Bank of Nova Scotia (BNS) 2002 Q2 法說會逐字稿

Good afternoon and welcome

to the presentation of

Scotia Bank's Q2 results.

I am Sarabjit Marwah, Chief

Financial Officer.

With us today are Bob Chisholm,

Vice Chairman of Domestic Banking,

David Wilson,of Scotia Capital,

John Crean,with Risk Management,

Bob Brooks, Senior

Vice-President and Group

Treasurer and Bill Sutton,

Executive Vice-President of Latin

America.

Mr. Godsoe cannot be here as

he is in Jamaica at our board

meeting.

I will begin with the

highlights of our results and

a review of financials, review

of asset quality by John Crean

and concluding remarks on the

outlook for the rest of the

year.

We will take your questions

then.

Overall, we had a strong

quarter.

With net income of $598 million,

up 11% from a year ago.

Our EPS came in at $1.11, an

10% increase.

Our ROE was up from same

quarter last year.

These earnings are Gaap

earnings, not cash, not

operating, not adjusted.

We have always presented one

set of Gaap numbers, so it is not

to confuse shareholders and

investors.

Our provision for credit

losses was $350 million this

quarter unchanged from last

quarter, when we exclude the

provisions for Argentina.

Productivity remains a very good 54.3%

And {INAUDIBLE] ratio at 9.9% is still the

highest of the major Canadian

Banks.

Briefly covering Argentina it had

minimal impact on second quarter results.

And we remain well provisioned

against Argentina risks.

As I, mentioned last quarter

excluding Brady bonds and

after tax affecting our

provision coverage is 90% of

our cross-border exposure, a

level we remain comfortable

with.

John Crean will have more to

say on this later on.

On the economic and financial

front, conditions in Argentina

remain very difficult and very

fluid.

And we are monitoring the

situation closely literally

daily.

Bill Sutton is here to answer

questions on Argentina.

Slide five shows the rebound

in our earnings and the growth

prior to last quarter when we

took the charges related to

Argentina.

Next, on slide six, a

broad-based diversification

brought by business-line and

geographically has clearly enabled us

to maintain strong earnings

momentum in a very challenging economic environment.

As you can see from the chart,

our domestic business

continues to perform strongly.

Scotia Capital's results were

lower because of higher loan

losses, the capital markets

business held up reasonably

well.

And lastly, international

continued to provide very

acceptable returns

ex-Argentina.

You will also note in the quarterly

statements, that the earnings

of our segment titled "Other"

which is not shown here has

jumped this quarter.

This has happened for two reasons,

firstly a higher contribution

from group treasury reflecting

strong securities gains, and

secondly, $31 million from a

settlement of a tax claim from

prior years.

Similar in nature to that

recorded in Q3 in last year.

While these have added to the

bottom line, we do have items

going the other way, such as

our stock-based performance

related compensation, which were

almost $40 million in the

quarter.

In a large and diversified

bank such as ours we will

always have plus's and

minus's, however,

we do not normalize for them

but focus on consistently growing our

Gaap-based earnings.

On the next chart you can see

we met or exceeded performance

targets on ROE and EPS growth on the quarter. Though clearly, we will not

meet them on a year-to-date

basis if we exclude the first -- if we include the first

quarter charges for Argentina.

In terms of productivity and

Tier-1 capital ratio we are

comfortably ahead of target.

Moving to slide eight, our results

were driven by good revenue

growth up 7% across most

businesses, in both interest

in other income, and

geographically dispersed as

well.

This versification in our

revenue base is an important

factor, for supporting on growth and earnings.

Our margin remained flat from

a year ago.

The only item of note was that

it fell slightly seven basis

points from last quarter.

This was due to lower foreign

currency spreads down from the

record levels we had for most

of the past six months and

includes a reduction in Latin

America.

Turning to slide ten, other

income, excluding the impact

of the tax settlement,[INAUDIBLE]

Argentina charges are

underlying other income was up

6% over last year, as revenue,

were fairly good in several

areas.

On the quarter underlying

income grew by 10%, from

higher security gains which

rebounded from the lower

numbers last quarter.

I should note that in addition

to the tax settlement in other

income, we also recorded a

reduction in interest tax

expense of $21 million for a

total of $31 million.

Turning to slide eleven, total

expenses were up 8% or Q2 of

last year.

However, when we exclude the

items shown on the chart

namely our performance-based

compensation and Tier 1 devaluation,

our actual base expenses were

up 4%, largely from the timing

of higher [INAUDIBLE] related expenditures

and volume-related growth.

Within performance

compensation the largest

component of the

year-over-year increase of $95

million were our Stars and

other stock-based compensation

which alone accounted for $83

million, and we are driven by the appreciation in our stock price

On the quarter our base

expenses grew by 1%.

Overall, our expenses remained

well controlled.

Our costs control clearly

shows up more clearly in our

productivity ratio on slide twelve,

where we continue to be the

lowest cost producer of the

Canadian Banks.

Looking at slide thirteen, our

capital ratios remained strong,

and are the best in the

industry.

Tier 1 is now 9.9%, up

substantially from 9% a year

ago.

Tangible common equity to risk

assets is 8% up from 7.4.

Total capital is it now 13.4%

versus 12.5% last year.

I should mention this quarter,

our capital ratios were

boosted by the issues of 750

of innovative Tier 1

preferred and the ration

will fall by about 30 bases points

when we redeem existing

preferred shares later this

year.

Even with the redemption we

will still have the strongest

ratio.

Turning to slide fourteen, our total

reserves remain substantial at

$ 2.1 billion.

And are now the highest of the

Canadian Banks have overtaken

the CIBC this quarter.

Turning to our business line

results, beginning on slide sixteen,

Domestic Banking which

includes a Wealth Management

business continued its solid

performance.

We generated $254 million in

earnings this quarter up 14%

over last year.

Year-over-year we saw strong

growth in interest income

driven by wider margins and

excellent growth in mortgages

and revolving lending.

In response to an extremely

competitive mortgage market,

we continue-to

introduce value added

products.Such as the [INAUDIBLE] cross [INAUDIBLE] to the hassle out of buying a house.

Credit quality [INAUDIBLE] strong.

Excellent in retail.

We expect our full year credit

losses to be 21 bases points,

similar to last year, and

still well below the peer

group.

Expenses were well controlled

rising less than 2%

year-over-year as we continue

to realize efficiencies in the

network.

Compared to Q1, earnings

declined slightly due to three

fewer days in the quarter as

well as seasonal factors.

An important aspect of our

success in the domestic market

is our leadership in customer

satisfaction.

The market facts survey ranked us number one in

customer satisfaction.

A greater percentage of retail

customers related our service

excellent relative to our peer

group.

As well an individual survey

of canadian commercial

business showed that

Scotia Bank is a leader in

delivering customer

satisfaction.

This leadership position is

evidence in the critical

measures of loyalty and value

perceptions, as well we rank

highly on the servicing

performance of account

managers.

Overall, service excellent is an

important part of our culture

and we believe much of ours success

in the Domestic Bank is due to

this and a focus on execution.

Turning to slide eighteen, Scotia

Capital, the story is still

about credit quality.

Net income at $120 million was

down from last year,

reflecting higher provisioning

levels, but our

revenues held up well, up 7%.

Our provision levels are

clearly much higher than where

we would like them to be.

While we had a large provision

for one telecom account this

quarter our overall provision

levels were stable

quarter-over quarter.

John Crean, will have more to

say on credit quality in a few

minutes.

The increase in expenses was mostly due

to our higher performance

related compensation tied to our

share price.

On slide nineteen, on a more

positive note, our revenues at

Scotia Capital have proven to be quite

stable.

Investment banking revenues

have held up quite well.

[Thanks], for example, to our

participation in the growing

income crust market. Creating

revenue has also held up well

in most of our businesses.

We have not seen the sharp

reductions experienced by some

of our peer group.

Overall, while investment

banking and trading revenues

make up a smaller percentage

of total revenue relative to

our peer group, they have

been relatively consistent

over the past few quarters.

Corporate banking revenues

have fallen off slightly in

line with most selective

lending.

Overall, Scotia Capital will

show improved results as

credit conditions improve.

Turning to our International

operations on slide twenty,

excluding Argentina, the

trends are all positive.

In the Caribbean we had

another strong quarter with

net income up 15%

year-over-year.

In Latin America, Scotiabank [INAUDIBLE]

continued its upward momentum.

Contributions from other areas

were impacted by lower

securities games, timing of

payments on Brady bonds and

lower earnings from Argentina.

In Asia revenue growth of 10%

was offset by higher

provisions, which basically returned to more

normal levels.

On slide twenty-one, we show a bit

more detail on the Caribbean

track record.

Earnings are up 15%

year-over-year, driven by 14%

growth and assets.

Credit quality is stable, and

has held up extremely well in

the aftermath of 9/11.

We continue to expand and

invest in this franchise, we

open new branches in Puerto

Rico and in the Bahamas, where we took

over City Bank branch.

We have been expanding our

ATM network. As well,

we continue to invest in

state-of-the-art technologies

to improve efficiency

and allow us to serve

customers better. This quarter

we implemented an [INAUDIBLE] auto loan

processing system, which frees up

time for sales in the branch

and reduces our costs.

To build on our strength

and customer service we are

rolling out a customer

satisfaction measurement

program in several countries.

Initial results show that our

clients are satisfied with the

overall quality of service.

In summary the Caribbean

continues to be a profitable

growing franchise for us.

Turning to slide twenty-two, and our

operations in Mexico,

Scotiabank's earns are

growing steadily.

Year-over-year they were up 47%.

Our ROE was 16% and moving

upward.

With a focus now on managing

the bank's growth rather than

workout, we are seeing success

on all front.

Assets, deposits, and earnings

growth.

For example our retail

portfolio is up 25%

year-over-year, Commercial and

Corporate up 20.

On the deposit side, Retail and

Commercial volumes also rose

up over 50% this year.

This is translating into

higher market shares,

particularly in deposits.

Our overall deposit share has

improved by almost a full

percentage to 5.6%.

And looking specifically at

the markets we are in, our

retail term deposit shares

8.3%, while a Commercial loan

share is 13.

To better serve our Corporate

and Commercial customers we

also merged our Corporate and

Investment banking operations

into a new entity.

Scotiabank [INAUDIBLE]Capital Markets.

Providing a fully integrated

suite of services which will

help us to cross those services more

effectively.Also,

our commitment to customer

service was strengthened with

the creation of the office of

the[ Ombudsman], the first in

the Mexican banking market.

We are pleased the with the

progress in our Mexican operations.

With that, I will turn it over to John

Crean to talk about Risk

Management.

Thank you, Sarabjit.

The story of this quarter is

that while credit conditions have continued to be

choppy the quality in our

overall portfolios has

remained stable.

Our net impaired loans

excluding Argentina improved

slightly from $12 million from

Q1 to a level of $183 million.

As well our specific

provisions remained unchanged

at $350 million as Sarabjit noted.

The same level as last quarter

before Argentina.

Despite the large provision

that we made for one large

telecommunication account.

We routinely include in our

credit forecasting models a

contingency for unexpected

event risk.

This allowed us to remain

within the guidance parameters

we previously provided to the

street not withstanding the

probable account we had this

quarter.

Looking at Argentina

separately, net impaired fell

$143 million, mainly because of

further devaluation in the

Argentine Peso. As a result total that impaired include Argentina

fell $155 million during

the quarter.

Turning to slide twenty-five, you have

the formations, formations

this quarter were $359 million.

The largest amount coming from

Scotia Capital with one

account in the telecom sector

being responsible for a large

proportion of this increase.

Formations in Domestic and

International business lines

were as expected given the

size and growth of these

portfolios.

On page 46, which shows the

trend to net impaireds, which

excluding Argentina have

declined by close to $400

million overly the past year

and from $12 million from Q1.

As well, our total gross

impaired loans including

Argentina have come down by

$650 million this quarter, or

12%.

The next slide shows the call position

provisions for the quarter.

The overall level of provision

excluding Argentina was

unchanged from the last

quarter with Scotia Capital

continuing to get most of the

provisions.

The $260 million provisions in

Scotia Capital includes a

sizable provision for the one

large telecommunication

account that I mentioned.

In Domestic, Commercial and International

portfolios are remaining in very good to

excellent shape.

Page 28, gives you normal

detail and cable and telecom

exposure.

It is up slightly this quarter

with increases taking place in

investment grade regulated

telephone and in the cable

operations categories.

These were mostly offset by a

decline in the high-risk

long-haul fiber exposure.

Net impaired loans were up

slightly from $60 million last

quarter to $87 million this

quarter, with gross impaireds

up from $218 million to $287,

again primarily from the large

telecommunication account

that I mentioned.

Page 29, gives you the

Argentinian, perspective, well

reserved, our net cross-border

was $319 this quarter, it

declined $34 million from the

353 in Q1.

Mainly because of some

pay-downs and some sales and

pay-downs in the trade and

corporate categories.

As well, with gross

cross-border exposure, and our

provisions have dropped versus

last quarter, as we have now

allocated both the bond

impairment charge against the

Brady bonds, and a Pacification

charge against the caring value of [INAUDIBLE]

Furthermore the provisions and

caring value of the Scotia

[INAUDIBLE] were

both reduced by 47%

devaluation of the Peso that

took place in the quarter.

Excluding our Brady bonds and

after-tax affecting the

figures, our provision

coverage is about 90% which we

believe is adequate.

Turning to the trading books

on slide thirty, our market risk

is low, as you can see the

distribution of daily net

trading revenue for the

quarter, we had almost in large

percentage of the days, we had

poll results.

And then on page 31, we have

got the numbers and while the

trading revenues remain good,

we did not take on increased

market risk to achieve these

revenue.

The one-day volume this carter

was $9 million which is small

by any standards.

In summary, credit quality in

the Domestic, Retail,

Commercial and International portfolio's

remains in excellent or stable

condition.

Scotia Capital accounted for

most of the formation and

provision in this quarter, and

this is was consistent with

the message we have given you

in earlier quarters.

For the second half of the

year, keeping in mind that

credit conditions remained

choppy, we hope, from what we

see, that provisions will

decline from the levels

recorded in each of the first

two quarters.

And let me now hand it

back to Sabi for comment on

the outlook for the rest of

the year.

Thank you, John.

To sum up, while economic

outlook is moderately more

favorable given the good

Canadian and US numbers, we

continue to run the bank

assuming a slightly bearish

and challenging environment.

As John mentioned, we are

paying close

attention to all credit

portfolios, but particularly

in the US.

We are following and dealing

with Argentina literally on a

daily basis, but are

comfortable with our

provisions.

We are controlling costs

carefully, as always.

And even more so these days

given the environment.

Overall, ex-Argentina we

expect to meet our targets for

the year.

With that I will open it up

for questions.

If I could ask each one of you

to state your name and your

company for the benefit of

people on the phone.

Heather?

Heather Wolfe, Goldman Sacs. I am looking for John,

How much has changed in the

credit environment since you

took the big lump provision

last year?

[ poor audio ]

whether or not you foresee

another material revision to

the portfolio in terms of

classification?

Heather, thank you for the

question.

We have always tried to

recognize problems early on

and take rapid action.

That is what happened when we

posted that billion six in

non-accruals in Q1 of last

year.

We continue to provide

aggressively, conditions have

changed, you are right, from

that situation eighteen months ago.

I would say the major shifts

have seen us move towards

difficulties in the telecom

portfolio, which we did not

see fifteen, eighteen months ago, and you

have seen the provisioning

take place there.

The provisioning we have done

this year is probably been 35

to 45% in the Scotia Capital

provisioning in the telecom

portfolio.

We have obviously worked

through those areas where we

were concerned in the early

part of last year.

You remember we had some

significant provisioning

against accounts in the Health

Care Industry, we had [INAUDIBLE] charges,

Steam Industry, and we have

for the most part worked

through those.

The provision coming in those

areas is very small.

We have also worked through

the 9/11 types of problems,

you remember then we

talked about worries from our

Hotel portfolio, and from our

Airline exposures.

The Hotel portfolio is

performing extremely well, I am happy to

say.

Caribbean has bounced back

well with the bookings in the

Caribbean coming back up

towards normal levels now.

And going forward, we continue

to be concerned there is

clearly choppiness still in

telecom.

We figured that into our

forecast going forward.

We have some emerging issues

in things like the Energy

Traders, trading companies,

again that has been factored

in.

We have just said to you that

we would see the provisioning

coming down somewhat from the

run rate in the first two

quarters.

And I think while the

composition has changed

broadly speaking we're seeing

the watch list and

unsatisfactory accounts

beginning to trend down.

Credit is always a lagging

indicator, it is choppy and we

see some larger things

happening such as the telecom

account that we have all been

talking about, all of the

Canadian Banks, we have

probably will have some

choppiness in the next two

quarters, but we still

nonetheless see the

provisioning levels being down

from the current runway from

the first two quarters.

Are we to assume

given that if you are taking

the sort of unexpected

reserves in the provision

guidance that you have given

us, are we to assume if we see

another unexpected event in

the next six months that

might cause you to increase

your provision or is there

still more of a cushion there

for something unexpected?

The core of this -- of these models

are your probabilities of

default and

you're working off a

historical base and also

working off an examination of

the individual accounts.

And we do very careful analysis of

all of the accounts that we

are concerned about and that

goes into our forecasting.

There is still certain room for unexpected

events, 9/11 is a good example

of an unexpected event.

And none of us can forecast

that.

But we have included what we

can on the historical basis

for circumstances such as that

large telecommunication

account going wrong.

We will continue to have those

kinds of surprises, and all I

can invite you to do is look

at our past track record of

being fairly good in the

forecasting that we have done.

Chuck?

This is Chuck Jacob [INAUDIBLE]

[ poor audio.

John your [INAUDIBLE]

residential mortgages and

personnel.

In addition to that there was

over $2 billion --

[ indiscernible ]

can we expect -- the loans

going forward?

You have seen some draws on

investment grade credits in

the last couple of quarters

related to some companies with

difficulties in the commercial

paper market.

That has been behind some of

the growth in the corporate

book.

As markets settle down, I

think you may see some of that

wash back away.

You are quite right took look

at the growth in the

personal -- the retail

assets in Canada.

It is not an objective to grow

this , the corporate book.

I would not expect it to be

much growth in

that going forward.

SARABJIT MARWAH If I can elaborate on that,

one of the primary reasons in

the growth in business lending, is really our CLO [INAUDIBLE]

We have a collateral loan

obligation in the US, that

is really coming on balance sheet as the [INAUDIBLE]

winds down.

We have over 1 to 2 billion,

more than that, that is coming

on balance sheet that is

causing that growth.

But is a transfer from

elements of areas on the

income statement.

$2.7 billion canadian?

That's correct.

Poor audio ]

If you look at the lending

levels besides the Caribbean

and the Domestic side,

Caribbean and Asia which continues to grow,

Mexico has seen some pretty sharp growth.

Our lending in the US, has

been trending down now for

five quarters.

We have obviously have not really committed

to a floor on that or how much

has been done but it is done

for five or six quarters now

consistently.

That [INAUDIBLE] business is trending down.

Two questions,

first of all on the cable and

telecom exposure, does that

include equipment suppliers to

the telecommunications

industry and if not,

can you tell us what it is and

split that between investment

grade and non-investment grade.

The second question is to

capital.

Your capital ratio is very

impressive and you continue to

build excess capital.

It looks as if you have got $2

billion in capital, even

taking back some of that.

I will have John answer the

question and I will take the

second.

No ,It is not excluded.

It is somewhere in the

neighborhood of $100 to $250

million canadian.

The bulk of that would be

non-investment grade.

In addition to the.

[ AUDIBLE]

Non-investment grade.

It is fairly widely distributed.

On the capital side,

clearly our capital is the

highest of the Canadian Banks.

I would point out, that at the same time ROE

earning an 18% plus ROE.

Management's view has always

been and that has been investment consistent for the

last several years, in fact our

role is to redeploy the

capital for the benefit of

shareholders and investors and

we are clearly attempting to

do that.

We are looking at a few

opportunities that would

utilize some of the capital.

I mentioned Mexico in the past

and I think we are looking at

a possible acquisition in the

US, on the commercial side.

But should we not see anything

come up over the next several

quarters we will take

alternative actions.

Any questions on the phone?

Your first question is from

Jamie Keating with Merrill Lynch.

Please proceed.

Thanks, guys. Good quarter.

I have a couple of questions.

One maybe for Mr. Crean, could

you help us out with the

balance for the corporate loan

portfolio is in Canada and the

US, this is all our terms

and if you could follow on the

level of credit protection

might be out there for

Scotiabank, {INAUDIBLE]

Could you give us a window as

to whether you also

participate in that and to

what degree.

I have a follow-up on Mexico

probably for Bill.

On the corporate lending

book in the US And Canada

give me a minute and I will

get that for you.

What was your second question?

I was asking if you

or John could comment on the

level of credit default swabs

you may have in dollar terms

and perhaps if you can

enlighten us as to whether any

of them pertain to the telecom

portio specifically?

My other follow-on, while you are getting organized for [INAUDIBLE] is

regarding Mexico, I wondered

if Bill might, if he's there,

if he can let us know what the

competitive environment is

like in Mexico [INAUDIBLE] the

other banks and if

specifically, is sounds like [INAUDIBLE] is quite cleanly capitalized and

is open for business.

Could you comment on the state

of the other banks as to

whether you have a window of

opportunity for a while as

others perhaps clean up and

real structure some of their

old good bank-bad bank

structures?

Let me answer your question

that I said on the corporate

lending in Canada and the US,

In canada it is around $13

billion and the US, is around

$21 billion.

15 and 21?

SARABJIT MARWAH.

13 and 21.

Both of these numbers, have been sort of -- on the US in particularly

trending down over the last

six quarters.

In terms of the credit default

swabs I will let John Crean answer

that.

We have done most of our

protection by selling loans or

selling participation in

loans.

We have not been large

participants in buying

protection for the loan book.

Thank you.

On the competitive

environment, Bill?

There is no question that

in Mexico we have benefited

from the mergers and internal

focus of the other banks given

their Data Merger, Colburn

and.

[ poor audio ]

a lot have focused on internal

integration and bringing them

together.

If you look at our loan growth

last year in Mexico, it

increased dramatically by over

30%.

Also added to that is the

market dynamics in Mexico for

shipping tremendously in

that -- between 96 and the

year 2000, interest rates were

really quite high, especially,

you know, in -- I mean in local

currency, which kept you out

of the retail market to a

large degree.

In the past 12 months

especially, interest rates

have dropped, have come down

dramatically.

I think the [INAUDIBLE] Mexican Peso's is under

6%.

This opened up the window of

opportunity in retail lending,

particularly in car loans and

in mortgage lending and there

is no question that we have

taken advantage of that and I

think we got in there before

the other banks.

Thanks gentleman ,Thanks Bill.

Next question on the phone?

Your next

question is from Melanie Ward

with RBC Capital Markets, please proceed.

Hello, Melanie, Welcome back.

Thanks very much,

I had a question on your

security gains and the

sustainability of them, I

appreciate there are positives

and plus's and negatives that

go on to have Gaap earnings

grow.

In terms of looking forward,

can you see some sort of level

like this being repeated?

And my second question has to

do with the International low lost

provisions, they came in really low

this quarter, quite low, even if you take

into account what happened

last quarter, but the run rate

is very low relative to the

past few quarters, in fact.

Okay, if I could have Bob

Brooks take the first question

and John Crean the second.

It is always, as you said,

Melanie, very difficult to

predict the timing

and availability of security

gains, we don't take gains,

because of the impact on the

financial statements, we take

gains, or losses, for that

matter, based on our outlook

for the particular securities

and the securities markets

that are involved, or if is

private activities, we don't

have a lot of because of

market opportunities to

aggregate.

Having said that, the

unrealized gains at the end of

the quarter were in excess of

$600 million Canadian dollars,

a big piece of that is

emerging markets to paper.

Obviously,

But not all of it.

So there is clearly room to

take gains, if

market conditions remain

reasonably good.

I think this quarter's numbers

were somewhat on the large

side, relative to a normal

kind of run rate number,

although we don't really have

a run rate number in mind.

I guess the other thing I

would mention in the context

of this is for the last

several quarters, as I am sure

you know, we have been taking

writedowns on various fund

investments that the bank has

to reflect the situation in

the telecom area, in

particular, but not

just that, so to the extent

that levels out at all,

the numbers will actually go

up.

Because these numbers are net

of those writedowns.

We have been taking

writedowns, the only thing is that haven't treat

them as special, we have taken

them through earnings.

We did in excess of $175

million of writedowns between

last year and this year.

Thank you.

On the International

provisions, as you know,

Argentina has been treated as

outside of the normal

numbers in the last two

quarters.

When you do a quick survey of

the quality of the various

portfolios, the far east is in

good shape, very stable,

Mexico is in good shape,

Caribbean has been doing very

well.

Normal levels there.

And so generally, it reflects

the caliber of those

portfolios.

Thank you.

Next question on the phone.

Neil Mathewson with Standard Life Investments, please proceed.

Good afternoon.

A couple questions for John

Crean, if I may.

The first is regarding the

cable and telecom exposure.

Under "Cable," is there part

of that which is in the UK and

Europe?

And if so, can you tell us how

much?

Yes, there is some in the

UK and Europe, and we don't

normally provide breakdowns on

geographic basis.

Okay.

And another one, John, you

mentioned that year-to-date,

if I have understood it right,

you have taken about 35 to 45%

of Scotia Capital's loan

losses have been against

telecoms.

Have I got that right?

Yes.

Okay.

Is it likely to be at that

kind of level for the balance

of the year?

What we do in our guidance

on the provisioning is to

provide your guidance on an

all-bank basis, and I would

not want to start doing it on

a business line or industry

segmented basis.

All right.

And then the only other detail

is can you give us either a

figure or guidance of the

provisions taken in this

sector last year, in 01?

Neil, I can try and get that

information and have Kevin get

back to you on that specific.

That would be

helpful.

Not large.

Not large.

Next question on the phone?

It is from Rob

Russell with National Bank

Financial.

Please proceed.

Yes, Thank you.

I have just one question,

actually.

On slide 28, the cable and

telecom exposure, can you

identify which balances you

feel comfortable with or you

would define as, say, you know,

medium-to-low risk?

Just picking through those

cable operators are standard

lending parameters are to lend

to operating cable operators

where we have 5 to 6 times

leverage, have security over

the assets, and that has been

a good -- a well-performing

stable part of the portfolio.

Regulated telephone is what it

is, and that has been stable.

Unregulated telephone and

wireless has a small amount of

the net impaireds of 87.

That has been a pretty stable

part of the portfolio.

Long haul pipers is where we

have had the problems and that

one large account we just

talked about, and Plex have

not been very good either.

Those are the two portfolios

which have caused us more

concern.

Thank you very much.

Next question on the phone?

It is from Steve

Collie with TD New Crest.

Please proceed.

Hi there, I would like a little bit more

color on the write-offs on the

quarter and as well,

Just another -- TD Bank in

fact, has given more color on

their specific allowance

coverage ratio.

Like yours is 59%, but what

they have done is they have

given us an adjusted ratio

where they have added the

cumulative write-offs. I was wondering if

you might be interested in

offering up that kind of

information in terms an

adjusted specific allowance

adjusted ratio?

You will get into detailed

information for a conference

call. [INAUDIBLE]

Whatever additional disclosure we feel is appropriate, we

can provide you that.

What about just the write-offs, Sabi?

The write-offs are general historically , we have not written them

off aggressively. I think we just started that simply because

there has been

a concern to some people that

our gross non-performing loans

were higher than average, we are just

writing the loans down.

It is not out of the ordinary.

591 is a big

number.

Am I looking at the right

number?

$591 million was the write-offs

in the quarter?

That's right.

As, Sabi said. John Crean speaking.

Sabi said we have been slow

historically to write off

these balances.

We have focused from a management

standpoint more on the net

non-accruals.

We have been writing them down

this quarter more aggressively.

I don't think I have got much

more to say than that.

I think you want to focus on

the net numbers more.

In terms of provisioning, our

provisioning levels, we are

looking at what we can -- what

well expect to be able to

recover out of the asset, and

our provisioning levels on

individual accounts we believe

have been really very

aggressive.

I will call you

later, Thanks.

Your next

question is from Susan Cohen

with Dundy Securities.

Thank you. Maybe just focusing on

Argentina for a moment, if you

were able to exit Argentina,

might that likely involve any

kind of additional charges to

close down the operation or to

exit, or do you feel that the

provisions that you have taken

would likely cover any

exceptional charges as well?

At this stage, Susan, we

think that coverage and the

provisions they set up are

adequate.

Okay.

Even in the eventuality of

exiting and any operational

charges that that might

involve?

To the extent that

operational charging, to the

extent we have severance, we

don't think the numbers will

be material.

They can be handled through

normal earnings.

Ok, Great. Thank you.

Your next

question is from Quintin Brog with CIBC World

Markets, please proceed.

Yeah thanks, Good afternoon.

Two questions, one going back

to John, just on the

large telecom

name, would you mind giving us

the gross impaired and net

impaired, the reserve level

you have taken on that name

and then secondly Sabi you

talked about the strong Tier 1

capital ratio and excess

capital in that you have

talked about mexico, you have

talked about the possibility

of US expansion, but if

those things don't happen, I

would assume Mexico is

probably closer perhaps than

the US, but just what you

would do, you said, that there

may be things, could you

illuminate us on those other

things?

Is that more aggressive stock

buy-back dividends, et cetera?

On that one account, John Crean speaking, we

have reserved it to 85%.

On the capital said,

Quintin, you know the terms as

well as I do, if you don't see

anything, the only two options

is aggressive buy-backs and

higher dividends and that is what we will go do.

Thank you.

The next question

is from Jim Bantis with Credit

Suisse First Boston,

please proceed.

Hi, Good afternoon. During this past quarter some of your

competitors have provided us with information regarding exposure

to the power and power

generation areas.

Could you give us a breakdown

perhaps of your total exposure from the loans in BA's

perspective?

We have not provided that

guidance, that set of numbers

historically and have not done

so with this package either.

John, Do you plan to over

the near term given the

sectoral issues,-- the issues

facing the sector?

It is known that the bank has

been an active lender in that

section, you highlighted in

your comments there had been

exposure to a couple

of names?

The issue came up last

quarter, when we had one

particular account at that

time, we said that the

account would not be of

material impact on the bank.

Generally, in the energy

sector, we tend to lend

at the operating entity --

operating level, not at the

whole coal level and so that

we are -- for the vast bulk of

the exposure, to those kinds

of companies, we are actually

close to the asset often

secured and close to the cash

flows.

And so that I am not expecting

that there is going to be a

large impact on our

provisioning levels from that

sector.

Great, Thank you

If I could ask another

question regarding the

International operations, you

have been kind to provide us

with some slides in terms of

Mexico and the Caribbean, but

despite the lower PCL's, we

have seen the net contribution

from International actually

fall off from the previous

quarter, and Sabi mentioned

some issues regarding timing

of payments, could you

elaborate on that?

Do you expect the net

contribution to rebound in Q3?

I think it will rebound

somewhat.

I think one of the reasons as

well that Argentina year

over year, Argentina is pulling a

drag a bit.

We have timing of some Brady

bond payments we put in

Argentina, Brady bonds

non-accruals, there are a

couple of items and some

issues will bounce back.

Asia as well provisions will

return to more normal levels.

That should come back again.

So the plus and minus's, we

think the trend is still

long-term going to be up.

That's great, Thank you.

Your next

question is a follow-up from

Jamie Keating with Merrill

Lynch.

I just want Jim to notice, I did

queue up again.

I have a brief question

regarding the gross impaired

loans.

You alluded to this earlier,

you have accelerated your

write-offs perhaps to start

moving those gross impaireds

back in line with the group.

Could you expand on your

strategy to get the gross

impaireds down back into the

range of the other banks and

over what time frame you might

execute that strategy?

Essentially what we have

done is to look at individual

exposures.

The likelihood of ultimately

getting some value back from

them, we provisioned to levels

that we believe are realistic,

and so the amount -- the total

carrying value is in many

cases well more than we might,

in any very optimistic

scenario recuperate our

investment.

So we are going through

exposure by exposure and

gradually writing those

amounts off.

I think you will see over the

next two, three, four quarters,

this continue.

We have no specific targets

for it to happen, and it will

come down to doctor more

generally in line with the

peers.

Our gross impaireds are

higher than our peer group

because of our international

operations.

Keep in mind that our Mexican

gross impaireds are still

there, but they are a hundred

percent provided, so while it looks high on the gross side , on our net side the impact is zero.

Similarly for Argentina, the

gross impaireds are high but

on a net basis there is less

of an issue.

Even if you

factor that out, we are

bringing the paper paired

loans close to peer group

Next question on the phone.

There are no

further questions on the

phone line, Sir.

Any further questions here?

Mary?

Sabi, could you please go over

again unpaid 6 in the

supplemental swing of the $100 million in other

year-over-year.

That is the two issues, Mary, the

other includes group treasury,

there is higher gains coming

in that line, in the other

category, and the second one

is the fact that we have the

tax settlement interest of

which is $10 -- $16 million is another

income and $21 million is a

reduction to income tax

expense.

That flows into other as well. So,

that really is the bulk of the growth

there.

If there are no further

questions I know we have

another analyst meeting

starting at 3.

So thank you very much.

We look forward to see you

next contract -- next quarter.

We thank you for

participating and ask that you

please disconnect.