding five quarters in a row, op lev improving four quarters in a row, RAM improving 11 points year-on-year, fee income above 20%, and we are growing non-mortgage lending faster than mortgage lending for the first time in two years. All this put together is driving that ROE expansion that you saw in the third quarter and the second quarter, and will continue to see going forward.

Right. I think the most important element when we talk about primacy is in the whole day-to-day account space, and how you build primacy through your day-to-day, and how you attach bundles and multi-product when you are selling your day-to-day or checking accounts. That is the first. I think a good illustration would be in our mortgage business, where historically we have run a mortgage business that was a single product business where we were building up balances, and spreads would vary depending on the cycle. For the last two and a half years, we have completely pivoted, and for us, the mortgage business now is an anchor to primacy. What I mean by being an anchor to primacy is today 95% of the inflows of our mortgage business come with a Mortgage+ bundle, three plus products. This is very different from how we operated before.