
Bank of Nova Scotia
TSX:BNS

Bank of Nova Scotia
The Bank of Nova Scotia, more commonly known as Scotiabank, stands as one of Canada's leading financial institutions, weaving its narrative of progress across the continent and beyond. Established in 1832 in Halifax, this venerable institution has grown from its modest maritime roots to become a formidable presence in the global banking landscape. Its headquarters in Toronto serve as the nerve center of operations, directing a sweeping network across some 50 countries. Scotiabank's international expansion, particularly in Latin American markets through its "Pacific Alliance" strategy, underscores its commitment to capturing growth opportunities across various economic landscapes. This international drive not only diversifies its revenue streams but also mitigates risks by reducing dependence on the Canadian economy alone.
The bank's operations are structured around four key business lines: Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets. Each of these segments contributes uniquely to Scotiabank's bottom line. Canadian Banking handles personal and commercial banking services, supporting millions of clients with loans, credit, and investment products. International Banking is tasked with replicating these services across burgeoning markets, particularly in Latin America. Meanwhile, Global Wealth Management carves out value by advising high-net-worth clients, offering investment solutions that enhance their portfolios. Lastly, Global Banking and Markets engages with corporate and institutional customers, providing sophisticated financial products and capital market services. This structured but flexible approach allows Scotiabank to generate significant revenue, balancing domestic dependability with international growth prospects.
Earnings Calls
Scotiabank's Q1 results reveal robust net income of $2.4 billion, or $1.76 per share, boosted by an impressive 15% rise in noninterest revenue and a 4% growth in client deposits. The strategic investment in KeyCorp is expected to enhance earnings, while the sale of operations in Colombia will free up capital without loss in earnings. Credit provisions rose to $1.2 billion as economic uncertainties linger, but the PCL ratio is anticipated to decrease in the second half of 2025. Overall, the bank forecasts annual earnings growth between 5% and 7%, capitalizing on its strengthened balance sheet and a focused growth strategy.
Management
L. Scott Thomson is the President and Chief Executive Officer of Scotiabank, having assumed these roles in February 2023. Before his tenure at Scotiabank, Thomson notably served as the President and CEO of Finning International, a prominent heavy equipment dealer specializing in Caterpillar products, from 2013 to 2022. His earlier career includes significant financial leadership positions, such as the Chief Financial Officer at Talisman Energy and senior roles at Bell Canada Enterprises. In addition to his executive experience, Thomson holds a Bachelor of Arts in Economics from Queen’s University and an MBA from the University of Chicago. His deep expertise in financial management and strategic business growth has been pivotal in navigating the complex banking landscape and steering Scotiabank forward in its endeavors.
Rajagopal Viswanathan is a seasoned finance professional with a longstanding career at the Bank of Nova Scotia, often known as Scotiabank, one of Canada’s leading financial institutions. He has held several key positions within the bank, primarily focusing on financial management and strategic planning. Viswanathan has served as the Executive Vice President (EVP) and Chief Financial Officer (CFO) of Scotiabank. In this role, he has been responsible for overseeing the bank's financial strategy, financial reporting, investor relations, treasury functions, and taxation. His expertise has been pivotal in guiding the financial health and regulatory compliance of the institution. With a strong background in finance and accounting, Rajagopal Viswanathan joined Scotiabank in the late 1990s. Over the years, he held various senior leadership positions across multiple departments, which provided him with a comprehensive understanding of the bank's operations both domestically and internationally. This extensive experience has contributed to his strategic insights and leadership in financial operations. Viswanathan is known for his analytical skills and his ability to manage complex financial structures, enhancing Scotiabank’s fiscal policies and procedures. Throughout his career, he has focused on driving efficiency and effective risk management, ensuring transparent and accurate financial practices within the organization. His leadership extends beyond financial management, as he has played a crucial role in Scotiabank’s partnerships and strategic initiatives, helping to navigate the bank through various economic cycles and market challenges. Viswanathan's contributions continue to have a lasting impact on strengthening Scotiabank's financial position and supporting its growth ambitions.
Francisco Alberto Aristeguieta Silva is a prominent figure in the financial services industry, known for his extensive experience and leadership. He is the Group Head of International Banking at the Bank of Nova Scotia, also known as Scotiabank. In this role, he is responsible for overseeing the bank's operations across various international markets, focusing on Latin America and the Caribbean. Before joining Scotiabank, Aristeguieta had a notable career at Citigroup, where he held several senior positions. His roles included CEO of Citigroup's Asia business, where he managed operations across 16 markets in the Asia-Pacific region, including consumer banking, institutional clients group activities, and overall franchise management. Aristeguieta’s leadership style is marked by a strong emphasis on strategic growth, innovation, and operational efficiency. His global experience and deep understanding of diverse markets have positioned him as a valuable asset in leading Scotiabank’s international expansion and growth strategies. He holds a degree in Business Administration from the Universidad Metropolitana in Venezuela and an MBA from Brunel University in London.
John McCartney is not a widely recognized executive at the Bank of Nova Scotia (Scotiabank). It is possible that he might not hold a high-profile position that is publicly documented. If you are referring to someone else or a different individual at Scotiabank, please provide more details or confirm the context. Otherwise, information about John McCartney in this specific context is unavailable.
Julie A. Walsh serves as the Executive Vice President and General Counsel at the Bank of Nova Scotia, commonly known as Scotiabank. In her role, she oversees the global legal and compliance functions, ensuring that the bank adheres to regulatory requirements and effectively manages legal risks. Walsh brings extensive experience to her position, having spent years in the legal field with a focus on financial services. Her expertise is crucial in guiding the bank through complex legal landscapes and contributing to its strategic direction. Her leadership is characterized by a commitment to governance, risk management, and fostering a strong ethical framework within the organization.
Ian Arellano is recognized for his leadership and extensive experience in the financial sector. Before joining the Bank of Nova Scotia, also known as Scotiabank, Arellano had an accomplished career as a corporate lawyer. He was a partner at Torys LLP, a prominent Canadian business law firm, where he gained significant expertise in mergers and acquisitions, corporate finance, and securities law. At Scotiabank, Ian Arellano played a critical role, initially serving as Executive Vice President and General Counsel. In this position, he was responsible for overseeing the bank’s legal and corporate governance functions, providing strategic legal advice to senior management and the board of directors. His leadership in legal risk management, corporate governance, and regulatory compliance contributed significantly to the bank’s operations and strategy. His profound understanding of the financial industry and corporate law, coupled with his strategic thinking, have been instrumental in guiding Scotiabank through the complex regulatory landscape of the global banking sector. Ian Arellano’s contributions have been vital to maintaining the bank's reputation and ensuring its continued success in the financial markets.
Meigan Terry is a senior executive at the Bank of Nova Scotia, commonly known as Scotiabank. She serves as the Senior Vice President and Chief Communications and Social Impact Officer. In this role, she is responsible for overseeing corporate communications, reputation management, and strategies related to social impact and corporate social responsibility for the bank. Her expertise lies in enhancing stakeholder engagement by integrating communication strategies with social impact initiatives. Meigan Terry has a background that combines both communications and corporate social responsibility, allowing her to effectively lead teams that manage the bank's public image and genuine contributions to societal welfare. Her leadership helps in promoting the bank's commitment to social responsibility while aligning with its business objectives.
Jenny Poulos is a notable executive at the Bank of Nova Scotia, commonly known as Scotiabank, where she plays an integral leadership role. She is the Senior Vice President of Operations, a position that signifies her importance in overseeing and enhancing the bank's operational effectiveness. Her responsibilities include streamlining processes, innovating operational strategies, and ensuring the smooth day-to-day functioning of the bank's services. Poulos brings extensive experience to her role, having built a reputation for driving organizational change and championing efficiency. Her leadership is marked by a strong focus on digital transformation and customer-centric solutions, aligning with Scotiabank's broader strategic goals. Jenny's expertise in operations and her commitment to excellence have made her a key player in the bank's ongoing growth and development.
Glen B. Gowland is a prominent executive at the Bank of Nova Scotia, one of Canada's largest banks. As of the latest updates, he serves as the Group Head of Global Wealth Management. In this role, he is responsible for overseeing the bank's global wealth management operations, including private banking, asset management, and investment management services. Gowland joined Scotiabank in 2000 and has held various senior positions within the bank. He has extensive experience in the financial services industry, particularly in wealth and asset management. Throughout his career at Scotiabank, Gowland has been instrumental in driving growth and innovation in the bank's wealth management division, focusing on delivering personalized financial solutions to clients. Glen B. Gowland holds a Bachelor of Commerce degree and an MBA from Queen’s University. His leadership and strategic vision continue to contribute significantly to the bank's success in the global financial landscape.
Philip M. Thomas B.A. is not a recognized public figure or corporate executive within the available information linked to the Bank of Nova Scotia or any other major financial institution. It seems there might be insufficient publicly available biographical information on an individual by this name in relation to the bank. If you have any additional details or context that might help refine the search, please provide them. Otherwise, this leads to the conclusion that specific details on Philip M. Thomas B.A. from the Bank of Nova Scotia might not be readily available. If you were referring to another person or need information on a different executive, please let me know.
Good morning, and welcome to Scotiabank's 2025 First Quarter Results Presentation. My name is John McCartney, and I'm Head of Investor Relations here at Scotiabank. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Phil Thomas, our Chief Risk Officer. Following our comments, we'll be glad to take your questions.
Also present to take questions are the following Scotiabank executives: Aris Bogdaneris from Canadian Banking; Jack Allard from Global Wealth Management; Francisco Aristeguieta from International Banking; and Travis MacHen from Global Banking and Markets.
Before we start and on behalf of those speaking today, I will refer you to Slide 2 of our presentation, which contains Scotiabank's caution regarding forward-looking statements. With that, I will now turn the call over to Scott.
Thank you, John, and good morning, everyone. 2025 is off to a strong start. We are seeing encouraging signs in this quarter's results that our enterprise strategy is having the desired impact on our financial performance. We delivered adjusted earnings in the quarter of $2.2 billion or $1.76 per share reflecting strengthening revenue-led client franchise growth, coupled with the favorable impact of easing funding costs from lower rates. I am particularly pleased with the 15% year-over-year growth in noninterest revenue.
Our relationship-based businesses, including our advisory business and Global Banking and Markets and our advice channels in wealth, coupled with our wealth management product sales throughout our domestic retail channels were all strong contributors to the acceleration of growth. Our provisions for credit losses this quarter remain elevated, reflecting the toll on our clients of higher interest rates and inflation over the past few years, in addition to the heightened current geopolitical uncertainty and its potential impact on economic growth.
Our balance sheet metrics remained strong. The work we have done over the past 2 years in managing our capital, strengthening the balance sheet and responsibly building allowances have set a solid foundation, enabling us to manage through this period of volatility and continue to fund our strategic growth objectives in 2025 and beyond.
Since the end of 2022, we have improved our capital ratio by approximately 140 basis points, built approximately $1.6 billion in additional allowances for credit losses and significantly improved our liquidity ratios. We added almost $350 million to our allowance this quarter.
We are a much stronger bank today, aware of current heightened risks and prepared to respond to more tangible trade developments. We remain focused on driving forward our very clear and sound strategic agenda to recap our key focus areas. First, we continue to focus on allocating incremental capital and resources to our priority markets. This quarter, we closed our investment in KeyCorp, which is an example of our active capital deployment strategy into the U.S. market. This investment is immediately accretive to our earnings growth and return on equity metrics. We also announced the sale of our banking operations in Colombia, Costa Rica and Panama, Davivienda, for an approximate 20% ownership stake in the newly combined entity. We expect the transaction to be capital neutral and our earnings pick up to be well ahead of what our Scotiabank franchise would have earned stand-alone.
Second, we continue to focus on our North Star, earning client privacy and growing core deposits. Our overall bank funding profile continues to strengthen with strong year-over-year deposit growth of 4%, with positive contributions from each of our business lines that outpaced loan growth and reduced our loan-to-deposit ratio to 105%.
Value over volume remains an enterprise-wide priority. We continue to see an acceleration of multiproduct clients in Canadian retail as we enhance our client acquisition strategies through initiatives like Mortgage+ and Scene+. Penetration of the 15 million Scene+ members across Canada continues to grow. 25% of Scene+ members now have a Scotiabank payment product, up 50 basis points in the quarter. An impressive 89% of our new mortgage originations in Canada in Q1 came through our Mortgage Plus packaged offerings.
In Canadian Retail, on a cumulative basis since our strategy launch, we have now added 200,000 new primary clients. Although primary client growth has decelerated due to the notable immigration slowdown, we continue to see good momentum in the number of clients we consider primary, which reached 30% of total clients in the quarter.
Client debt in Canadian retail continues to trend above target, with clients holding 3 or more products, increasing sequentially to approximately 47%, up 30 basis points. And we are also successfully growing primary clients in international retail. We have now welcomed 113,000 new primary clients to Scotiabank since our strategy launch and are seeing positive trends in overall clients considered primary and revenue per international banking retail client.
Third, we continue to demonstrate operational excellence and return discipline. We delivered again on positive operating leverage while investing in frontline product specialists and retail, increasing the sales force in wealth and additional sectoral coverage professionals in GBM in our drive to deliver best-in-class solutions to our clients. We delivered an 11.8% return on equity Q1, representing solid sequential progress, but we know the opportunity exists in each of our business lines and geographic markets to drive stronger ROE performance. We have the scale and strategies in place to do so.
Finally, we have updated our approach to business segment presentation to be consistent with management's evaluation of the financial performance of the segments. The changes will support better decision-making around pricing and capital allocation to help the bank achieve its financial and strategic medium-term objectives.
Turning to a few key performance metrics and strategic highlights from each of our business lines, starting with the market-facing businesses. Global Wealth Management continued its positive momentum, delivering $414 million in earnings as we continue to invest in the growth of our advice channels and broaden the distribution breadth of our differentiated asset management franchise. Favorable markets, strong trading revenues and a return to positive net fund sales drove fee earning assets to record levels as we exceeded $730 billion of assets under administration led by our Scotia MacLeod, Retail Asset Management and Private Investment Counsel businesses.
Growth in investment fund sales across our branch, wholesale and Scotia financial planning channels remain our leading strategic priority in this business. Strong fund sales in the quarter were up 50% over last year, and we expect strong net sales to accelerate through the year. We are tracking ahead of our targets year-to-date in terms of new clients, financial plans delivered and client retention. New financial plans delivered in Q1 were up 10% year-over-year, and average revenue per account is up 13% year-to-date. We are performing well on referrals between our wealth and retail business with more work needed to meet referral targets between wealth and commercial banking. Referral volume between our wealth and retail businesses was $2.5 billion in the quarter, an increase of 16% over last year.
We continue to invest in technology to make it easier for our advisers to do business with their clients and in frontline staff to deliver total wealth solutions to our wealth and retail clients of the bank.
Global Banking and Markets had a very strong start to the year, up 33% year-over-year in Q1, with particular strength across our capital markets businesses as clients reacted and repositioned their portfolios in response to evolving macro and geopolitical developments. Capital Markets businesses contributed 54% of the GBM revenue this quarter as our origination and advisory businesses delivered one of the strongest quarters on record.
Average deposits were up 3% and return on equity improved 350 basis points year-over-year, while demonstrating capital discipline. Our underwriting and advisory practice also had an impressive start to the year, up 61% year-over-year and 33% sequentially, and our pipeline remains strong looking into the year subject to continued constructive market tone and supportive financing conditions. Our Global Banking and Markets team continues to exceed targets on lead relationship client growth while deliberately reducing our absolute exposure to lending-only client relationships.
We are seeing good progress and competitive positioning across our footprint. In Canada, our debt capital markets and equity capital markets teams delivered #1 and #2 league table ranks, respectively. Our U.S. debt capital markets team ranked an outstanding 11th in the period, and on the M&A side, we are the #1 adviser by deal value in the LatAm markets in which we operate.
Canadian Banking had solid revenue growth driven by asset margin expansion and well-diversified fee income growth. However, results this quarter do reflect the impact of higher credit provisions because of portfolio migration and a more cautious consumer outlook. Our Commercial Banking business delivered growth through capital discipline, while our expanded cash management capabilities drove deposit growth. The commercial business continues to show a very attractive funding profile, generating deposit growth of over $10 billion year-over-year, while assets grew a modest $3 billion. Commercial is an increasingly important source of cross-sell fee revenue to both our GBM and Global Wealth businesses.
Retail deposit growth was up 4% year-over-year as we continue to focus on day-to-day and savings accounts. In addition, investment-funded insurance product sales, which are a key priority to drive higher noninterest revenue, saw double-digit growth. Capitalizing on our Scene+ and Mortgage+ opportunities will be required to deliver on our client growth objectives.
Tangerine continues to increase primary clients aligned to our goal of deepening relationships through everyday banking. This quarter, digital active clients reached an all-time high of 1.4 million. We have a new leadership team in place at Tangerine, who will be intently focused on relationship depth and client acquisition.
Primary client growth, improved productivity, business mix diversification with a focus on fee businesses coupled with the normalization of the credit environment will be the drivers of future earnings growth from our domestic banking franchise.
International Banking delivered solid results based on diversified revenue growth by segment and geography coupled with strong expense discipline. Our GBM business in this segment had a strong rebound in activity levels and profitability, delivering $330 million in earnings with lower capital deployed. We continue to reposition our retail business while strengthening our commercial business. Specifically, in commercial this quarter, we saw primary client expansion with deposits growing 9% year-over-year, driving an improvement in customer revenue by 8%.
Our productivity ratio improved to 51% this quarter, a result of 4% revenue growth and disciplined 1% expense growth year-over-year. The productivity ratio is expected to continue to improve as the benefits of our move towards a regional model take effect. We are well on pace to achieve our medium-term run rate savings commitment of $800 million.
At an all bank level, we are encouraged by our strong results this quarter. Excluding the impact of any potential tariffs, we are on track to deliver 2025 earnings growth towards the higher end of our 5% to 7% range prior to the KeyCorp earnings pickup. Our balance sheet strength provides us flexibility in the near term to successfully manage through the various economic and trade scenarios that may evolve. We remain mindful of the impacts of possible economic disruption and growth pause could have on businesses across the country. We are taking a conservative and proactive approach to ensuring we successfully navigate what could be a volatile period with the long-term interest of all stakeholders in mind.
The capital discipline now in place across our business has us well positioned to fund our organic growth agenda while resuming dividend growth and capital return to shareholders over time. Looking ahead, we are in a period of heightened geopolitical uncertainty and a less certain economic outlook as new government administrations in 2 of our priority markets, the United States and Mexico, look to define new policy and trade relationships for the next few years. This is an important moment for Canada, an opportunity to reflect on the trade and productivity challenges that, if addressed, can serve as a catalyst to redefine our national economic agenda.
The bank continues to see the potential for an integrated North American economy to further drive competitiveness and collective prosperity. I remain confident that Canada can come out of this period of transition with a much clear strategic direction and an economic agenda that is squarely focused on raising our competitiveness.
Lower taxes, less regulation, a clear focus on measures to boost investment, energy policies that significantly increase export opportunities for Canadian oil and gas and a sharp reduction in the time it takes to develop other natural resource projects should be key objectives. And I believe the banking industry will play an important role in supporting a much more deliberate national economic plan.
In summary, I am pleased with the progress we have made in executing against our strategy, and I'm encouraged by our results in this first quarter of fiscal 2025. I would like to thank our entire team of Scotiabankers across our footprint. We are focused on supporting our clients with advice as they navigate the challenges of the current environment. As we stay focused on disciplined capital allocation, growing client privacy, improving productivity while maintaining a strong balance sheet, I remain confident in the path ahead as we continue to execute on our strategy.
I will now turn it to Raj for a more detailed financial review of the quarter.
Thank you, Scott, and good morning, everyone. This quarter's earnings was impacted by $1.10 of adjusting items with an approximately 12 basis points impact on common equity Tier 1. In addition to our usual adjustment for amortization of acquisition-related intangibles, we recorded a $1.2 billion after-tax loss net of noncontrolling interest, related to the announced sale of operations in Colombia and Central America that was recorded in the other segment. All my comments that follow will be on an adjusted basis.
Moving to Slide 6 for a review of the first quarter results. The bank reported quarterly earnings of $2.4 billion and diluted earnings per share of $1.76 that improved $0.07 from last year and $0.19 from last quarter. Our investment in KeyCorp contributed approximately $0.02 to this quarter's EPS.
Return on equity improved to 11.8% from 10.6% last quarter, and return on tangible common equity was 14.3%.
Revenues were up 11% year-over-year, driven by growth in both net interest and noninterest income. Net interest income grew 8% year-over-year due primarily to loan growth including the BA conversion and a higher net interest margin. The all bank margin expanded 4 basis points year-over-year and 8 basis points quarter-over-quarter, driven by lower funding costs as a result of rate cuts.
Noninterest income was $4.2 billion, up 15% year-over-year, primarily due to higher trading revenues, wealth management revenues, underwriting and advisory fees and income from associated corporations. These were partly offset by the impact of BA conversion and the negative impact of foreign currency translation. The provision for credit losses was approximately $1.2 billion, and the PCL ratio was 60 basis points, up 6 basis points quarter-over-quarter, mostly in performing allowances.
Expenses grew 8% year-over-year, of which 3% was from higher performance and volume-driven expenses in GBM and Global Wealth. The rest of the increase related to higher technology and personal costs to drive business growth.
Quarter-over-quarter, expenses were also up 7%, driven by seasonally higher share-based compensation, business and capital taxes, higher personnel costs, technology-related costs and the unfavorable impact of foreign currency translation. The bank generated positive operating leverage of 2.8% and the productivity ratio at 54.5%, improved 160 basis points sequentially.
The bank's adjusted effective tax rate increased to 23.8% from 19.6% last year due to changes in earnings mix across jurisdictions and the implementation of the global minimum tax this year.
Moving to Slide 7, which shows the evolution of the common equity Tier 1 ratio and risk-weighted assets during the quarter. The bank's CET1 capital ratio remained strong at 12.9%, a decrease of 20 basis points quarter-over-quarter and flat year-over-year. Earnings less dividends contributed 19 basis points and lower risk-weighted assets also contributed 19 basis points, which include the benefits from the Synthetic Risk Transfer transaction. This was offset by 43 basis points from the closing of the additional investment in KeyCorp and 12 basis points from the announced sale of our operations in Colombia and Central America.
The total risk-weighted assets was $468 billion, up $4 billion, or down $4 billion, excluding the impact of foreign currency. This included a decline in book size of approximately $12.1 billion, primarily from the Synthetic Risk transaction, and other RWA optimization which was partly offset by an increase in book quality risk weight of $4.7 billion that related primarily to nonretail credit migration and the impact of parameter recalibrations.
Turning now to the business line results beginning on Slide 8. Canadian Banking reported earnings of $914 million, down 6% year-over-year as higher revenues were more than offset by higher loan loss provisions and expenses. Average loans were up 3% year-over-year. Real estate secured lending was up 4%, business loans grew 3% and credit cost balances grew 9%. Loans grew a more modest 1% sequentially, primarily mortgages.
We continue to see deposit growth as year-over-year deposits grew 6%, driven by an increase of 10% in nonpersonal deposits mostly in demand, and 4% in personal deposits, mostly in term.
Net interest income grew 6% year-over-year, primarily from asset and deposit growth and the benefit of BAs converting to loans, partly offset by margin compression. The net interest margin declined by 1 basis point quarter-over-quarter and 10 basis points year-over-year as asset margin expansion of 8 basis points was more than offset by lower deposit margin of 17 basis points, reflecting the impact of rate cuts.
Noninterest income was up 4% year-over-year, primarily due to elevated private equity gains, higher mutual fund fees and insurance income that were partly offset by lower banking fees from the impact of BA conversion.
The PCL ratio was 47 basis points, up 13 basis points year-over-year and 7 basis points quarter-over-quarter. Expenses increased 8% year-over-year, primarily due to higher technology costs and professional fees to support key strategic priorities.
Quarter-over-quarter expenses grew 2%, primarily due to higher technology costs and seasonally higher share-based compensation. The operating leverage for the quarter was negative 1.8%.
Turning now to Global Wealth Management on Slide 9. The earnings of $414 million were up 23% year-over-year as Canadian earnings were up 27%, driven by higher mutual fund fees and wealth advisory revenues that were partly offset by higher expenses, largely volume related.
Quarter-over-quarter earnings were up 7% due to higher brokerage revenues and mutual fund fees and net interest income that were partly offset by higher expenses. Revenues of $1.6 billion were up 19% year-over-year from higher mutual fund fees, driven by strong AUM growth and higher brokerage revenues. Expenses were also up 17% year-over-year, of which more than half was due to volume-related expenses in addition to higher technology costs, and salesforce expansion. The operating leverage was a strong positive 2.3%.
Spot AUM increased 16% year-over-year to $396 billion, and AUA grew 13% over the same period to over $730 billion, driven by market appreciation and higher net sales.
International Wealth Management generated earnings of $54 million, up 1% year-over-year or 5% excluding the impact of FX, driven by higher mutual fund fees and brokerage revenue that were partly offset by higher expenses and the impact of the global minimum tax.
Turning to Slide 10, Global Banking and Markets. Global Banking and Markets delivered a particularly strong start to the year with earnings of $517 million, up 33% year-over-year. Capital Markets revenue was up 41% year-over-year and 47% quarter-over-quarter, driven from higher equities and FICC revenues.
The Business Banking revenues also grew 8% year-over-year and 7% quarter-over-quarter due to higher corporate and investment banking revenue, including higher underwriting and advisory fees. The net interest income increased 18% year-over-year from higher corporate lending and deposit margins, while loan balances declined 15% year-over-year, reflecting market conditions and management's continued focus on balance sheet optimization.
Noninterest income was up 25% year-over-year due to higher client-driven trading-related revenue across the Capital Markets business of fixed income, equities and FX. Expenses were up 14% year-over-year, mainly from higher personnel costs, including performance-based compensation as a result of stronger performance, higher technology costs and the negative impact of FX. Quarter-over-quarter expenses were up 10%, due mainly to seasonally higher share-based compensation and higher personnel costs. The operating leverage was a strong 9.2%.
The effective tax rate increased to 24.5% in this segment due to changes in earnings mix across jurisdictions. The U.S. business generated strong earnings of $296 million, up 39% year-over-year, driven by higher capital markets revenues from equities, fixed income and FX that were partly offset by higher expenses.
Moving to Slide 11 for the review of International Banking. The comments that follow are on an unadjusted and constant dollar basis. The segment delivered earnings of $657 million, up 5% sequentially, but down 7% from last year. The GBM business in this segment generated earnings of $330 million from strong client activity, although down 10% compared to the prior year. The revenue was up 1% year-over-year as noninterest income was up 6% driven by higher capital markets revenue that were partly offset by a 1% decrease in net interest income. The margin expanded by 5 basis points year-over-year, driven by lower funding costs.
Net interest margin was down 2 basis points quarter-over-quarter, driven by lower inflation and lower loan margins in Mexico. Year-over-year, loans were down 2%. Business loans declined 8% that were partly offset by 4% growth in residential mortgages. Deposits were down a modest 1% year-over-year. While personal deposits grew 1% year-over-year, nonpersonal deposits declined 2%.
The provision for credit losses was $602 million, translating to 146 basis points, up 9 basis points quarter-over-quarter. Expenses were up a modest 1% year-over-year, driven mainly by higher salaries and employee benefits. Quarter-over-quarter expenses grew 3%, driven by higher benefits and seasonally higher expenses in Jamaica.
Operating leverage for the quarter was positive 0.4%. The effective tax rate increased by 170 basis points to 21.7% due to lower inflation benefits and the impact of the global minimum tax.
Turning to Slide 12. The other segment reported an adjusted net loss of $177 million compared to a loss of $202 million in the prior quarter, an improvement of $25 million. Sequentially, revenue improved approximately $150 million as net interest income continued to improve, benefiting from lower funding costs driven by rate cuts. This was partly offset by higher expenses and taxes.
I'll turn the call over to Phil to discuss [indiscernible] the risk.
Thank you, Raj, and good morning, everyone. Last quarter, we indicated that PCLs would remain elevated in the first half of the year as our clients continue to manage the impacts from higher-for-longer rate environment and the increased macroeconomic uncertainty given geopolitical risk. The announcement of potential tariffs has further increased macroeconomic uncertainty, and based on what we knew on January 31st, our base case scenario includes modest tariff risk of approximately 5% on half of Canadian imports and 10% on half of Mexican imports.
We also incorporated more severe tariffs into our already stressed pessimistic and very pessimistic scenarios. Against this backdrop of increased uncertainty, all bank PCLs were approximately $1.2 billion or 60 basis points this quarter, up $132 million quarter-over-quarter. Of this, performing PCLs were $98 million or 5 basis points. Approximately 2/3 of this performing build was driven by the inclusion of potential tariffs and continued macroeconomic volatility across our Canadian and Mexican portfolios. The remaining drivers of this quarter PCLs included increased impairments across our Canada, Mexico and Chile retail portfolios driven by credit migration, and the full provision of one impaired account in Canadian commercial in the food and beverage industry.
Turning to Canadian Banking. PCLs were $538 million or 47 basis points, up 7 basis points quarter-on-quarter. Retail PCLs were $423 million, up $68 million quarter-over-quarter, driven primarily by unsecured and auto portfolios. Retail performing PCLs increased $45 million quarter-over-quarter, driven by an unfavorable macroeconomic outlook and higher delinquencies. Impaired retail PCLs were up $23 million quarter-over-quarter from higher net write-offs in both automotive and unsecured revolving portfolios.
Overall, 90-day mortgage delinquency increased a modest 1 basis point quarter-over-quarter as delinquency in our variable rate mortgage clients begin to stabilize as they experience relief from central bank rate cuts. Furthermore, decreasing payments continue to benefit variable rate mortgage clients as their deposit coverage maintained its upward trend.
Commercial PCLs were $115 million, up $20 million quarter-over-quarter, which includes the account previously mentioned.
Moving to International Banking. PCLs were $602 million in Q1, resulting in a PCL ratio of 146 basis points, up 9 basis points quarter-over-quarter. Impaired PCLs were flat quarter-over-quarter, while we had $47 million increase in performing provisions. Retail PCLs were up $58 million quarter-over-quarter as last quarter we had a $40 million release in performing PCLs. This quarter's higher performing allowances were driven by Mexico and Chile, offset by improvements in other markets. Commercial PCLs improved quarter-over-quarter down $12 million.
We increased all bank allowances for credit losses again this quarter by a further $344 million, and it is now $7 billion. The ACL ratio is at 91 basis points, up 5 basis points year-over-year and 3 basis points quarter-over-quarter. We still anticipate our PCL ratio to trend down in the second half of the year. However, this assumes we do not see significant deterioration in the macroeconomic environment and meaningful tariffs.
With the backdrop of potential tariffs, we have conducted a significant amount of analysis across various scenarios. This is to ensure the bank is sufficiently prepared to navigate through this uncertainty.
Any impact to allowances from tariffs will depend on several variables, including the size and duration of tariffs, the degree of retaliation, the amount of government subsidies or intervention, any client actions taken to mitigate the impact and bank actions we take to further support our clients. We are comfortable with the adequacy of our allowances for credit losses that has grown approximately $1.6 billion since the end of 2022. If tariffs are imposed, we will review and adjust our allowances as needed in the quarter they are finalized.
In addition to our allowances, we remain well capitalized, have a strong liquidity position and are confident in our proven track record in managing through more challenging periods across all our markets while supporting our clients.
With that, I will pass it back to John for Q&A.
Great. Thank you, Phil. We'll now move to the Q&A segment of the call. [Operator Instructions] Operator, do we have the first question?
[Operator Instructions] Our first question is from Ebrahim Poonawala from Bank of America.
I guess maybe just a question on credit outlook. I think if we can break this down in an ex-tariff world, I think, Phil, you mentioned expect PCLs to go down in the second half of '25, and then you referenced higher for longer rates. Would you characterize rates today as no longer being higher for longer in terms of the ability of the consumer, customer base to service their debt?
So one, if the rate backdrop now low enough where that's not a big risk factor, and ex tariffs, should we -- are you seeing any signs of a cyclical rebound? Maybe if you go back 3, 4 weeks ago before the headline said, would appreciate any color on those two.
Thank you. It's a great question. I'm glad to look out beyond tariffs. Certainly, as we look at -- there's still a little bit of softness in the Canadian retail portfolio, but we are starting to really see customers starting to benefit from rate cuts, particularly in our variable rate mortgage portfolio as well as those customers that are coming up for renewal. And the -- those rate cuts are benefiting those customers. As I look out for the remainder of the year, still very positive that, tariffs aside, we'll see our provisions starting to trend down in the latter half of the year. And that's what our models are telling us. That's the way customers -- consumer trends are shaping up, and we've got confidence in that outlook outside of the tariff landscape.
Got it. And one quick follow-up, maybe, Scott, for you. Stocks at very discounted valuations, why not initiate buybacks given where capital levels are?
Ebrahim, first, I mean, I'm very pleased with the capital discipline and the internal capital generation that we saw this quarter. I think as we think about capital return, it will be important to see how tariffs play out. But my expectation is that we will resume dividend growth, albeit at a modest level next quarter. And I'm hopeful that we'll be in a position to start returning capital to shareholders via share repurchases by the end of the year.
Following question is from John Aiken from Jefferies.
Wanted to focus in on the strong performance that we saw in Global Banking and Market this quarter. The productivity ratio showed some market improvement, both quarter-over-quarter and year-over-year. And I know a lot of that is related to the strong growth that we saw in revenues, but I was a little surprised that it came in this low. What -- how should I be interpreting this? Are we expecting, I guess, lower expenses or a better productivity ratio through 2025? Or is this an indication that we're expecting revenues to significantly decline to a more normalized level from what we saw in the first quarter?
This is Travis. Listen, I appreciate the question. If you look at our business in this quarter, we have a lot of segments that really performed where you have great operating leverage. And I think that plays out to the profitability, the ROE and the productivity level. We expect revenues probably to normalize towards a more normal level in this business. We clearly earned nearly a record amount in this quarter. So I'd expect that productivity level ratio to -- our productivity ratio to normalize a little higher.
And John, just to add a little more color. Yes, the $517 million earnings is really good. We're very pleased because we have this trend to monetize and capitalize when the opportunities come up. The normal run rate for this business somewhere should be between $425 million to $450 million, I think, assuming normal market conditions. But the expense ratio always benefits, right? Like in Scott's comments, he talked about capital markets being 54% of the revenue mix, and that plays a big role in reducing productivity ratio, but they are focused on managing expenses in line with revenue growth and prioritizing their spend in that segment.
And the only other thing I'd add is that when you look at the expense growth this quarter, it was primarily driven by our market-facing businesses. So when you see the wealth expense growth, it was because of the big revenue growth and similarly and in Travis' business, you had great revenue performance, but you also had expense growth with that. So you get to a more normalized expense growth for the overall entity if those businesses came off a little bit from a revenue perspective.
And then not to downplay the advisory impact this quarter, but I mean, obviously, exceptionally strong growth on trading. Can you give us a sense in terms of what you're seeing for the pipeline on advisory given the fact that there's a lot of, I guess, excitement or exuberance in terms of what the outlook may be?
Sure. Yes. Listen, our pipeline remains incredibly strong. We have tremendous client activity across all segments and all sectors. The market is robust. That being said, there's clearly headwinds that persist in the market with rate uncertainty, tariffs, geopolitical. And I would say the U.S. market -- stock market is priced for perfection right now. So there's a lot of things that can slow down the pipeline. But as of right now, it looks incredibly strong.
What I really liked about this quarter too is the league table performance. So when you look at #1 in debt capital markets in Canada, #11 in debt capital markets in the U.S., #1 in M&A in LatAm, great M&A performance here in Canada. I mean, from an advisory perspective, it was a really good competitive result for the business this quarter.
Following question is from Matthew Lee from Canaccord Genuity.
Maybe just one on international and the Davivienda transaction. With taking back equity a strategic decision on your end or maybe more in a way to negotiate more favorable terms on the deal, I guess if you look at divesting more assets, so we say more deals like this one or maybe a greater focus on receiving cash in the transaction?
Great, Matthew, thanks for the question. It's Scott, and then I'll let Francisco follow up. There's not a strategic view here on minority investments, if that was the question. I mean the KeyCorp acquisition was done, our investment was done for particular reasons that we talked about in terms of financial attractiveness. On the Davivienda side, we didn't want to sell at the low point in the cycle. And so when we could take advantage of combining with the -- a strong bank in the region, to become the second largest bank, capture a lot of synergies and see both capital neutrality in the short term and earnings accretion in the long term, that seems like the right plan for our shareholders. Maybe Francisco, just give us a sense of...
Absolutely, Scott. Yes. The -- in terms of our footprint, there's no plan to enter into minority agreements as part of our strategic push forward. So that's not at all the way forward. However, when we look at the situation in Colombia is very particular. And we identified this opportunity to partner with a very strong operator that culturally provides an extraordinary fit to our culture. They have a footprint that is relevant to our client base, both in Central America and in Colombia. We have now created a very strong bank that enjoys a scale that on our own, ranking 6, we would never achieve and allows us to redeploy management time, capital and effort to our core growth markets while maintaining, through the referral agreement, the ability to support our multinational and wealth clients, both in Central America and Colombia effectively.
So what this allows us to do is also benefit from the transformation and improvement of the Colombian market because we have no doubt as a management team that Colombia will turn around over the next few years. And this will allow us to capture the off swing of Colombia coming back to normal in terms of economic activity and macro performance. So overall, we see this as a very accretive transaction to our current short-term strategy while positioning us strong for the long term.
Following question is from Doug Young from Desjardins Capital Markets.
Questions for Phil, and sorry, Phil, I'm going to go tariff. But you haven't changed your PCL rate guidance for fiscal '25. You were at the higher end this quarter, but you're expecting to be lower in the back half as you kind of talked that you built a little bit of cushion in for tariffs. Now you've done a lot of stress testing, can you give us a sense if tariffs are put in as proposed? Like what -- where does your guidance go, or what are the kind of ranges we should be thinking about in terms of your total PCL rate?
Yes. Thank you. I appreciate the question. Obviously, that's sort of the topic du jour that I'm sure everybody in the financial services industry is looking and trying to come up with some outlook. Listen, as I said in my prepared remarks, there's going to be a number of variables that we're going to work through, the size and duration of the tariffs, the degree of retaliation, the amount of government subsidies, client actions, bank actions. And it's really hard to give you a range or an outcome at this point in time without having some understanding of what these tariffs look like.
I think what I wanted to really stress is that if tariffs come along in Q2, we'll do the appropriate build in Q2. And it will be a sizable, but manageable build, and we'll work through it. We've done a great job over the past couple of years of strengthening the balance sheet, and we're well capitalized and we're feeling pretty comfortable that we could -- it will be meaningful, but manageable.
Okay. I would ask what meaningful means. But I'm going to guess you're not going to tell me.
Yes.
Following question is from Gabriel Dechaine from National Bank Financial.
A quick one on international. If I strip out the GBM impact, your earnings were down still high single digits. And I'm wondering, you had guided to softer performance for that business this year. just wondering if that's better, worse, in line than what your expectations were? And then on capital -- actually, I'll wait for the answer and I'll ask you the capital one.
Thank you for the question. As a matter of fact, Q1 for us in '25 is our second best quarter ever on the back of a record quarter in the first quarter of 2024. So it is a very strong showing. Although we do believe that getting to the level we were in Q1 in '24 was very hard to achieve. When you look in constant terms year-over-year, we're still growing at 1%, quarter-over-quarter 4%. So revenues still showing strong in spite of the fact that we had a again, our highest quarter on record to compare to year-over-year.
When you look at performance overall, very much in line with economic activity, although we are outperforming our expectation in Q1. We're seeing the benefit of lower rates at a faster pace than we anticipated. We had a little bit of higher inflation in some markets that also benefited our positions. So overall, what I see is very much in line with our prior guidance around a slower GDP growth for most of our markets in 2025, but with resilient performance and opportunistic as markets allow us to perform.
What I really liked about the quarter in international is the productivity ratio. When you see the 4% revenue growth and the 1% expense growth, if you think about what we've done over the last 2 years now on bringing that productivity ratio down 300 or 400 basis points with an outlook to continue to reduce that through the regionalization efforts, I think Colombia will be helpful to very much -- we'll take out the kind of the overhead costs associated with that business. So on plan here for the $800 million reduction that we talked about, which gives a lot of running room for earnings in international over time.
While continuing to improve capital deployment, right? So again, another quarter of material improvement on our return on risk-weighted assets, we're now at 1.99%, which is a massive improvement from where we were, while maintaining very strong top line and earnings capacity for the business.
Okay. Now as far as the balance sheet management, this optimization process, whatever you call it has been ongoing for 2 years or so. And I appreciate it's not a process that ever ends, but been a bit more distinct activity in the past couple of years. your corporate loan book is down roughly $30 billion from its peak. You did $11 billion of credit risk transfer this quarter. I don't know what the cumulative amount is. Just wondering if we're done with that outsized stuff, given that OSFIs put the increases to the Basel III output floor, shelved them anyway. Is that the -- are we going to be more business as usual going forward?
Let me just start on the philosophy piece, Gabe, and then, Raj, you can follow up on the specifics on the balance sheet. So we're transitioning the business to a valuable volume, right? And we've historically led with the balance sheet, and we're trying to grow fee income and a holistic client relationship around that balance sheet, really focused on creating value for the client, which will create value for our shareholders.
And so when you think about this loan growth, we've been really thoughtful about this over the last 2 years across all of the business, whether it be in GBM, whether it be an IB or whether it be in mortgages in Canada, and you're starting to see the benefits of that through higher return on risk-weighted assets and higher ROE performance.
And then look at the 15% improvement in fee income year-over-year. And so that strategy of discipline on the capital deployment, value add for the client, relationship-based contribution from all of our business lines, you're starting to see that in the numbers. And then it comes through in the internal capital generation. I mean this quarter, Raj, what was internal capital generation, close to 30 basis points or 20 basis points?
Including the optimization. But Gabe, to answer your question on, is the heavy lifting done on that? I think most of it is done. The Synthetic Risk transfer, like you pointed out, cumulatively, it's almost $20 billion. You can see it in the disclosure. And those are done simply because we think it enhances our returns. Incidentally, it improves our capital ratios as well. Very selective will be with that, but to Scott's point, we just want to ensure redeploying the capital to the most profitable relationships, but I think we are on the back end of that.
Following question is from Mario Mendonca from TD Securities.
Going to tariffs again for a moment. Was there any trend in loan growth throughout the quarter that you could highlight? And what I'm getting at here is, as the threat of tariffs unfolded throughout the quarter, did it have a negative effect on commercial loan growth, corporate loan growth, even retail loan growth throughout the quarter?
Yes. Sorry, I'll start and maybe I don't know if Scott or others want to join in. I think that the -- as we've been going out speaking to clients, I think people are -- we get a sense, people are sort of holding their powder dry, and people are waiting to see what's going to happen. And I think as a result, whether it's on the retail side, the corporate side, the commercial side, you kind of see this bit of a stasis right now. And so it's causing people to sort of pause and think about what they're going to do. And hopefully, when we get through tariffs, and we can see through the end of it, we'll probably see more economic growth occurring at that point.
Right. Aris here, just on the Canadian banking side, we're seeing that clearly in the commercial banking business where people are holding back on borrowing, we see it clearly in the trending. However, on the mortgage side, interestingly enough, as rates have come down, you start to see that pent-up demand in the mortgage business starting. So that you don't see yet in terms of, obviously, the tariff and all the discussions. However, if the tariffs do get implemented, and of course, the economy contracts, your problem to see the mortgage business also start to come down, but we don't see that yet.
Okay. A quick question then on impaired. Like with all due respect to the accountants who dreamed the IFRS 9, I'm not -- really not -- it's hard to build up my interest in performing loan reserves. What really matters to me is what is the timing? And what sort of effect do you expect on your impaireds, if, in fact, we do see meaningful tariffs? Like do the impaireds build up abruptly? Or is it lags 2026? How should we think about the impaireds with a little emphasis on the performing here?
Yes. No, I think you're right, Mario. As we've sort of looked out in our scenarios, it's really going to take time for tariffs to grip the Canadian consumer. I mean there's some obviously some positive tailwinds in the economy as it relates to unemployment GDP already. And so you add tariffs on to that, we're really looking at that to be more of a -- from an impaired perspective really a lag out to 2026 and beyond. So your thesis is correct, and that's the same way we're thinking about it.
Following question is from Paul Holden from CIBC.
Wanted to tie together two predominant themes here, tariffs and capital allocation. A lot of contingency planning, I'm sure on the part of Scotia as with many companies. What are you thinking in terms of -- if tariffs under the scenario where there are significant tariffs and may be more permanent, does that change at all, Scott, sort of your thinking around capital allocation? Like those accelerate the need or desire to do more in the U.S., for example?
Yes. Thanks, Paul. I mean, the question, are you still committed to the North American corridor strategy is essentially what you're asking, and I don't see a need to pivot at the current time. As part of the strategy rollout, we said, Canada first, U.S. second and Mexico third. Canada represents greater than 50% of our earnings, U.S. approaching now 15%, and Mexico is less than 10%. This past quarter, U.S. grew by 39%, and we've continued to be thoughtful about capital deployment into Mexico.
Long term, I think given the U.S.'s geopolitical ambitions, we believe the resources of Canada and the labor in Mexico will be important. I think looking at the renegotiation of the USMCA will be an important milestone for all of us to consider. And so, way too early to think about pivoting off of strategy, which I think, long term, has a lot of strategic rationale to it.
Following question is from Darko Mihelic from RBC Capital Markets.
I see things a little bit differently with respect to Stage 2. I see Stage 2 provisioning as somewhat of a reflection of conservatism. And given all of the uncertainty, I was surprised that you didn't build more in, but I guess your answer to Mario was that, look, you think that the problems come in 2026 and maybe it's outside of the 12-month window, but yet, I still think there could have been an overlay, right?
So Phil, can you speak to me about, when I look at your base case and your alternative pessimistic cases, they don't change much. So you could have at least perhaps put a bigger weighting on a scenario and sort of get ahead of it and build a reserve. But is it really the timing that's preventing you from doing that?
So let me give -- maybe I'll add a little bit more color, Darko, and it's a great question. So we're limited to what we knew as of January 31st. And so the quarter ended the 31st, and then we had all of -- if you recall, at the time we had all this noise and, headline after headline, what we're going to do, what we're -- so we could only, from an accounting perspective, going back to Mario's comment on IFRS 9, we could only do what we knew as of the 31st. And as such, we did 5% tariff on half of Canadian imports. This is sort of what went into the scenarios with half retaliation, 10% tariff on Mexico on half of the imports with half retaliation, 15% tariff on China for half of imports with full retaliation.
And so you start to think about that -- we built about just under $100 million in the quarter, of which 95% of it was actually Stage 2. So we're not far off the way you're thinking about it, but we could only build what we knew from an economic perspective as at 31st, and about 2/3 of that build was related to macroeconomic uncertainty and volatility.
Okay. And so is it fair to say though, then that unless something significantly changes, we should be expecting something really in Q2?
If we have -- if tariffs are imposed, then we will look at -- as I said earlier, we will look at a build within Q2. If there's no tariffs, I go back to the comments I made to Ebrahim earlier. It's -- we have -- we continue our guidance as we get it last quarter. And I think we're in good shape to deliver for lower PCLs towards the latter half of the year.
Following question is from Sohrab Movahedi from BMO Capital Markets.
Phil, just maybe to take Darko's question just a little bit differently. If the quarter was ending today, would those 5%, 10%, 15% type assumptions be any different?
No. No. I mean, we have not seen an executive order that relates to the type of tariffs that are being proposed. Again, we're still digesting what's going on. When we have certainty, we'll act on uncertainty. It's difficult to act on headlines and tweets.
Understood. So I mean it doesn't really matter that the quarter ended January 31. You have no better information you're seeing today versus January 31? Is that...
If tariffs are imposed by the U.S. government, then we have clarity in terms of our actions. Until then, we have no clarity.
I appreciate that. And Scott, I just wanted to kind of go back to the December 2023 Investor Day. You obviously laid out a plan, including a 5-year set up kind of milestones and what have you. I mean, you've got a little bit over a year under your belt since then. What -- which one of the assumptions would you say are being tested the most in you being able to deliver on that 2028, for example, road plan?
Yes. So it's a great question. One, if you look at the different business lines, I think international, we're right on track in terms of what we said we were going to do. We said it was going to be a 2-year transition, and we're going to move through that. And we've had some great progress in that regard. We said leading with the productivity ratio, and that comes back to my points on productivity ratio. I think wealth, we're significantly ahead of what we said at Investor Day. And I think we said we're going to grow at 10%, we're growing at 15%. Now we'll probably moderate a little bit, but it's been really good to see that progress.
GBM, we're early, but this quarter was a great kind of checkmark for what we're trying to do around fee income, but we have to put up more than one quarter to show that we're on the right track, but I was really pleased with that. And in Canada, we're doing the right things, the right things in terms of growing primary clients, 200,000 new...
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