Bank of Nova Scotia (BNS) 2003 Q3 法說會逐字稿

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  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Good afternoon, and welcome to the presentation of Scotiabank's third-quarter results. I am Sabi Marwah, Senior Executive Vice President and Chief Financial Officer. With us today are Peter Godsoe, our Chairman and CEO; Rick Waugh, President; Bob Chisholm, Vice Chairman; David Wilson, Vice Chairman; Bob Brooks, Senior Executive Vice President and Group Treasurer; and Warren Walker, Executive Vice President, Credit Risk Management. Peter Godsoe will begin with the highlights of our results, followed by a review of the financials by myself, a review of our asset quality by Warren, and concluding remarks on outlook by Peter. We will then be glad to take your questions.

  • This presentation is also available on the Investor Relations section of our website at Scotiabank.com. Peter?

  • Peter Godsoe - Chief Executive Officer

  • Thanks. I am, of course, pleased to report a record quarter with earnings per share of $1.20, up 14 percent over last year and 7 percent over the past quarter. The return on equity was strong at 17.7 percent, up from 16.2 percent the prior quarter. Equally pleasing to us this quarter is that the earnings are well diversified with strong contributions from each of our major business lines, all of which improved over the prior quarter, quarter two. On the credit front, net impaired loans and provisions continue to come down. We've been able to work through the challenges of the power and energy sectors relatively unscathed, at least from a P&L point of view. However, we are not declaring total victory. These are uncertain times, and we will continue to manage and reserve our portfolios conservatively.

  • Another big plus is our capital ratios, Tier 1 up 10.6 in one week. Especially concentrate on the tangible common equity at 8.7, both industry-leading ratios and very good by any standards. So this capital strength gives us the flexibility to increase dividends and/or buy back shares if we choose to so do, and to take advantage of business opportunities whenever they arise. Overall, this was a very clean quarter, as you will see.

  • The next slide shows the upward trend in earnings that we've been able to deliver in the past year, notwithstanding the credit and other challenges we have faced. In fact, as most of you know, this record of consistency of earnings growth goes back over the past decade, even slightly longer, and one we expect -- that we intend to continue in the years ahead. We take pride in the consistency, our people, our culture, our diversity. And most importantly, I think our ability to adjust in uncertain times and find some way to produce results for our shareholders.

  • Speaking (technical difficulty) of diversity, the next slide shows the three major business lines which contributed this quarter. They really truly are distinct, and we are not dependent on any one of them to drive our earnings. In domestic, we have a strong base of core earnings with leadership and customer satisfaction, very high employee morale. Employee morale is the highest it has ever been in our history through our internal polls. We did 43,000 in the last week. Rick could speak about that more, so we know that's right. Internationally, we had an increased contribution with Scotia in (indiscernible), in part reflecting our increased ownership but as well reflecting strong underlying performance. And as well, we had strong underlying performance in our other operations, primarily throughout the Caribbean.

  • Wholesale operations, Scotia Capital had one of the best quarters ever, driven in part by a drop in credit losses but strong performance on the fee side with record underwriting and foreign exchange revenues. In terms of our 2003 performance targets, we are firmly on track to meet them. Return on equity at 17.2 for the year-to-date is the upper end of the 15 to 18 percent target range. Earnings per share at 5 percent for the first three quarters is at the lower end of our 5 to 10 percent target. I think as we said last quarter, we expected this to be a tough target to achieve without stock buybacks. But given this strong quarter's performance and given it was so broad-based, we are now confident of achieving our target with or without buybacks, that's for sure.

  • Productivity remains strong, well ahead of our goal of 58 percent. And in terms of capital ratios, as I mentioned, we are the industry leaders and the Tier 1 is well above our target range at 10.6, and our intangible common equity at 8.7 percent basically is world-class. I will now pass it over to Sarabjit to talk about our performance in more detail.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Thank you, Peter. I would like to begin on slide 8. As Peter mentioned, this was a relatively clean quarter. Argentina had two offsetting impacts on the quarter. Firstly, there was a reversal of 24 million of provisions against our Argentine cross-border exposure following the sale or repayment of loans. Secondly, we had a write-down of 27 million on Argentine bonds. The net impact of these items was very minimal, as you can see in the slide.

  • Turning to slide 9, our margin grows by 3 basis points in the quarter, but was 5 basis points below a year ago. As in the second quarter, the major reason for the year-over-year drop was lower foreign currency funding spreads, down from the record levels last year. For the quarter, the increase was due to a number of items, including slightly higher funding spreads in North America and Europe, and wider spreads in Jamaica. We also benefited from a slightly wider spread between Canadian currency, floating-rate loans, and nonrate-sensitive deposits, reflecting the rise in average prime in the quarter.

  • Looking at slide 10, which is other income, at the top right reported other income was up 13 million year-over-year. However, if we exclude the effect of the sales of Scotiabank Kilmaise (ph) and the bank's Merchant Acquirer business and also adjust for higher security gains last year, underlying other income was up a strong 120 million or 14 percent for the same quarter last year. And the 14 percent growth was very broad based with a particularly strong performance from investment banking, which is up 24 percent. On the left compared to Q2, the underlying increase was 70 (ph) million, again very broad based, including record underwriting results, higher deposit payment in card revenues, and increase in securitization revenue, as well as for the first time in several quarters an increase in retail brokerage commissions.

  • Turning to our non-interest expenses on slide 11, reported expenses increased 4 percent from last year and rose 2 percent on the quarter to the last. If we exclude the expenses related to Scotiabank Kilmaise and the bank's Merchant Acquirer business, expenses rose 6 percent on the year and 4 percent on the quarter. In both cases, the vast majority of increase was due to higher stock and performance-based compensation. Overall, our basic expenses remained well controlled. Our cost control shows up more clearly in our productivity ratio chart on slide 12. At 54 percent year-to-date, it remains very good, and we continue to lead the Canadian banks in this area.

  • Looking at slide 13, capital strength also remains a big plus for us. All our capital ratios are very strong and the best among the major banks. Tier 1 is now 10.6 percent, up 80 basis points from last year and 30 basis points higher than last quarter. Even more important, the tangible common equity ratio which reduces common equity for goodwill and intangibles is particularly strong at 8.7 percent, 70 basis points higher than a year ago and 30 basis points above last quarter. Over the past year, our risk assets have fallen which, along with good internal capital generation, have helped us strengthen our capital ratios.

  • Turning to slide 14 is the annualized gains on investment securities. Our surplus has risen again this quarter to 659 million versus 418 million last quarter, and versus a deficit of 126 million in Q3 of last year. This 241 million increase on the quarter resulted mainly from higher values in the bank's equity portfolio, following the rise in North American stock markets.

  • Turning to the business line results starting on slide 16, as Peter mentioned, all three business lines did well, and all were up quarter over quarter, with the biggest improvement coming from Scotia Capital where loan loss provisions continued to fall. Looking into each of the business lines, first on slide 17, domestic banking which includes our wealth management business had another very solid quarter with earnings up 272 million, up 4 percent from the third quarter last year, and an increase of 3 percent quarter-over-quarter with an ROE of 20 (ph) percent plus. Revenue growth was driven by increase in retail lending. Year-over-year, our residential mortgage average balances rose 8 percent. On a spot basis, they increased a record 2.5 billion in the quarter.

  • Revolving credit balances were up a very strong 19 percent. As well on the department side, we continued to see strong growth, due in large part to the success of our very popular retail and small-business money master account. In wealth management, retail broad-base bounced back this quarter. Overall, our balance sheet growth was partly offset by a narrow margin year-over-year. On the credit front, retail credit quality continues to be very good with loan loss provisions running at a very respectable 23 basis points year-to-date, an industry best. Commercial losses were also fairly low this quarter.

  • On slide 18, Scotia Capital had earnings of 193 million for the quarter, close to record levels for this division. Earnings were up 24 million or 14 percent from last quarter and a very substantial 137 million year-over-year. These better results were driven mainly by loan losses which (indiscernible) again this quarter. Year-over-year loan losses were down 220 million, which came entirely from the U.S. portfolio. And quarter-over-quarter, they fell 39 million or 22 percent, with lower provisions in both Canada and Europe.

  • This quarter, Scotia Capital also had a record performance in debt and equity underwriting and in foreign exchange. However, total revenues were slightly lower than last year as a result of a number of factors, including narrow funding margins, the impact of the stronger Canadian dollar, and a decrease in corporate lending volumes which was down 20 percent year-over-year.

  • Turning to our international operations on slide 19, this quarter international net income was 175 million, up slightly from last quarter, though down 37 million from last year. This year-over-year decline was because earnings in Q3 of last year were unusually high, bolstered by the sale of some emerging market bonds. This quarter's results also did not benefit from bond sales and were also adversely impacted by the stronger Canadian dollar. Within international in the Caribbean and Central America region, net income was up 17 percent from last quarter, reflecting strong growth in interest profit and lower loan losses. Year-over-year, however, net income in the Caribbean was down, mainly due to the effect of the stronger Canadian dollar against most Caribbean currencies which mask good underlying results in many units.

  • In Latin America, Scotiabank Inverlat contribution rose sharply over last year last quarter, and I'll have more to say on Inverlat in a moment. The remaining operations in Latin America were both down, both year-over-year and over the prior quarter, almost entirely due to lower gains on emerging market bonds. In Asia, earnings were below last year and last quarter, primarily because of fluctuations in credit losses. Overall, when we strip away the impact of forex and bond sales, the underlying retail and commercial operations in international had a fairly solid quarter.

  • Looking briefly at Inverlat in a bit more detail, their contribution this quarter was up a very strong 80 percent over Q2, adding 3 to 4 cents to EPS. This reflects a larger share of their earnings, as well as strong underlying growth. As you know, we acquired an additional 36 percent interest in Inverlat at the end of last quarter, increasing our ownership to 91 percent. However, since we consolidate the earnings one month in arrears, this quarter we received only two months at 91 percent and the other month at 55 percent. This resulted in an overall contribution of 80 percent for the quarter, which will rise to 91 percent next quarter.

  • Besides increase in ownership, Inverlat also had strong growth in assets and deposits over the past year. Retail loans were up an impressive 27 percent. Commercial loans increased 15 percent, and core deposits rose 14 percent. As well, the marketshare is up in these areas as well. Overall, we continue to be pleased with the progress in Mexico and consider it a key growth opportunity for us. In summary, all our business lines have solid performances this quarter. I'll now hand it over to Warren Walker to talk about risk management.

  • Warren Walker - Executive VP Credit Risk Management

  • Good afternoon. I'll be starting on page 22 of your package. As Sarabjit and Peter said, the story this quarter is continued improvement in overall credit quality. Net impaired loans were 317 million, down 61 million from Q2, and a significant improvement of 702 million from the same quarter last year. This is the fourth consecutive quarter that net impaired loans have dropped, and largely as a result of lower levels of impaired loans in Scotia Capital and the effect of the sale of our Argentine operations last year.

  • Specific provisions were also down to 200 million, a decrease of 48 million from last quarter. The 200 million is after a 24 million reversal related to Argentine cross-border exposure following the sale or repayment of some loans. Compared to the same quarter last year, provisions are down a substantial 200 million. Continued reductions in loan losses in the U.S. accounted for all of the year-over-year decrease. In the U.S., renewed access to capital markets has added stability to some of the troubled sectors such as power and energy and cable and telecom. Specifically in the power and energy sector, a number of major restructurings have been successfully completed. Notwithstanding these positive developments, we continue to manage our credit portfolios in a conservative manner, given the uncertain economic environment.

  • On the next slide, slide 23, shows net formations by business line. Scotia Capital formations were down again this quarter to 76 million. There were no new major formations, and we did have some loan sales and declassifications, both in Canada and the U.S. Formations in the domestic were slightly lower than last quarter and continue to be modest, given the size and the growth of this portfolio. In international, there were a couple of classifications that led to the quarterly increase. The next slide shows the trend in net impaired loan formations over the course of the last five quarters. As you can see, formations this quarter were well below Q3 last year, down from just over 1 billion to 193 million this quarter. Formations did increase slightly from Q2, up 40 million, although as I mentioned there were no significant increases. Slide 25 shows the trend in specific provisions which continue to decrease. This is the lowest level of specific provisions we've had since the second quarter of 2000.

  • Turning now to our power and energy trading exposure, slide 26, it has come down more than 400 million from last quarter with a decrease occurring across all sectors, reflecting a combination of write-offs, loan sales and permanent reductions and repayments, as well as the forex impact. As I mentioned last quarter, most of the troubled companies in the power and energy trading sector have successfully restructured their debt. One major company this quarter did file for bankruptcy. However, this was not a large exposure for us, and we've taken adequate provisions. We continue to monitor this sector closely, but believe the worst has passed now that most of the restructurings have been completed.

  • Turning to market risk on slide 27, we have fairly low variability of trading revenue. In fact, more than 90 percent of the days this quarter had positive results. However, there was one day, July 15th, where we had a larger than normal loss. This was due to a combination of factors, namely a surprise rate cut by the bank of Canada, as well as comments from Federal Reserve Chairman Greenspan which affected the market. The result was an unusual set of swings in Canadian and U.S. interest rates, as well as some unexpected volatility in foreign exchange markets which hurt us that day.

  • On the next slide are the VAR trends. As you can see, there was just one day where we exceeded the VAR estimate for the reasons I just explained. However, overall we continue to operate with a very low VAR, which averaged 9 million for the quarter, and that's modest by most standards. In summary, credit quality remains good, both in Canada and also in our international portfolio. In Scotia Capital, we see signs of credit quality stabilizing. The particular sector issues in cable and telecom and power and energy appear to be largely behind us.

  • Obviously, we still face challenges given the uncertain economic environment with SARS, mad cow disease, and the effects of the recent power outage. However, we remain cautiously optimistic that the worst of the credit cycle is behind us. Looking forward, we expect provisions in the fourth quarter to be at or below this quarter's level, and next year we would expect provisions to trend lower, back to more normal levels. And with that, I'll hand it back to Peter.

  • Peter Godsoe - Chief Executive Officer

  • This quarter was a record quarter characterized by strong earnings across all our businesses. This puts us in a good position, we think, going forward, and as well we continue to see our Mexican operations with double-digit growth, notwithstanding a slow economy there, as a key part of our growth plans. On the credit front as Warren said, we're managing conservatively, but we are seeing positive trends. You're seeing that across the system, but we do and will manage our portfolios on a conservative basis.

  • On the capital front, our strong position gives us a lot of flexibility, both in returning money to shareholders through dividends or stock share buybacks if we so choose, and/or expanding our business. Overall, we are firmly on track to meet our 2003 performance targets and are very confident on that one.

  • With that, I'll open it up to questions, and thank you all for coming, given this is the day of three. We thought nobody would show up.

  • Unidentified Speaker

  • The expenses, you know, (indiscernible) look really good, but there are a couple things that sort of look a little bit unusual. When you go into the segment, the noninterest expenses and domestic banking and Scotia Capital on a quarterly basis look some of the highest they've been in several quarters in a couple years. And it's quite different from what we've seen at the other banks. We've seen the numbers continue to come down, despite what looks like better earnings. So I'm just wondering, do you have any way to reconcile those trends?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Maybe I can comment, Ian. If you look at the year-over-year growth in domestic (indiscernible), look at (indiscernible) bank on slide 11 in your package. You can see the growth in the year-over-year of 85 basically stock and performance-based compensation. Of that 85, almost 50 of that is stock-based compensation. And that's because in last year in Q3 stock with prices had fallen. So we had a credit last year versus an expense this year with a run-up in the stock price. So that is around 50 million in just the swing from stock based compensation. And the majority of that goes to the domestic bank, almost 70 percent of that goes to the domestic bank, and as you see the big bulge in domestic is purely an allocation of that piece of the puzzle.

  • And in terms of Scotia Capital, keep in mind that Scotia Capital expenses have been rising because of higher performance. And the two portions in Scotia Capital is, one is the bank businesses which are really the lending and the funding, and then you have the trading businesses which are direct drive. The direct drive businesses have been doing very well, and hence the higher performance base, but the bank businesses so-to-speak, the corporate lending and the margins which have really been coming down, those are standard bank businesses and they don't have the same variability in comp. So, therefore, you see the increase in Scotia Capital's comp.

  • Unidentified Speaker

  • On slide 11, if I were to ask you what the impact of the Canadian dollar is on expenses, on a constant dollar basis, because I think one of the big offsets here is international expenses drop (indiscernible)

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Or you can just take 7 percent against international's expense base would be -- it is around 400 million for the quarter, so take 7 percent of that quarter. It's around 28 million expense in the quarter, or pick-up from the quarter, so to speak.

  • Unidentified Speaker

  • The swing in stock-based comp sequentially?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Quarter over quarter it's only 5 million. Year-over-year it's 50, because last quarter was depressed by the fact that the stock price had fallen from Q2 to Q3.

  • Unidentified Speaker

  • So if we look at your variable comp as a percent of brokerage underwriting and trading revenue, it looks like it has swung around quite a bit with this quarter being one of the highest levels that I've seen in some time. Can you tell me what's going on here?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Underwriting is a record in Scotia Capital, foreign exchange is a record in Scotia Capital. Trading is actually not that bad, and then retail brokerage is up for the first time in several quarters, too. So you add it all up, it is a (indiscernible) business performance. There's no change in formulas, there's no change, and what's really coming down is corporate lending, which is our traditional bank model. It doesn't have the same variability rate as direct-drive businesses.

  • Unidentified Speaker

  • What should I be looking as a sort of a trendline on that ratio? Right now, it is close to 60 percent as I calculate it. And I don't imagine that that's sort of the trendline I should be looking at.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • I'm not sure how you'd calculate the 60 percent, but --

  • Peter Godsoe - Chief Executive Officer

  • I think as a generality, we think back to the prior. If we look at our running expenses the way we look at it, they are well-controlled. It is a typical Scotiabank quarter. We had an uptick in our variable expenses, and they might look a little out of whack, but part of that is just timing. I don't think it is like we've lost control of how we control our variable expenses. That isn't right. It is just timing.

  • Warren Walker - Executive VP Credit Risk Management

  • In the domestic, 25 million of the increase is just three extra days (multiple speakers).

  • Unidentified Speaker

  • If I could have another one, given the strong (indiscernible) position that the bank is in and the comments that have been made about the flexibility to do things like buy back stock, if you did buy back any stock this quarter, it looks to have been extremely minimal. Can you just let us know also what the thinking was along these lines?

  • Peter Godsoe - Chief Executive Officer

  • Well, we haven't bought back stock for two quarters, basically. And we surprised, I think, even ourselves on our ability to earn really quite an acceptable return on the excess capital as we looked at various alternatives. We continue to believe that a strong capital position is a plus, not a minus. We continue to relook at our dividend, and will look at it in the quarters ahead because we've moved up to the 35 to 45 percent range.

  • We view the stock buybacks at this particular cost to capital as being somewhat expensive if we do not find other opportunities. But, as you know, we have expanded in the Dominican Republic. We are trying to build up our organic expansion in Mexico and go faster. So we are not in a position that we feel we have to buy the stock back at this time, and we don't really have plans in the coming quarter.

  • Unidentified Speaker

  • Just a couple questions. In terms of looking at Scotia Capital, it does look like a very good quarter. NII has come down, average assets down. Part of that is, I think, how you are managing the balance sheet, but in terms of what you're trying to do with your noncore borrowers. So is there something here in terms of trend, David, that we should be looking for on the ability to generate NII going forward? And secondly, just looking at some of the fees generated in the quarter, which I assume come out of your group, how much restructuring activity has gone on in the quarter around the commitment and other credit fees that would be related to a lot of the troubled credit that you've been able to get an ounce if not a pound of flesh from, which would cause it to tick up in the quarter?

  • David Wilson - Vice Chairman

  • I'll answer the first one first. The (indiscernible) standings have been coming down in the U.S. They're down partly because of the Canadian dollar and partly because the loans have been paid off or they've been included in the exit account. So it's a gradual reduction over the last year. The exit accounts which you've asked about before, we have repaid or sold half of the exit accounts. We are down by 2 billion in commitments, 2 billion to go. In Canada, the standings are pretty stable, down slightly. In Europe we are taking them down more dramatically. So the standings are coming down. I think with the credit cycle having turned, we're going to start aggressively marketing based on some disciplined criteria, but the marketing machine will start again. So I'm not concerned about continuing trend in the outstandings in the loan book. Did that answer that first one?

  • Unidentified Speaker

  • So then the NII provided stability of margins should stop its downward trend?

  • David Wilson - Vice Chairman

  • Yes, it should stabilize with a change in the economy and a change in our approach to the portfolio. The second question was restructuring fees. We had a couple of large fees, but it wasn't a big part of the business. On restructuring the credits, we had a couple of restructuring fees in the quarter, but it is not a big bubble.

  • Unidentified Speaker

  • Okay.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • (indiscernible) If you look at slide 9 in your (indiscernible), you can see the improvement in funding margins in the quarter. That's really all in Scotia Capital. There's a funding of the wholesale book, and even though it has been coming down for the last four quarters, that turned this quarter. So we should see an improvement going into Q4. So that is already happening.

  • Peter Godsoe - Chief Executive Officer

  • To quote it slightly differently, and David alluded to this, we are still a lender. We are still a lender in the wholesale area. We well understand the economics and the noneconomics of it that we are not trying to exit the business or push it down to a low percentage of our overall mix. We view it as something that is a valuable to both our Mexican and our Canadian operations and something we should and will be able to control well and make adequate returns on it. As David says, the marketing machine is back on. We know we are not alone. We know some of the big American banks are back out there again.

  • Unidentified Speaker

  • And just on Mexico, given now in the quarter you've got the 91 percent in, any change in your outlook on the 80 million of increment? I think you were looking for 80 million of incremental annual, Rick.

  • Rick Waugh - President

  • Yes, we got in on the currency. I mean, the whole international got hit on the net income number due to currency. In fact, (indiscernible) Canadian dollar in particular was (indiscernible) that issue on that was 17 percent. I mean, (technical difficulty) year-to-date $30 million (indiscernible) into that. So there is that issue, although (indiscernible) we'll come back a little bit.

  • The fundamental story, though, is although the macroeconomic there is a little weaker than anticipated, but in terms of our numbers and our marketshare and our volumes, the metrics were up. And I think you can sort of copy in the annual report, so all those methods are working. The only other issue is that last 9 percent is still dangling out there. We are committed to buy it, but the government has to arrange it with the previous shareowners of the bank, so that may not happen as we had anticipated for this year. We are not in control of the timing other than we do want to conclude that last 9 percent. But the fundamentals are still there in that foreign exchange, so we see the contributions still continuing.

  • Unidentified Speaker

  • Two follow-up questions actually. First, U.S. acquisitions, can you update on (indiscernible) how aggressive -- how aggressively you're looking? And secondly, I think this is a follow-up on Quentin. You talked before about conditioning yourself against (indiscernible) and you were positioned for rising rates (indiscernible). Were you GAAP, are you GAAP, and were you impacted by the spiking in rates over the last couple months?

  • Peter Godsoe - Chief Executive Officer

  • We're not aggressive on U.S. acquisitions. We have done very thorough research. I think as you look forward with the increasing capital base, with the strengthening dollar, with a relatively stable premium to book and nice earnings ratios, that as you look at alternatives to Canada, we would be inclined to look at higher levels of acquisitions in the U.S., not lower. But we haven't really commenced that at this time. We had looked at smaller type acquisitions. We'd be more inclined to probably step up and look at larger acquisitions if we go forward and if other alternatives in Canada don't evolve, and we should be in a position to do that.

  • On the spreads, maybe I'll let Bob answer it, but your memory is very good, and it's nice that some of those have rolled off. Wonderful hedges, they were just the wrong way.

  • Bob Chisholm - Vice Chairman

  • You've got to differentiate between the short-term and the long-term, but the short-term I'm talking now in our U.S. operation, and that's where we've had to drag for several quarters because we were positioned for rising short-term interest rates in the United States, which didn't happen. As so were paying the carry, basically, while waiting for that increase. If you look at the GAAP numbers, you will see that that position has been altered substantially, and it is now liability sensitive. And as Sabi said, we saw some improvement this quarter and we expect to see some more improvement going forward.

  • As far as the issue of the impact of the spike in medium and long-term rates that we've had in the United States, if you look at the securities surplus on slide 14, I think it speaks for itself. There are unrealized gain on fixed income. Securities rose in the quarter, it didn't fall, and I think that tells you we didn't get caught.

  • Unidentified Speaker

  • Do you have a feel for the timeframe for when you would feel comfortable looking at larger scale acquisitions in the states?

  • Peter Godsoe - Chief Executive Officer

  • I think we an industry are caught in a bit of a timeframe (indiscernible) strategically. We all know it, as we go through yet another debate on mergers or what the future of the industry is going to see. I think that is with Ottawa. I think it's something that will not be decided until we have a political leadership change. I think it has an important impact on any one of us as we look at the future. I think Scotia, which has the strongest capital base and has a very good earnings stream and consistent earnings stream is in a good position to look at a number of alternatives, of which that is one. When we looked at the U.S., we always viewed it as and I hope communicated that a smallish acquisition was but a small step. It was not a strategy, so to speak, in and of itself.

  • If you drew a hypothetical example, the government would say there are no mergers in Canada for ten years. You would go back to a much different way of looking at how the future unfolds for you. Always we saw ourselves as having a very good position in Canada. Yes, we've got tough peer group competition in (indiscernible). It's a classic keep your costs down and watch the commodity pricing, but we're doing very well. Return on economic equity domestically is in the 30 percent range. So we are not really too worried about that. It's running well.

  • We have Mexico, which is one of six banks, and we are dominant in the Caribbean. It just makes very, very good sense for Scotia to look at some ways of getting into the retail, personal and commercial banking in the United States. And that is what caused us to study it so hard 2, 2 1/2 years ago. So we've got a wealth of information as to which areas we think we could operate in and where there would be opportunities. And I think we could gear up relatively rapidly.

  • Unidentified Speaker

  • Are there any questions on the phone?

  • Operator

  • Jim Bantis, Credit Suisse First Boston.

  • Jim Bantis - Analyst

  • A couple questions, first certainly on the credit side. And I know there was progress highlighted this quarter from the comments earlier. But when you look at really what happened earlier in the day with the other two banks who are really much more defensive-oriented banks on the credit side, showing significant recoveries and negligible impaired formations. Can you kind of reconcile why Scotia didn't have the recoveries in the broad-based sectors that the other banks had? And secondly, I guess Warren, you kind of opened up the door in terms of guidance for 2004 when you had highlighted that loan loss provisions would return to normal levels, and I was going to ask you for your range in terms of normal levels in terms of PCLs as a percentage of loans.

  • Warren Walker - Executive VP Credit Risk Management

  • Thank you, Jim. First of all, I don't think I can comment on anybody else's earnings because I am not as acquainted with them as I am with my own. We have traditionally taken a fairly conservative approach, and I think we took a conservative approach again this quarter in terms of establishing what we thought would be appropriate levels of provisioning. We look (indiscernible) on a regular basis two to three quarters going, forward, and as I said in my comments, we are optimistic that the fourth quarter will certainly be no worse than the current quarter. And we, as well, see the potential for recoveries coming in subsequent quarters. So that is as guardedly optimistic as I can be in terms of the forecast.

  • And in this environment, looking too far forward, we tend not to forecast. We tend not to forecast in that way. We tend to manage this at a marketplace and at an individual exposure level, and we've always found that that level of granularity gives you a far more predictable result in setting targets. In environments where circumstances as we've seen in the last couple of years, rapidly changing circumstances in the power energy sector I think threw everyone's forecast for a loop. So it's very difficult to set normalized numbers, and we don't tend to do it.

  • Jim Bantis - Analyst

  • If I could just follow up in terms of the Wealth Management business, and I put it in the context of when we look to the banks for '04 we're thinking of equity market recoveries. We look at banks that have leverage that to the discount brokerage business, to the retail brokerage business, and last week we saw further consolidation of the Canadian mutual fund industry. And it looks like this is a business where Scotia has not been reinvesting or putting a strategic focus to and may be missing some of the leverage into the equity markets for '04. Can you comment on that?

  • Unidentified Speaker

  • Jim, we saw a good recovery in the quarter in our brokerage side. And one of the best quarters we've had in the last two years. I think what you will see on a go-forward basis is that we are -- our wealth is, will become more -- even more integrated with the domestic side, i.e. from the customer perspective. There's a lot more that we can do to insure that there is a smooth transition of clients who are in need of wealth services. And we have restructured and continue to restructure ourselves to the point where that is a very effective process now, and we are starting to see some of the rewards of that appear in the last quarter.

  • So I am confident that our numbers will continue to show a positive trend clearly as the retail investor returns. It's going to take, I think, a couple more quarters yet before the taste in some people's mouth from the last couple of years is eradicated. But we can see it taking place in the last few weeks.

  • Unidentified Speaker

  • I'll answer in terms of our commitment to the wealth management and where we are and what we want to plan to do. In terms of acquisitions, of course, in Canada there is very little. There were two brokerage firms last year, and we bid on both and (indiscernible) one in Schwab Canada on the online brokerage. Of course, went ahead with that, and that's worked out very well for us. And we've also invested a lot into that online brokerage business, integrating it also with the online banking.

  • So as far as management is concerned, strong commitment due to the (indiscernible) wealth management, and (indiscernible). In terms of the mutual fund acquisitions, well, that's a little different because again, that I think was acquiring distribution. But that is quite a different distribution channel than the Canadian banks pull through. We have our branches in dealing with the independent financial planners and merging that in with a mutual fund company, for us there's some serious questions on how much business you retain and what you have to pay for that.

  • So yes, we have not been acquiring on the mutual fund or the financial planner. We are committed to financial planners because we look at that midmarket as a very important market for us. And we have done a reconfiguration into financial planning of our Scotia McLeod brokerage in a meaningful way, 300 financial planners, and getting into the midmarket. So what the future will bring, we'll see. It is a fairly concentrated market as we know in Canada, but we see it as a distribution. We have great distribution through our banking channel, as Bob has said, and our online brokerage, and of course Scotia McLeod, and we will continue to do that and we will work to get our market share up.

  • Jim Bantis - Analyst

  • That's great. We would love to track that if (indiscernible) growth management earnings.

  • Unidentified Speaker

  • (indiscernible)

  • Operator

  • Jimmy Keaton (ph), RBC Capital Markets.

  • Jimmy Keaton - Analyst

  • My question -- I have two of them if I may. One, I wonder if I could trouble Sabi or Rick for a little more detail on the international earnings contributions from the various segments or countries, just to get a better feel for that. And perhaps a comment just on the sequential earnings progression in that segment, just curious if we picked up Inverlat there, I would have thought we might have seen a bit more up, but maybe there were some other (indiscernible) mitigating it. Just more broadly on the same subject, is there any way, Sabi, to isolate what the currency impact was broadly on earnings and/or revenue and expenses for the bank overall?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • I think in general, you can calculate it. We will make around 175 million in international. You take the percentage in the U.S. dollar, which effectively was the same impact on most currencies of 7 percent. The bottom line, we're around 15 million on the quarter. And year-over-year, it will be a lot higher than that. Just depending on what they do in (indiscernible), and just take the currency movement percentage and multiply it by the earnings, and that sort of impact you have round numbers.

  • Jimmy Keaton - Analyst

  • And more specifically just from the various segments, I wonder if you could just comment on how much Mexico contributed this quarter and perhaps some of the others?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • We haven't really broken down our regions, but I would say out of the number 175, the Caribbean is normally around 40 percent of that.

  • Jimmy Keaton - Analyst

  • 40 percent Caribbean?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • That's right and that number has been coming down as a percentage clearly as Inverlat contributes more and more.

  • Jimmy Keaton - Analyst

  • And we not just calibrate where Inverlat is this quarter, just try and catch up with what the changes that are going on?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Inverlat, the contribution was around 35 for the quarter.

  • Unidentified Speaker

  • 38, I think. 35 or 38.

  • Jimmy Keaton - Analyst

  • Those are Canadian dollar millions?

  • Unidentified Speaker

  • That's right. Again, the pace of Canada went down 17 percent, so that was one factor. I think in revenue of nine months, that was around $30 million. So that had an effect. And in the quarter, the same quarter last year, we had a very high quarter due to sale of securities in the developing nations and loan recoveries in Asia.

  • Caribbean, again the devaluation in terms of (indiscernible) the cost this year is 825 million with the devaluation in the DR peso and the Jamaican dollar. Underlying, you take out the foreign exchange, the Caribbean grew about 7 percent in earnings. Not the double-digit that we are used to. Again, they had the effect of Iraq and the travel industry and what have you. But still growth rate, Jamaica was strong and throughout the region. Asia, after coming off some very good quarters on a comparable basis had recoveries last year, was down in this quarter on earnings.

  • Jimmy Keaton - Analyst

  • Rick, is there any feeling here for trend, particularly in the Caribbean vis-a-vis the travel market as we go back into the winter?

  • Rick Waugh - President

  • It is coming back. We are starting -- we're seeing that time of the season again. We detailed, of course, first from the credit perspective on our hotel portfolio there, and in talking to the operators and what have you, things are coming back there in almost all countries. So barring no other events, we can see that coming back. And so the region should have a better year, and if the U.S. picks up, they will be a benefactor of that throughout the region.

  • And on the broader economics, Trinidad as you know, oil and gas is looking good. The DR, as you were probably aware, created an opportunity for us but was not having a good year in terms of what they were doing in their banking system. So their economy will be flat this year after having been the strongest economy in the Caribbean over recent history. But that should come back. The IMF (ph) (indiscernible). So for the region we are moderately optimistic. We will be growing because the demographics are right, but this year we probably won't hit the double-digit, but optimistic that it will come back next year. Central America and the Spanish-speaking Caribbean, again, our initiatives there we continue to see that continuing to grow.

  • Operator

  • Susan Cohen, Dundee Securities.

  • Susan Cohen - Analyst

  • Just to perhaps pursue the wealth management a little bit further, can you give us any rough parameters about approximately how much wealth management might contribute to the domestic banking overall in this quarter, and the kind of trends that we might have seen this quarter compared to last quarter?

  • Bob Chisholm - Vice Chairman

  • The incremental impact was about 10 million on the quarter.

  • Susan Cohen - Analyst

  • And overall are you giving, Bob, any kind of breakdown in terms of rough guidance, the wealth management contribution overall?

  • Bob Chisholm - Vice Chairman

  • We haven't, Susan.

  • Susan Cohen - Analyst

  • Okay, thanks.

  • Operator

  • Rob Wessel, National Bank Financial.

  • Rob Wessel - Analyst

  • I just have a couple quick questions. The first one, and I just don't know if I'm understanding Peter correctly, but right now your excess capital position is just getting to huge, huge levels. You're not buying back stock. You're in a timeline box, if you will, to paraphrase, because we are still 15 months away from the deadline, and you're still building capital at a rapid rate. Is this just a problem that we are all -- is this a problem sort of having so much non-deployed capital sitting on your balance sheet, are we supposed to -- I guess we're just to assume that this is going to stay for -- this problem is going to be present and continue to grow for about the next four quarters or so?

  • Peter Godsoe - Chief Executive Officer

  • No, I didn't mean to put it that flatly, Rob. Well aware of your EBA (ph) calculations, but you don't want to fall to the bottom. We are earning very good returns on that the old-fashioned way. I think we are signaling that we are relatively optimistic about the future without giving any specific guidance, that we thought our quarter was well balanced. We are seeing some positive aspects on the credit markets. We are sure taking a conservative stance on what we're doing.

  • We've had a large recovery in our security surpluses. We have a lot of flexibility there, and yes, we are generating a great deal of internal capital. We see some opportunities internationally, and we are pursuing them. We do not see much in Canada, but we think the picture will become clearer within six months. It will be clearer like it is off for another year or it'll be clearer like here is a template to go forward. And we are well aware of the fact that a dividend payout band (ph) of 35 to 45 percent is going to put some pressure on us to increase dividends if we go forward with this type of earnings flow, and from time to time buy back stock. We just did not have that in our plans as part of an earnings per share meeting of a target. That's really what I meant to say. We don't rule it out by any stretch of the imagination.

  • Rob Wessel - Analyst

  • I hate to put you on the spot, Peter, but you haven't bought back stock for a couple quarters, and you've just done so much it almost looks like the bank is stockpiling in advance of whatever events are coming over the next year and a half.

  • Peter Godsoe - Chief Executive Officer

  • Well, we certainly are of the view that having a lot of capital, whether you are Scotiabank or you are Citibank or you are Hong Kong and Shanghai, is not a bad thing in today's world. It allows you to be opportunistic if you decide to change. It puts you in a wonderful position, hence why we watch so much our tangible common equity, because we have seen the type of issues that come when you have too much goodwill from a regulator.

  • We are looking at changes in (indiscernible) rules and accounting rules, and we certainly can look at them with a great deal of (indiscernible). And yes, we think it is a world where increased dividends and potential stock buybacks, it's nice to have the flexibility to look at that and to be able to say that we are going to be able to continue with a very consistent dividend program that has been the most consistent probably of any of Canada's large companies.

  • Rob Wessel - Analyst

  • I have actually two small questions. This one's for Warren which is, you mentioned that you felt provisions would be lower. Was the benchmark you were using the 200 million that went through the P&L or the 224, which is sort of gross for the Argentina recovery?

  • Warren Walker - Executive VP Credit Risk Management

  • 200.

  • Rob Wessel - Analyst

  • And then my last question actually is, I guess, for Sabi, which is -- the first is, I'll join the chorus for more disclosure and I'll ask for (indiscernible). But the question I have is when we get the local currency results and we sort of see what they are, and this quarter obviously they were up significantly (indiscernible) maybe we would have been up a little higher. How do we get -- like we can't get from that disclosure to what ultimately comes out on your results? Can you give us some sort of help as to how we might get a better feeling as to how the bank or how those results are getting incorporated into the overall bank with respect to adjustments in local currency or in Canadian dollars?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • I think there are two issues, the local earnings, obviously, and peso (indiscernible) earnings, so we lose something in exchange, Rob. And the second thing is that local earnings were very high in this quarter because of utilization of prior period tax loss carryforwards. Those, as you know, are offset on consolidation here because they go against goodwill, and you'll see my goodwill dropping, and we have to earn through the goodwill before debt can flow through our bottom line. That's why it doesn't flow through our bottom line on a consolidated basis until we eliminate the goodwill.

  • Unidentified Speaker

  • (indiscernible)

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • And one month lag that takes care of 10 percent. That will not -- 90 percent of that didn't flow to my bottom line, only 80 percent did. So those three, the numbers on our books are smaller than what is reported locally.

  • Rob Wessel - Analyst

  • Okay, and last question is, what was the contribution for Mexico earnings last quarter?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • 25.

  • Rob Wessel - Analyst

  • Twenty-five. Okay, great. Thank you very much.

  • Operator

  • Gentlemen, there are no further questions on the phone lines. Please continue.

  • Unidentified Speaker

  • Can you refresh my memory what the securities gains were in the international operation a year ago?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • We sold some Polish bonds.

  • Unidentified Speaker

  • Can you quantify that?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • It was around 40 million.

  • Unidentified Speaker

  • After tax?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Pretax. And in Q2, it was 60 million worth of Panama bonds or (indiscernible).

  • Unidentified Speaker

  • 60 million last quarter?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Yes.

  • Unidentified Speaker

  • And also, we've been sort of paying a lot of attention to the fixed-income trading results coming out of some of the other banks, and unfortunately, you guys don't disclose it by product line. Can you just give us a little bit of color on how your fixed-income operations are trading?

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • We do give some disclosure. If you look at (indiscernible), your supplementary has that. You go to page 6 of the supplementary, it shows you between securities trading, foreign exchange, and derivatives. So that tells you essentially how fixed income is really doing. Fixed income would be largely part of securities trading, and also go into derivative and other trading. So those are the trends. And reported interest income, part of fixed-income trading goes into what's called other interest income. So you can see the increase from 70 to 93. So that's mainly fixed income in institutional equities.

  • Unidentified Speaker

  • Can you give us any color on sort of fixed income versus equity, because it sounds like equity would be embedded in all those numbers as well?

  • Unidentified Speaker

  • On the new issue front, it's about 50/50, the increase between fixed income and equities. Both were very strong in the quarter. Fixed income underwriting was very strong and equities new issue was very strong, and both were strong in trading. So both elements of both products were quite strong in the quarter.

  • Unidentified Speaker

  • You (indiscernible) a lot recently about improved liquidity in distressed credit markets and refinancings. So what impact, if any, did this have on nonperforming loans in the latest quarter for Scotia?

  • Peter Godsoe - Chief Executive Officer

  • We didn't sell a great deal. We've taken some losses. We think we are conservatively reserved. I think that we had a couple of -- well, let me start back. I would have said we started the year with 25 major issues to look at, and a great many of them have been skated on side because the vibrancy of that market, which has allowed a recapitalization. When we look at it from our own accounts, we've made some money in it, but I don't think it has changed our view of credit, which is where we have good fundamental assets.

  • We try and hold and recapture rather than sell it as a distressed debt, and we don't have a big portfolio of held-for-sale loans. They are in these numbers. You can read them, and if we were taking advantage of that market, we would probably be doing that; whereas we are more inclined to wait and recapitalize and be part of that process, if that helps.

  • Unidentified Speaker

  • Thank you. Yes, it does. Just one more on credit for Warren. In terms of, what do you think Scotia's full credit cycle provision levels should be, and then where are we on that? Where are we in the cycle?

  • Warren Walker - Executive VP Credit Risk Management

  • He's a good lawyer.

  • Unidentified Speaker

  • Where are we in the cycle, Warren, in your view? And then finally in terms of credit book having the ability to generate recoveries or significant recoveries, given where the impairments have emanated from, I mean most of the risk managers have said we are not going to see the same recovery activity this credit cycle as Scotia might have seen in the early '90s or middle '90s. Can you draw the picture of those three items I guess I've given you?

  • Warren Walker - Executive VP Credit Risk Management

  • I'll start with the third one first, Quentin. We will see some recoveries. Over the last couple of years, we have been classifying situations and taking provisions that we thought were prudent, and some of those situations are showing signs of improvement. We do know that some of them will emerge from bankruptcy proceedings. Some of them will be successfully refinanced, at least according to our best information. So, yes, in the coming quarters we will see some recoveries.

  • As to what the full cycle looks like, as I said earlier, this is something very difficult when you manage your book of business, as Peter described, that is very granular. You look at it transaction, customer at a time, marketplace at a time to factor in the combination of individual borrower and event circumstances that would give you a comfort level picking a number like that, so we don't do it. We tend to do it on a short-term basis. We look, as I say, two to three quarters out and we have a fairly good idea of what the circumstances are going to be in the sort of time horizon.

  • Unidentified Speaker

  • Given a well-diversified portfolio, wouldn't it be expected that on a full credit cycle basis, you would take a consolidated hit of 65 basis points, full credit above and below that line, obviously. And I guess what I'm trying to get a read of, has there been a change as we've seen in a couple of other banks where you could argue for two opportunities on credit? The first is, there has been a change in the credit granting process, the credit management process of cutting the tops or credit derivating, etc., that would drop that 65 to 50 or 55, point one.

  • And then point two, in David's initiatives to drop the exposures that the lower percentage on a lower book will generate lower PCLs, and I'm trying to get a sense for Scotiabank where you are if that is a part of your process.

  • Peter Godsoe - Chief Executive Officer

  • If we're looking at cycles, and I think we do buy that this is looking more like the early to mid '90s than it is a late '90s type cycle. We buy totally the idea that we have a cyclical business in our wholesale. Part of it required a great deal more discipline, and a lot of what you've heard and what Rick and David are putting in, and we have that which basically means maybe that forward underwriting won't have as high a level of losses as the prior.

  • Having said that, the fact that we went up to really completely unacceptable loss ratios meant the high level was too high by far. Are we in a band that we think might move somewhere between 0.2 and 1.4, I'm just sort of using very rough numbers, that in a bad cycle and bad industry we could see 1.4. In a good cycle as we go down, we get as low as 1.2, which then gives you the average (indiscernible) up closer to 0.7, 0.8. Yes, we don't know when it is going to be there. Is it two years out or three years out; and we will be prepared to give probably clearer guidance when we get through the fourth quarter and are giving guidance for and setting goals that we do for 2004.

  • We buy that hypothesis, and it's the way we look at the business, that it is a bit like a mining cycle and that we are trying to cap the upper part of it with much better discipline, much better diversification of the portfolio, much smaller hold limits. It does not mean that we are exiting the business by any stretch. We still feel that we can make a good living. We did for many years. We just have to be better at it. Cap that upper level. The bottom level will come with cycles, we buy that, and we tend to feel that the light at the end of the tunnel is not the proverbial train. We cannot see a whole lot of shipwrecks out there right now. But time has taught us that we better be very conservative, very granular, make sure our reserves are properly placed.

  • Unidentified Speaker

  • I would just like to add to that, because as we have said and as Peter has said, we are cautiously optimistic. The optimism comes from what we've been doing on the prospective portfolio and as we see the problems one by one disappear and what have you. The caution, and as we, as you analyst will try to figure our where we are next year and we will do the same thing as we are doing now, is the caution where are we on the economics. The last time I tried to figure out what Greenspan said, and where are we -- you know, in our three markets, Canada, the U.S. and Europe, well, we know the issue in Canada is, again just following our central bankers, there is a lot of uncertainty over there.

  • So I think the macroeconomics are a number here that everybody is going to be focusing on and we are, and that is where the good caution comes. Where in the cycle are we at, but on the portfolio, that is where our optimism comes from.

  • Unidentified Speaker

  • Looking at loan growth for the bank, your mortgages are up 3 billion year-over-year, of which two-thirds was in the latest quarter. And your personal loans are up also 3 billion year-over-year, of which you put 700 million was in the latest quarter. Two questions I have about that. How much does the growth in Inverlat account for this growth? And secondly, you talked in the domestic segment about margin compression. To what extent is the growth in your loans linked to that margin compression, also?

  • Unidentified Speaker

  • The Inverlat components Sabi will give you in a minute, Michael. It is a relatively modest number of the growth, I would suggest.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • It's a very small number. Even though the percentages will lever up year-over-year, substantially I don't think there's more than a couple of hundred million in asset growth (indiscernible), Michael.

  • Unidentified Speaker

  • So on the mortgage assets, mortgages are a quite cyclical business because they tend to be in our second and third quarters, because more summer season people move in Canada, and it's historically much higher growth than in the first and fourth quarters of the year. So hence the higher component is in the last two quarters, particularly this current quarter, although there has been an acceleration in activity which we expect will carry on into the fourth quarter. Perhaps not quite at the same pace as Q3, but quite strong.

  • Whereas with the consumer loans, nonmortgage consumer loans are more a steady-as-she-goes business, and people have besides house buying are aspired to increase their (indiscernible) for many other initiatives, which tends to spread out more throughout the year. So you don't see quite the same degree of bubble in the summer season as you would otherwise see in mortgages. So we are having an outstanding year in mortgages, which we think will carry on into Q4.

  • As far as margin compression, clearly the market is very competitive out there. A lot of banks have got religion on retail recently, and so we are seeing some competition on the margin side. However, we have a very, we believe, very disciplined approach. We have targets by branch, by (indiscernible) of banking officer, regarding discounting and premiums on there, and we measure it down to that level and we are under budget in that regard by several basis points.

  • So there is a budget that was set 4 months ago, so it's not out of hand in that regard. We are gaining market share sort of one business point a month. And when you have a net growth of 800 or $900 million a month to gain one business point market share, you know that the market is really strong. So our growth has been strong, but I don't think it is that -- we are gaining very little market share which is a lot better than losing it, obviously. So the pricing is aggressive, but the market is uncertain with the change in slope of the yield curve and the higher costs in the five-year side. We expect a more normal market to return in the next few months.

  • Peter Godsoe - Chief Executive Officer

  • I'll give you some numbers on Inverlat, the Inverlat part of it. These are year-over-year, the nine months year-over-year. Inverlat's assets grew 1.2 billion. And this is after a 17 percent devaluation peso versus dollar. Of that 1.2, $700 million was in our personal lending portfolio. That's automobiles and mortgages and what have you. That is a 35 percent. As Sabi said, the percentages are high; 35 percent increase, 700 million personal loans, 500 million other.

  • Unidentified Speaker

  • Where we're gaining marketshare is the auto side. We continue to be strong in the auto area. The auto has been moderately strong in the retail side, so we continue to grow in that, as well as our credit cards and our Scotia line Visa, which is a unique product that we have that continues to grow at a very rapid pace.

  • Unidentified Speaker

  • The one thing I would add, Bob, to that is that we've got the volume; we are getting the price, relatively speaking, and the risk is being very -- the underwriting has held up very well and shows up in the numbers.

  • Rick Waugh - President

  • We expect our credit losses for the consumer side to be 23 basis points this year, which is up from 22 basis points last year. So there is not a -- and it may even come in at 22, depending on what the spot is at the end of the year, so we are not seeing any significant deterioration.

  • Unidentified Speaker

  • (inaudible)

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Any other questions? Any questions on the phone?

  • Operator

  • There are no questions on the phone lines.

  • Unidentified Speaker

  • You mentioned that this (indiscernible) international specification in the quarter. (indiscernible)

  • Unidentified Speaker

  • For the most part, it pertained to one account at Inverlat, Helena, that was an account that we inherited with the acquisition of the bank. And while by local standards the account is current, from a prudential perspective because the Board continues to struggle, we made a decision to classify it impaired.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Any questions on the phone?

  • Operator

  • There are no questions on the phone lines.

  • Sarabjit Marwah - Senior VP and Chief Financial Officer

  • Thank you all very much. We look forward to seeing you next quarter.

  • Operator

  • Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and please disconnect your lines.