Bank of Nova Scotia (BNS) 2005 Q2 法說會逐字稿

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  • Sabi Marwah - SVP, CFO

  • Good afternoon and welcome to the presentation of Scotiabank second-quarter results. I am Sabi Marwah, senior Executive Vice President and Chief Financial Officer. With us today in Toronto are Rick Waugh, President and CEO; Bob Chisholm, Vice Chairman; David Wilson, Vice Chairman; Bob Brooks, Senior Executive Vice President and Group Treasurer; Rob Pitfield, Executive Vice President International; and Warren Walker, Executive Vice President Global Risk. Rick will begin with the highlights of our results followed by a review of the financials by myself, a review of credit quality by Warren and outlook remarks by Rick.

  • We will then be glad to take your questions. This presentation is also available on the Investor Relations section of our web site at Scotiabank.com.

  • Rick Waugh - President, CEO

  • Thank you Sabi. I'm happy to report record results for this quarter. Our earnings per share was $0.81 per share, up 8% from $0.75 a year ago and through the first half of the year results were up 11%. Our return on equity was a very strong 22.3%, up from 21.8% in the second quarter of '04.

  • These record results were driven by lower loan losses and solid contributions from the business lines. Domestic banking operations were buoyed by contributions in various areas, but particularly mortgages and other areas of retail where we had gained market share.

  • International banking continued to perform well, particularly in our Mexican operations. And Scotia Capital benefited from a third consecutive quarter of net loan loss recoveries, as well as very good underlying credit quality. Our earnings this quarter included a pre-tax gain of 118 million on the sale of part of our investment in Shinsei Bank in Japan. On the quarter our credit quality continued to improve. Net impaired loans were lower, and we had a very low level of provisions.

  • Still a big plus for us is the strength of our capital ratios with a tangible common equity ratio of 9.5%, the strongest of the major Canadian banks. This capital strength and/or solid earnings enabled us to keep increasing dividends. A further increase of $0.02 to $0.34 per common share in the third quarter.

  • Overall this was a good quarter and I am very pleased with the solid performance through the first half of 2005. With all three business line up over the last six months. This solid performance builds on our track record of delivering consistent growth in earnings, which has been the key to our ability to increased dividends. Firstly, at the current rate of dividends for 2005 we will have grown them 20% this year.

  • Secondly, our dividends have more than doubled in the last four years, a growth of 113%. And lastly, on a compounded annual growth over the past ten years has been 15.6%. All this within our indicated payout ratio, and all this without compromising our capital strength or the capital available for further growth opportunities. Overall, a great track record of consistent and growing dividends.

  • In terms of meeting our 2005 performance targets, we are firmly on track to meet them. A return of equity of 21.6% for the first half of 2005 is above our 17 to 20% target range. Our earnings per share growth of 11% also exceeds our target of 5 to 10%. Our productivity remains strong at 55.6%, ahead of our goal. So now I will pass it over to Sabi to talk about our performance in more detail.

  • Sabi Marwah - SVP, CFO

  • Thank you, Rick. Beginning on slide 7, it outlines the impact of certain items this quarter. The first idem relates to higher securities gains. As Rick mentioned we sold a portion of the bank's investment in Shinsei Bank this quarter for an after-tax gain of 97 million. Offsetting this gain we wrote down some of our merchant banking investments this quarter for a pre-tax loss of 35 million. The net impact of these items on earnings per share was a $0.07 gain. The other idem relates to a 14 million tax adjustment resulting from the revaluation of future tax assets, as a result of announced reductions in Mexican income tax rates. In total the earnings per share impact of these items were a $0.06 gain.

  • Turning to slide 8, the net interest margin rose 7 basis points quarter over quarter. The Canadian currency margin improved slightly due to higher yields on investment securities, and the foreign currency margin widened due to increases in Inverlat, Chile, associated companies and Brady bonds. Compared to the same quarter last year the margin fell 9 basis points entirely in Canadian currency, mainly from mix, lower spreads on mortgages as customer preferences have tended to be for the variable-rate product, plus the lower interest rate environment also hurt some margin.

  • The impact of AcG 13 and other items was flat both quarter-over-quarter and year-over-year. Looking at slide 9, other income excluding the impact of the stronger Canadian dollar was down 6% from a year ago but rose 2% from the last quarter. On the right our reported other income however fell 113 million or 9% year-over-year. This came almost entirely from lower gains on investment securities. While both comparative quarters benefited from the inclusion of a similar gain of $118 on the sale of Shinsei, the remaining net gains to our investment securities were down 106 million from last year.

  • On the plus side, there were higher trading revenues, retail brokerage fees and the gain on the sale of the restructured loan asset following its transfer to other assets in Q1. These were offset by declines in underwriting fees and securitization revenues due to the runoff of credit card and Scotia line securitization programs and lower profits from the sale of mortgages into the CMB (ph) program.

  • Quarter-over-quarter on the left the modest growth in other income was due to higher net gains of 72 million on investment securities although excluding the gain on the sale of Shinsei, the gains in fact fell by 46 million from last quarter. As well including in other is the gain related to sale of the restructured loan. These increases were partially offset by decline in trading revenues of 85 million from the record levels last quarter and a slight decline in underwriting fees.

  • Turning to expenses on slide 10 on the top line excluding the impact of the stronger Canadian dollar and the shorter quarter, expenses were up 2% from last quarter on the left and flat with the year ago. On the right reported expenses were 33 million or 2% lower than the same quarter last year. This was mainly due to lower benefits including expense in Korea last year, a decline in stock based compensation, as well as lower appraisal and acquisition fees. Compared to last quarter on the left reported expenses rose 33 million or 2%. This was a result of small increases in number of expense categories including employee pension and benefit expenses, capital taxes, advertising and technology. This growth was partially offset by a decline in performance based compensation in Scotia Capital in line with lower revenues.

  • The other category at the bottom left are 15 million represents small increases in a number of categories including legal fees, severance and premises. Slide 11 shows our productivity ratio, and as you can see at 55.4% for the quarter, it is holding its own compared to recent quarters.

  • Looking at slide 12, capital continues to be very strong. The Tier 1 ratio was 11.4%, up from the previous quarter mainly because of the 300 million preferred shares issued this past quarter. The growth in retained earnings from net income was partially offset by the impact of share repurchases. This quarter we bought back 5.9 million shares for a total repurchase todate of 18.6 million shares, which after netting the shares issued under the stock option plan of 3.7 million, resulted in a net buyback of 14.9 million shares. Tangible common equity continued to be the strongest of the major Canadian banks and remains steady at 9.5%. These ratios were also impacted by 4.6 million quarter-over-quarter increase in risk-rated assets.

  • Turning to slide 13, unrealized gains on investment securities our surplus fell to 988 million, a decrease of 186 million from last quarter and 19 million below last year. A change this quarter resulted mainly from the sale of the bank's investment in Shinsei Bank as well as market price movements of certain emerging market securities.

  • Turning now to the business line results starting on slide 15, as you can see we have three strong business lines, and the year-over-year results were fairly consistent, down slightly in domestic and international and up in Scotia Capital. The other segment was up year-over-year and quarter-over-quarter.

  • On slide 16 domestic banking which includes our wealth management business had net income of 279 million, down 2% from Q2 last year and 15% below the previous quarter. ROE remains strong at 29%. Revenues were down slightly year-over-year and also fell from Q1 due to the shorter quarter. Expenses were essentially unchanged year-over-year up less than 2%. Quarter-over-quarter expenses rose 4% due to higher stock based compensation as well as seasonally higher benefit costs in some categories.

  • Credit quality remained very good in the retail portfolio with our retail loan loss ratio among the lowest in the industry. As well there was a fairly low level of provisions in commercial this quarter. Looking at domestic revenues in more detail, on slide 17 we continue to see very good growth in retail lending with volume growth of 15% in residential mortgages and 17% in revolving credit compared to last year. Plus, our retail lending market share grew by 27 basis points.

  • In deposits our very successful Money Master account drove core deposit growth of 8%. However this strong performance was offset by a compression in interest margin over the past year. Largely from ongoing growth in mortgages which are the lower margin and customer preference for variable-rate mortgages. In addition the low interest rate environment continues to hurt the margins. As well there was a pickup last year for mortgage prepayment fees following the implementation of new accounting standards.

  • Noninterest revenue was up 5% year-over-year on the strength of improved wealth management results which are driven by higher full-service brokerage activities and stronger mutual fund revenues. As well there were volume based increases in transaction service fees and card revenues. Quarter-over-quarter revenues were down 3% mainly because of 3 fewer days in the quarter. Asset growth was good although mortgage growth was below the exceptional levels of last year.

  • Looking at our international operations on slide 18 this quarter international net income was 186 million, down 4% from last year and 10% below the previous quarter. Return on equity was strong at 21%. Year-over-year our results continued to be impacted by the strength of the Canadian dollar which reduced net income in international by 15 million. Excluding this impact income was up 4% year-over-year. Quarter-over-quarter results were impacted by higher loan losses which are up from the unusually low levels last quarter. As well there was a tax cost as I mentioned due to the revaluation of future tax assets caused by reduction in tax rates in Mexico.

  • Expenses in international remained well controlled. They were flat quarter-over-quarter and down 8% year-over-year. Excluding the impact of foreign currency translation, expenses fell 4% from last year due to declines in Asia and Chile. In the Caribbean and Central America net income fell 14% from the same quarter last year as higher asset volumes are more than offset by the impact of the stronger Canadian dollar and slightly higher loan losses. Quarter-over-quarter earnings fell 11% due to higher loan loss provisions which, as I mentioned, were unusually low in the first quarter.

  • In Latin America earnings rose year-over-year mainly from our higher contribution from Scotiabank Inverlat, partly offset by lower security gains as last year's results included gains from Brady bond sales and I will have more to say on Inverlat in a minute.

  • Looking at revenue trends in international, total revenues on slide 19, total revenues were down 6% year-over-year entirely because of the impact of the stronger Canadian dollar. Quarter-over-quarter they were up 21 million or 3%. Net interest income rose 6% year-over-year excluding the impact of foreign currency translation and AcG 13. Retail asset growth continued to be strong, up 16% particularly in the Caribbean and Mexico. Mortgages grew 32% in Mexico and were up more than 20% in the Caribbean and Chile. As well this quarter included a contribution of Banco de Comercio in El Salvador for the first time. Other income fell 12% year-over-year due to the impact of foreign currency translation. Lower gains from Brady bond sales and lower loan collection fees related to the Beninta (ph) acquisition in the Dominican Republic.

  • Partly offsetting these were higher revenues in Inverlat, as well as higher credit card and foreign exchange fees in the Caribbean. Taking a closer look at Inverlat in slide 20, Inverlat's contribution was 85 million in Q2, up 20 million or 21% (ph) from last year. Despite the impact of foreign currency translation we continue to see revenue momentum driven by strong growth in underlying retail asset volumes. Mortgages were up 32% while credit cards and other personal loans grew 13%. There was also good growth in commercial and corporate lending with volumes up 16%. Higher retail banking and creating revenues drove a 30% increase in other income. These were partly offset by a slight decline in the margin.

  • Expenses remained well controlled, flat year-over-year. Overall we continue to be pleased with Inverlat's success and we are pursuing both organic growth and acquisition opportunities. While we were disappointed that we could not conclude the Sufolis (ph) acquisition, we remain disciplined in our approach and will carefully evaluate opportunities as they arise.

  • Turning to slide 21, Scotia Capital had another strong quarter with net income up 239 million up 18% year-over-year but the decline of 3% from last quarter's record levels. Return on equity was exceptionally strong at 31%. Improving credit quality continued to drive earnings growth. We had a net recovery of 57 million versus 9 million last quarter, and a provision of 32 million in the same quarter last year. Warren will have more to say about this in a few moments.

  • Revenues declined year-over-year due mainly to lower corporate lending asset levels and narrow interest margins along with reduced lending fees in the U.S. and Europe. As well as the onetime securities gain in Europe last year. These were partly offset by higher equity trading revenues and M&A fees and a gain from the sale of a restructured loan asset in the current quarter.

  • Expenses fell 4% year-over-year as lower salary expense and professional fees were partly offset by higher performance-based compensation. The effective tax rate rose this quarter as there was a lower tax benefit from certain tax efficient transactions.

  • I would like to touch briefly on one recent initiative in Scotia Capital which is on slide 22, which we believe has the potential for strong future growth, and that is the creation of a NAFTA wholesale banking platform which leverages Scotia Capital's wholesale banking expertise into Inverlat. We believe there is considerable potential to capitalize and cross sell opportunities to multinational and Mexican clients. As evidenced from some recent successes in derivatives and advisory services. This will allow us to better meet the needs of these clients as we combine the relationships established by Inverlat with our strong product platform.

  • In particular as Mexican capital markets expand there will be increased demand in the areas of securitizations, REITs, structured deals and IPOs. With coverage of 7 broad industry groups we will be well positioned to grow our wholesale business in Mexico.

  • Turning briefly to the other segment we just comprised mainly of group treasury and corporate adjustments not allocated to the three business lines. Net income was 118 million this quarter compared to 97 million last year and 2 million in the previous quarter. The increase from last year was due to higher net interest income in group treasury mainly from the impact of mark to market adjustments for certain derivatives that do not qualify as hedges or rather AcG 13, as well as higher dividend income. These were partially offset by lower gains in the sale of investment securities. While both quarters benefited from the inclusion of a similar gain on the sale of our portion of the bank's investment holding in Shinsei, the remaining net gains were much lower this quarter. The quarter-over-quarter increase reflected the 118 million gain on the sale of Shinsei.

  • I now hand it over to Warren to talk about risk management.

  • Warren Walker - EVP, Global Risk Management

  • Thank you, Sabi and good afternoon; I will be starting on slide 25. Once again the story this quarter was continued improvement in credit quality. Gross impaired loans fell to 1.9 billion, its lowest level since July 1997 and down 146 million from Q1 '05. Net impaired loans after deducting the specific allowance were 666 million, down 96 million from Q1, and a significant improvement of 705 million from the same quarter last year.

  • This is the 11th consecutive quarter that net impaired loans have dropped, largely as a result of lower levels of impaired loans in Scotia Capital. The total provision for credit losses this quarter was 35 million, the lowest level in about 15 years. The decrease of 39 million from last quarter and down 95 million from Q2 last year.

  • The next slide shows net formations or net classifications by business line in the quarter. In summary, net formations in domestic retail of 85 million continue to be reasonable given the size and the growth of the portfolio. Formations in the domestic commercial portfolio were low this quarter at 18 million. International formations of 40 were moderate given the increase in portfolio size.

  • Scotia Capital had negative net classifications of 162 million, reflecting new formations of 6 million, offset by 168 million in D classifications, payments and loan sales. Overall we had negative net classifications of 19 million.

  • Slide 27 shows the positive trend in gross and net impaired loans. As you can see gross impaired loans have decreased more than 1.3 billion over the course of the past year. Similarly, net impaired loans have come down by more than 700 million during the same period.

  • Slide 28 shows the breakdown of provisioning by business line. Provisions in domestic were down compared to last quarter and last year, mainly in the commercial portfolio, and that is in line with the lower level of formations. International provisions were 26 million, up from the unusually low levels last quarter and up slightly from Q2 '04. In Scotia Capital there was a net recovery of 57 million compared to a net recovery of 9 million last quarter and a provision for credit losses of 32 million a year ago. Again, the result of continued reversals and recoveries primarily in the United States.

  • On the next slide this improvement in credit quality in Scotia Capital is evident from the next slide which shows the positive trends in both net impaired loan formations and specific provisions over the course of the past eight quarters. As you can see from the slide net formations have come down significantly and have been negative for the past five quarters. Specific provisions have changed from a net charge in the third quarter of last year to a net recovery during the past three quarters.

  • On the next slide looking at our exposure to the automotive industry, an area that has been of some focus recently, we have broken out our exposure both by business line and by the individual industry sub sectors. Looking first at the OEMs where exposure is very modest at 204 million, this is the result of a strategy established a few years ago to shift our exposure from the manufacturing arms of these companies to their captive finance companies. We've also focused on expanding our relationships with the non North American investment-grade manufacturers.

  • Finance and leasing on line two includes the OEM captive finance operations and leasing operations. As I just mentioned we've been shifting our exposure into the OEM captives which have a higher investment grade and have more liquid assets than the OEMs. Our leasing exposure is subject to conservative repayment terms with recourse to both our borrower and the ultimate lessee.

  • Next is parts manufacturers. We've only targeted top tier companies with high-value added components and R&D operations, making them less exposed to margin erosion. Turning to the dealer group, the largest piece at $2.6 billion, dealer lending is a business we've been in in our bank for over thirty years, developing the expertise and capturing more than 40% of Canadian bank market share. This exposure is primarily to non North American dealers, and we have strict debt to equity limits, and we also actively monitor inventories. As a result of this our experience in this business, we have had very little in terms of losses in loans to dealers. Lastly, car rentals and our exposure here is minimal. Overall we are quite comfortable with our automotive exposure. However, we continue to monitor the sector closely.

  • Turning to market risk on slide 31, we have fairly low variability of trading revenue, and we continue to run this business with very low risk. This quarter more than 95% of the days had positive results.

  • On the next slide are the VAR trends. As you can see our one-day VAR averaged 6.8 million this quarter with no single loss day exceeding the one-day VAR. As well, we continue to be at the low end of our peer group.

  • In summary, the continued improvement in credit markets bodes well for our credit portfolios which are in much better shape than we've seen for some time. Credit quality in our domestic retail remains excellent considering the size and growth of the portfolio. Canadian commercial credit quality is stable and our international portfolios are in good shape. As I mentioned earlier, credit quality in Scotia Capital has improved dramatically.

  • Market risk remains well contained. At this point in the cycle and seven months into the year, our outlook for the full year is that specific provisions should come in below last year. As well if the recent trend in credit conditions continues there will likely be reductions in the general allowance for credit losses in the second half of 2005. And with that, I will turn it over to Rick.

  • Rick Waugh - President, CEO

  • Thanks, Warren. Well as I said, we've had a good first half. Notwithstanding challenges we faced through the volatility of the Canadian dollar, margin compression and weak corporate loan demand which however is now showing some signs of a rebound. We have confidence in our three strong business platforms, and the diversification they provide us each with multiple opportunities to grow further. Overall, as we said we fully expect to meet our performance targets for 2005.

  • Now our plans are focusing on 2006, which means stay focused on our primary goal of generating consistent growth? Growth through our strategies; customer acquisitions, cost and risk control, selective acquisitions in our existing markets and disciplined capital management.

  • With that I will pass it now to Sabi, and we will open it up to your questions.

  • Sabi Marwah - SVP, CFO

  • If we are ready with questions if you can state your name and your firm for benefit of people on the phone.

  • Quentin Broad - Analyst

  • Just on the Mexico and obviously the setback on the Sufoli (ph) and growth there. Can you talk a little bit about the organic expectation because I think you're talking about rolling out 20 new branches, whether that is on track or there is more opportunities there? And then secondly just in terms of disciplined capital usage and acquisitions in your areas of current operation what is it going to take -- it wasn't for lack of capital that it didn't happen. So what are the key issues that you guys are looking at once again to make those types of acquisitions in a geography like Mexico?

  • Sabi Marwah - SVP, CFO

  • Rob, do you want to take the first one?

  • Rob Pitfield - EVP International Banking

  • Sure. With respect to growth, we've grown the portfolio on Mexico about 25%, 30% year-over-year. We think that that good, steady, strong growth is something that we expect to continue. As far as the branches, we are targeting about 20 a year, and we should be able to continue that. Certainly that is our plan for the next two, three, four years at least.

  • With respect to the Sufoli we didn't do that deal just because there were a bunch of issues that at the end of the day we just could not reconcile, and we are aggressive in terms of our acquisition. We are actively hunting but at the same time we won't do anything where we fundamentally believe we are taking on a franchise that will be too much of an anchor for us. So in that particular situation we decided to pass. We're still looking in Mexico.

  • The Sufoli market in Mexico is to a degree bought out. We will see how that plays out as far as possible smaller acquisitions. But the organic growth side has been very steady, and we expect it to continue.

  • Rick Waugh - President, CEO

  • On the second part of the question and while I won't speak specifically on any one, we don't dwell on any one in particular one either that we've looked at until we have something definite to say, but what are we looking for in particular in Mexico. There is two things overall, one of course is strategic. You heard me speak about this before; how we can bring value or how can we get value from anything we look at, and that includes Mexico and secondly we do have financial hurdles. And so we put strategic on the table, and we put our financial hurtles. Then you look at the specifics and we've looked at a great number, and if you go and of course obviously we have only closed a few in the last year or so, the reasons why we haven't done, there are others that we have looked at and we've entered into a number of them or certainly more than casual looks. But again we are going to keep to the discipline on the strategical, does it fit and the discipline on financial. It is not price necessarily. You have to pay a fair price on these issues. That is not necessarily the key issues and it may have been in one or two situations, but not a general thrust. But it has to make sense. If you don't buy well you are going to live with the result for a long time.

  • If we go back and look internally in the bank on, we learned from our own lessons that if you buy well it makes a big difference, and of course you look externally. It is the fact that so many of them don't achieve what they are set out to do so. So I think patience in this endeavor is very much a virtue and we commit to staying disciplined. But at the same time we know and we recognize that our growth has to come through establishing the use of our capital and acquisitions will play an important part of that in our existing markets and we will use our capital at the right time with the right investments.

  • Sabi Marwah - SVP, CFO

  • If I can just add to that, we think that not only in Mexico but in Central America and parts of the Caribbean, even in South America there are infill opportunities for us, and we will just work through those. It is a contested market out there right now for acquisitions. But we are staying very focused on it.

  • Quentin Broad - Analyst

  • If I can follow up here (technical difficulty) is it, I mean I can't imagine across all your geographies there is much that is moving or has moved that you haven't looked at given the way you dominate most of those markets. So I can't imagine there is an opportunity that you're not aware of currently. And so well you dangle I will call it that, the opportunity to acquisitions on an ongoing basis, I just wonder the discipline, does the discipline get in your way? I applaud it but it means that you are going to have a tough time putting this capital to work yes, no?

  • Rick Waugh - President, CEO

  • Acquisitions, no, I think we've put the capital to work everyday because it is not just acquisitions its investing in technology, its investing in a number of things and of course we talked dividends as a whole enchilada. (laughter) But acquisition is a slow process. The United States there is what, 7500 banks, and I would say 10% of them probably at a price you can probably -- so there's lots there. Admittedly in our international markets it is not -- there are no investment bankers. We announced that we were not announcing that we're interested in anything in the short run in the U.S. but I am sure we would see lots of opportunities because there are great investment bankers there and there's a lot of banks. Internationally it is a tougher role, and but it is one that we have over 100 years experience in and have made acquisitions (indiscernible) and we will stick to it because again, the model, the growth rate, the demographics of these markets and our position in them are compelling. And so if it is not this quarter, if it is not this year, the growth aspects of these markets are compelling. We are in a special situation, as you say, we can see the opportunities. And so we will continue with our discipline.

  • Sabi Marwah - SVP, CFO

  • I think it is fair to say Quenton, that we certainly don't subscribe to the view that discipline is something that gets in the way of making an acquisition. In fact I would argue that discipline is something that is even more important in some of the markets that we are looking.

  • Quentin Broad - Analyst

  • Maybe just as a follow on to that on slide 22 where you suggest you got a NAFTA platform and perhaps (indiscernible) explore wholesale capabilities or cross sell. Is that perhaps (indiscernible) you can see some -- I am not sure how big they are out there. (multiple speakers)

  • David Wilson - Vice Chairman

  • We in the wholesale side are looking for acquisitions too, they are not the big numbers like the PNC banks, but industry specialty niches where we can create an after presence that can market to clients across all three geographies, we are looking at some things and some things may happen. So it applies in the wholesale too, all the things that Sabi and Rick have been saying about being vigilant for opportunities in the right niches that fit strategically.

  • Quentin Broad - Analyst

  • Have you seen increase in lending in these markets financial? So could this be an organic way of using up your capital, is that a fair thing to say?

  • Unidentified Company Representative

  • Yes, I think and just building on what David is cause I'm very excited on our Scotia Capital initiatives particularly in Mexico, because again we've had this looking at the retail side the BNC (ph) side in Mexico and it's working very well. But Mexico capital markets are just beginning to evolve and evolve very significantly. And if Mexico is going to achieve what we think it can achieve as a country and what have you, capital markets have to be very much a part of that. It is a peso market, just like Canada is a Canadian dollar market. So they have to develop the peso market and we are there. We are there early, and I think with we've done organizationally in the last year or so to bring the resources of what we've done in Canada to bear in that wholesale market, I think the organic growth that we will get through the same strategy that we have this suite of products with lending and M&A and money market and foreign exchange is going to be the same strategy that we're involving in Mexico, and I think it has got a lot of opportunity into doing that. And so it is a longer -- it is not as exciting as buying a Wall Street investment bank but I think it is certainly got I think some great attributes of what I call the strategical and internal rates of return. We bring complete value there.

  • Ian De Verteuil - Analyst

  • You mentioned a couple of times a gain on the sale of restructured loans. Can you quantify what the fain was, what segment it was in and I was wondering if Warren could talk a little bit to the return to performing status with any particular single names, was it across various industries?

  • Warren Walker - EVP, Global Risk Management

  • The gain on the restructured assets is about 15 million, it is another income it is in Scotia Capital.

  • Unidentified Company Representative

  • In terms of loan sales they were 110 million during the quarter. The sales generated recoveries of about 32 million, and in two cases there were two specific loans that we sold that represented the vast majority of that 110 million. And we made a determination that the time was right. The loan market was offering us bids on these loans that made it probably impractical to bother hanging onto them as impaired loans looking for further recovery. So we made a decision to sell them out. So 110 was the gross number, and 32 million was the recovery that we generated from those three loan sales.

  • Ian De Verteuil - Analyst

  • You also mentioned that it was possible to get some (indiscernible) general in the quarter left in the second half of the year. It does look to me thought as if you are starting to build a risk weighted again on the credit side. I am not sure if that is (indiscernible) it is corporate. You know I think you're the third or fourth bank that actually this quarter started to show some reasonable what looks like pull out of the corporate and commercial sector. Can you talk about trends on that (multiple speakers)?

  • Warren Walker - EVP, Global Risk Management

  • I will take a first stab at it and then maybe Bob and David would like to join in. There is a seasonality associated with this business, and if you go back and look at our numbers this time last year and the year before you will notice something of a seasonal blip in them. So that is part of it. But I mean we are active. David, would you like to talk about the Scotia Capital side?

  • David Wilson - Vice Chairman

  • In terms of a draw on credit, Ian, we are seeing finally an increase in our draw on credit outstanding, in the U.S., not a huge leap but it is -- we're off the floor and its starting to grow a little bit. So that is happening in the wholesale business to a very modest but important degree.

  • Sabi Marwah - SVP, CFO

  • I think just to elaborate on your growth and risk-weighted assets Ian we did see an increase of as you say 4.6 billion on the quarter, and that is around 1.5 billion is really an off-balance sheet with around 3 billion on balance sheet. And of that 3 billion in on balance sheet it is a combination of mortgages around half one billion and the balance in loans and it is fairly evenly between commercial, retail, corporate and both U.S. and Europe. So a little bit in across the board.

  • Unidentified Company Representative

  • I take your point on now we're starting to grow our assets and that's good because we've been waiting for it for a long time, and hopefully it will continue. Of course, that has an implication on your reserves in general. Of course, the offset is the credit quality of your existing portfolio, and I have never seen it as good in many, many years as the quality of the portfolio and then the metrics. Now, that is a little historical because we all look to the future and we wonder what's going on in the world and all these issues. But certainly, our quantitative analysis on the quality of our portfolio, and Warren, I think, covered a lot of that off in his presentation, is excellent. Yet some of that, hopefully, will be offset with -- some of that capital will be needed for our growth in our risk-based assets. So it will (indiscernible) balance.

  • Unidentified Company Representative

  • One other thing I'd add, Ian, so that we leave no doubt in your mind, we have not changed anything, though, in our credit policies or standards. And the growth as you see it is within the same parameters and disciplines that we've laid out and elaborated to you on many occasions. And I know from time to time someone will see something pop up in the gold sheets that suggests that we made a very large loan to someone. But trust me, our actual exposure to that name would be a small fraction post syndication, where we've been a lead syndication agent in one of those transactions. So we are not taking new untoward risk, and we are managing that very carefully.

  • Unidentified Company Representative

  • We had a high profile on a big underwriting we did in the quarter. Our actual hold after the underwriting -- the underwriting was over $2 billion -- is closer to 5% of the original underwritten amounts; very small hold. We underwrite and distribute.

  • Unidentified Company Representative

  • Bob, have you corrected that misconception? Michael, do you have a question?

  • Unidentified Speaker

  • Yes, I have a few questions; first of all just in relation to the loan sales Warren, was there any significant interest recapture connected to those?

  • Warren Walker - EVP, Global Risk Management

  • No, they would have been pure in this case. Michael, the two that we sold would not have been paying interest. So they would have been carried at book with no interest recapture. And the third one that was about $5 million I don't recall but I also believe that there was no interest recapture on that either.

  • Unidentified Speaker

  • Okay. Also you have been around this 9.5% tangible common to risk-weighted asset to ratio for a little while now. Buying back your stock at the same time should we be looking at the 9.5% level as the level sort of as you can go above that level, that increment forming the capacity that you have to buy back additional stock?

  • Unidentified Company Representative

  • That's not how we look at it. We look at it as how we can use our capital for growth and our regulatory ratios and our capital issues are well above and have been for a while, above what I would call diminimus ratios on that. So it is not a constraining factor. But it is not a factor that says okay, it is how we can deploy our total capital. So I wouldn't use that as a barometer to say how that generates our buyback (indiscernible) or our dividends, dividends of earnings and payout ratio kind of criterion. And we said and buybacks are in dilution, and that is how we are looking at it right now. We have to look though on how well we can deploy our capital. And as you saw on our return on equity, we are I guess Sabi, you were saying probably the highest in the Canadian piers right now, and a high high ratio and I look at that. So we are using our capital and we got a 21% return on it fairly well right now. We want to continue to use it fairly well.

  • Unidentified Speaker

  • How much of the unrealized equity gain that you have is still Shinsei?

  • Unidentified Company Representative

  • It is around 100, 200, depending on the price movements 110, Bob?

  • Unidentified Company Representative

  • Yes. The stock has been under a little bit of pressure lately but as of that date it would have been just above what we realized in Q2.

  • Unidentified Speaker

  • Finally your credit standards in prime mortgage lending have been quite a bit tougher than other banks. Can you see yourself easing up a little bit to become more similar to other banks in mortgage lending?

  • Unidentified Company Representative

  • Are we going to run up our loan losses Michael?

  • Unidentified Speaker

  • No, I mean rather than waiting until somebody is seven years out of bankruptcy, waiting just two years like (multiple speakers).

  • Unidentified Company Representative

  • We do have fairly rigorous evaluation methodologies in granting credit on the mortgage and personal loan side but I don't see us making any significant changes in that area. We are maintaining and growing our market share. It is not just credit underwriting. It is how you cross sell, what value proposition you bring to the consumer. So we are quite satisfied with continuing our market share growth and I don't see any significant changes coming in that regard, Mike.

  • Unidentified Company Representative

  • Our growth in mortgages is a little bit below last year; we are not suffering from a lack of mortgage product right now. Demand for mortgages.

  • Unidentified Company Representative

  • Demand is running about 80% at the same last year the market is cooling off a little bit I would suggest. In the last couple months we have probably lost one or two basis points per month in market share. So there is a little bit of a cooling off out there, but there is no significant change expected in our approach in the market.

  • Unidentified Company Representative

  • But we are still up year-over-year in last years in market share and mortgages, so I don't see compromising credit as necessary.

  • Sabi Marwah - SVP, CFO

  • If I could go to questions on the phone.

  • Operator

  • James Keating from RBC Capital Markets.

  • Jamie Keating - Analyst

  • Hello everyone. I have a couple of quick ones if I may. Retail banking, there is a reference to stock based comp rising in quarter, and I am just curious it did not look to me like the stock -- no offense, stock did not run up too much. I am just wondering how that got higher if that is as simple as --.

  • Sabi Marwah - SVP, CFO

  • Stock based compensation did not move quarter-over-quarter, Jamie. I think the reason its performance based, in Q1 was depressed because we finalized or we had some reversals of accruals from 2004 as we finalized our payouts, so the excess accruals get reversed in Q1.

  • Jamie Keating - Analyst

  • So it's a good run-rate, then Sabi?

  • Sabi Marwah - SVP, CFO

  • That's right.

  • Jamie Keating - Analyst

  • Over to international banking, picking up on I probably should have this somewhere -- Salvador, did we get any comparables as to how much we picked up on revenue or expenses there?

  • Sabi Marwah - SVP, CFO

  • We did not consolidate Jamie, we did equity accounting given the timeline when we don't officially so -- it will be consolidated starting from Q3 so we have an equity accounting pickup of around 5 million.

  • Jamie Keating - Analyst

  • Excellent, and then the magnitude of the NIM decline in Mexico just roughly speaking is it a couple of beeps, or is it a little more?

  • Sabi Marwah - SVP, CFO

  • It is not very much. It is under 10 basis points, I don't remember -- it is not very much.

  • Jamie Keating - Analyst

  • On that base it is pretty good.

  • Sabi Marwah - SVP, CFO

  • A slight decline.

  • Jamie Keating - Analyst

  • Can I ask David Wilson one question; just curious how the second half pipeline looks to you guys. We are hearing sort of mixed opinions around, well actually fairly uniform chorus second half looks tough, do you have a view?

  • David Wilson - Vice Chairman

  • Generally the pipeline looks pretty decent. It is not hot or anything but there is lots of products still in the equity underwriting pipeline, the M&A business is pretty good. So I would say a positive, slightly positive tone for the last half of the year in most products, Jamie.

  • Jamie Keating - Analyst

  • Good. For Warren if I may or whoever wants this one, a couple of other competitors describe their prime brokerage or excuse me, hedge fund exposure. Sorry. Could you expand on how you sit there.

  • Warren Walker - EVP, Global Risk Management

  • I thought hedge fund Jamie, was the word you were looking for. Hedge funds are a small part of our business. When you look across our bank we deal probably with about 40 managers and maybe a total of 70 funds out of the 9000 or so hedge funds. So it is a very, very small piece of the universe. And the funds that we do business with we set some pretty stringent criteria in terms of confirm track record, reputation, we set minimum net asset values, and we deal with funds that have well understood and easy to monitor investment strategies. And in all cases we take obviously collateral.

  • In terms of what our overall exposure to those three types of exposure I guess -- the first type of exposure would be direct loans to hedge funds, and we would have about $30 million. That's all in direct loans to hedge funds and they are fully collateralized. In the second block of exposure, and this would be in the trading book in the swap book, we have a credit equivalent amount of about $360 million. And that again is subject to collateral and margin requirements. And the net risk after collateral is about $81 million. And finally in the prime brokerage area I think we have about 186 million of risk. And again that is subject to collateral and margin requirements and after you deduct collateral the net is about 24 million.

  • Jamie Keating - Analyst

  • Excellent.

  • David Wilson - Vice Chairman

  • And to just add to Warren, this is David Wilson, Jamie even though the numbers that Warren gave you are not very big numbers, it's an important business that we are marketing and doing it in a very thorough, careful way. But it is a client segment that we do not want to ignore. We want to pay attention to it and deal with it in a very prudent, careful, well researched way because there's a lot of money to be made in doing good business with high-quality, well-managed hedge funds. It is not a blemished class from our perspective and Warren has given you the numbers; they are not staggering at all but we are pursuing growth there.

  • Jamie Keating - Analyst

  • Thank you, David and Warren.

  • Operator

  • Susan Cohen from Dundee Securities.

  • Susan Cohen - Analyst

  • Thank you. You've indicated with the domestic bank that your net interest margins have contracted for a variety of reasons. Could you perhaps give us some indication of how you see NIMs evolving over the next few quarters?

  • Bob Chisholm - Vice Chairman, Domestic Banking

  • Our margins were down about in the domestic, about 8 basis points on the quarter, and which is a bit less than in the prior quarters. And while it is difficult to predict what we are seeing is there is a continuation of our customers who are because of the relative flat yield curve -- are choosing to stay in the very short end. And as a consequence we believe there may be still a little bit of the erosion in the margin in the next couple of quarters but nowhere as significant as we've had in the past 12 months. We think we are getting closer to the bottom of this. What is really happening to a certain degree is the incremental growth in our balance sheet is funded at the highest cost of funds. Therefore by definition you're not getting as much of a pickup as you would otherwise in a normal course. We think it is coming pretty close to an end but there is still a little bit of erosion possible.

  • Susan Cohen - Analyst

  • That's great. Thanks, Bob.

  • Operator

  • Steve Cawley from TD Newcrest.

  • Steve Cawley - Analyst

  • You mentioned mark to market a couple of times yet I believe you said at the beginning that AcG 13 was neutral so will there just be variances within the divisions that netted to zero?

  • Sabi Marwah - SVP, CFO

  • I think the change quarter-over-quarter is not exactly zero. We think they are around 5 million when you round it on a basis point it runs to below half a basis points around to zero, but it is around 5 million change.

  • Steve Cawley - Analyst

  • Forget about change, what was the net impact of AcG 13 in the quarter?

  • Sabi Marwah - SVP, CFO

  • It was 7 million and last quarter it was 12.

  • Steve Cawley - Analyst

  • And was there any sort of big movements in any of the divisions or is it not worth talking about?

  • Sabi Marwah - SVP, CFO

  • I think the only one there was probably a slight movement -- around 7 to 10 million movement in domestic offset by a similar movement in group treasury.

  • Steve Cawley - Analyst

  • Great. You also mentioned, Sabi, in the Scotia Capital that you didn't benefit in the quarter from certain tax effective transactions.

  • Sabi Marwah - SVP, CFO

  • That's correct.

  • Steve Cawley - Analyst

  • Are we to expect that you will benefit from certain tax effective transactions in future periods or should I be using a 33% tax rate in that division?

  • Sabi Marwah - SVP, CFO

  • I think if you look at our tax rate, the effective tax rate in Scotia Capital for the past one year, Steve, you will see that it averages around 23 to 26%, and last quarter that was 18, this quarter is 33. So I don't think we will hit 18 but I don't think it will stay at 33 either.

  • Steve Cawley - Analyst

  • Okay.

  • Sabi Marwah - SVP, CFO

  • It will be somewhere in that range but we do (technical difficulty) sporadically, I can't really tell you when they're really customer driven transactions, they are not (indiscernible)private bidding, so depending when the customer wants to do a trade it will depend on that.

  • Steve Cawley - Analyst

  • One more boring model question on taxes. Is the international bank you wrote off some of your deferred tax assets in the quarter because of lower rates in Mexico?

  • Sabi Marwah - SVP, CFO

  • That's correct.

  • Steve Cawley - Analyst

  • Can you give me an update on where -- at what point in time do you think the deferred tax asset will expire? I believe you pointed before to a tax rate in 2006 in the international bank of roughly 20 to 25% or so. Can you please give us an update there?

  • Sabi Marwah - SVP, CFO

  • I think the tax loss carry forwards benefit that we have Steve will probably expire in the first or second quarter of '06.

  • Steve Cawley - Analyst

  • And so what do you think happens to taxes in the international division post that?

  • Sabi Marwah - SVP, CFO

  • Keep in mind that Inverlat taxes are dropping because the tax rates in Mexico are falling so you get some pickup from that plus earnings that continue to build in some of the other jurisdictions such as Chile, which has a 15% tax rate, so you'll have some offsets but there will be a slight increase in international tax rate but not as much as going back to three years ago.

  • Steve Cawley - Analyst

  • So maybe in the 20% range sounds right?

  • Sabi Marwah - SVP, CFO

  • 20% is probably low. It is probably closer to 25 than to 20.

  • Operator

  • Jim Bantis from Credit Suisse First Boston.

  • Jim Bantis - Analyst

  • Good afternoon. A couple of quick questions for Bob Chisholm. It seems that maybe one of your competitors is making some room on the (indiscernible) margin side on a couple key products and that has been the cards and the unsecured line of credits. Can you give us an update in terms of your where you see yourself in those products and whether marketshare has been gaining or declining at this point? Thanks.

  • Bob Chisholm - Vice Chairman, Domestic Banking

  • Yes we actually gained market share in the quarter on our non-mortgage lending in our Scotia line Visa. We had strong growth in it. But a lot of our growth both there and in the cards there continues to be secured under our step umbrella. So in the cases where we are foregoing a little bit on the yield side, Jim, in our growth we are certainly are more than offsetting it by the low loan losses that we have in our delinquency is really in great shape. It is the best it has been in many, many quarters, and I think our loan losses this year should come in quite acceptable relative to our prior year's experience. So we're not seeing any major impact on us; we are getting good -- matter-of-fact we picked up market share in the quarter in our non-mortgage lending.

  • Jim Bantis - Analyst

  • Thanks, Bob.

  • Operator

  • (OPERATOR INSTRUCTIONS) Rob Wessel from National Bank Financial.

  • Rob Wessel - Analyst

  • Good afternoon, I have just one very quick technical question first. The ROEs on the segments that are disclosed is that off of shareholder capital or is that off economic capital or some estimate thereof?

  • Sabi Marwah - SVP, CFO

  • It is off economic capital.

  • Rob Wessel - Analyst

  • And then I wanted to ask a question its more for Warren and Rick. Given the evolution we've seen over the past couple of years with respect to the use of derivatives and development of markets for selling loans, should we think on a prospective basis? That we look at what we think as a normal provision ratio over a full cycle that these other tools have facilitated or made it easier to diversify a portfolio or to be more forward-looking in terms of taking away exposures from sectors that you think might have trouble? And that therefore altogether we should think of provision ratios over full cycle as being quite a bit lower than what we've seen historically? I guess we obviously have good credit quality so I think one of the issues everybody struggles with is how much higher will provisions go when we get to something that is so-called normal, and should we think of normal as materially lower than what we've seen in the past?

  • Warren Walker - EVP, Global Risk Management

  • And a very complex question. There are a number of questions buried in that question. I guess -- and I will take a stab at it and you stop me if I'm not addressing your questions spot on. But in terms of recovery rates I think what you're suggesting is there is a combination of some new technologies with credit protection that one can purchase together with the development of a far more efficient secondary loan sale market, that provides a lender with an opportunity to mitigate and hedge risk at different points in time compared to what we may have known heretofore. What that would suggest is that by and large there is an opportunity to take more pre-emptive action by a financial institution. There are more tools that are available to use today than there have been in the past. At the end of the day though the change in the institutional makeup in the marketplace will not necessarily make the recovery rate for that individual borrower any better.

  • As a matter-of-fact, as more inexperienced players get into trading, trading distress that secondary markets, you could potentially see just the opposite. So smart players are close to their accounts. They know the risks. They know when to go get protection. They know basically how to diversify their risk. They can diversify it in a number of ways. They can diversify it through indices. They can diversify it through the credit default swap market, although that remains today very much primarily an investment-grade tool. But by and large I would agree with you that yes there are opportunities to better manage that risk and ultimately the loan losses.

  • Rick Waugh - President, CEO

  • If I could just add to it on a more fundamental basis as to what is normal in a cycle on loan loss provisions and I wish I had an exact answer -- I don't think any of us do as to what is normal. Point one though is there are better techniques than have been in the past and certainly than when I used to be down in New York and to mitigate risk. There's no doubt about that. The liquidity to market there's no doubt about it we've got of situations and as you saw great recoveries this quarter. Partly because of the liquidity to market that allowed us to get there and as we go forward and you look into theory and hedges and what have you, well we have questions on hedge strategies that they certainly have helped us to diversify and liquefy out of troublesome situations because the liquidity that that market has provided.

  • But also what I do know is at what I don't consider normal is the high loan losses we had earlier on in this decade. That was not normal in that, and we have taken concrete action from a management basis to make sure hopefully make sure and I think make sure that that doesn't happen again. And David Wilson and the Scotia Capital people made great stride along with Warren on our hold (ph) levels by distributing the risk for syndication, our industry categories, a whole host of the 1000 things you do. And the goal is there so that we do not go back to those high levels that where I thought it typical for Scotiabank. And now that we don't know what we don't know as we go forward, but again with all of the technology, with all of the management discipline we put in -- we are staying in the market as you know. And I think we've got some really good clients out there. So I would hope that the averages and the normals would be lower certainly than we've seen in this last recent history. But I'm pretty confident we should.

  • Rob Wessel - Analyst

  • That's pretty close, but I have two some questions and I guess in terms of seeing a sort of a new lower normal, do you think the bigger factor is that your portfolio just in general particularly in the U.S. side or in the corporate site -- excuse me, can just be more diversified and therefore because it's more diversified we should see less volatility? Or do you think that the greater variable is the use of derivatives in loan sales to remove some of the large spikes in downturns?

  • Unidentified Company Representative

  • I think it's both. Rob, not trying to dodge it, I think it is both and I think it is definitely both and which will be more important. I think both of them are important but I couldn't weigh them.

  • Unidentified Company Representative

  • I would add one thing to that Rob and that is the fact that you know recovery rates are very cyclical, and we are now at the apex of recovery rates in terms of loans that are being sold. We are seeing recovery rates on average 6 to 8% above what we were seeing in the depths of bad days a couple of years ago. So there is an overriding cyclicality that makes it difficult to generalize.

  • Unidentified Company Representative

  • I am just going to add one more comment because I don't (indiscernible)I do not underestimate the value of a recovery -- people in our recovery unit -- that despite the market outs we've had the history and the culture of sticking with these things because if we recover a loan that goes straight to the bottom line. And we've worked very hard on balancing what we have to do and making sure we recover loans because that goes to the bottom line. The shareholders in our recovery unit has done a very good job as you've seen in this quarter and actually as you've seen in the last several quarters. So people do make a difference.

  • Rob Wessel - Analyst

  • And a final easy one on credit. For also Warren and Rick, we've had net recoveries in the Scotia Capital for or perhaps David, we've had net recoveries I guess for three quarters, very low loan level provisions for two quarters prior to that. When do we think that the net recoveries will end? Are you sort of -- do you look forward to the next four or six quarters do you think wow, net recoveries of 57 million, I don't think it is going to get any better than that and I'm getting back into the sort of regular or more regular provision levels on a prospective basis, or do you see net recoveries for the next several quarters?

  • Warren Walker - EVP, Global Risk Management

  • Rob, we still expect to generate some recoveries through the course of the next few quarters. We do not expect, and there may be --.

  • Rob Wessel - Analyst

  • On a net basis Warren?

  • Warren Walker - EVP, Global Risk Management

  • No, we will generate some recoveries. We also expect at least for the next couple of quarters in the Scotia Capital area at least, new provisions to be quite low as well. So I think the context for this quarter is that this was quite an exceptional quarter. The result should not be taken and extrapolated. I think if you wanted to get a better sense of what a more reasonable run rate would be Q1 would likely be a better number as a starting point for the remainder of this year. And we will look before the end of this year to take a look at what market circumstances are and the status of our portfolio to look out for next year's.

  • Rob Wessel - Analyst

  • That's very helpful. Thank you.

  • Sabi Marwah - SVP, CFO

  • Any questions here?

  • Quentin Broad - Analyst

  • Just on the (indiscernible) capital in Scotia Capital it looks to me like there has been a pretty continuous slide of economic capital allocated. So just what has been happening I guess the last couple quarters? So it looks like the 700 million has been taken out end of the year in that business and yet obviously average assets have stayed fairly high?

  • Unidentified Company Representative

  • Average assets have been coming down so recently they flattened out and are starting to climb a little now. But over the last 18 months, Quenton average assets have really come down. As the migration, upward migration which means you need less economic capital.

  • Unidentified Company Representative

  • (indiscernible) the average assets, as well, David, that you see that includes repos and trading securities, (indiscernible) lending assets that is trending down, that is what is taking down, releasing the capital in (inaudible).

  • Quentin Broad - Analyst

  • And then on the risk-adjusted that Bob talked about the risk-adjusted returns, can you just give us Bob a sense of what? Because I think that is actually a very important measure of where that sits kind of let's say last year versus this year? What comfort levels you have that you risk-adjust your returns given the credit market really hasn't -- it has been a good credit market. I am not sure how you can exactly gauge that your -- ultimately you should get better returns on a risk-adjusted basis from a step program but have you really been able to test that notion? (multiple speakers) Or what it means value wise?

  • Rick Waugh - President, CEO

  • It has a few elements attributable to it. Firstly, you have a higher quality asset because a lot of them are secured. We actually make up close to 88% of our total consumer loan book is actually secured and well over 50% of our mortgages are in a step plan. So and that continues to rise. So we are getting consumer loans that are secured by a person's property allows us a far better, a far lower loan loss rate and enables us to offer a lower rate to the consumer on the borrowing side which is attractive.

  • The other aspect of it is that this product because of this attractiveness gives us a much higher renewal rate in our mortgage book. We have a very high renewal rate. It has gone up from the 86 '87% to well into the low 90s. That gives us a significant advantage on our outstanding side, so we have more assets that are being retained and ergo less new assets we have to put out to fill the amortization. So when you put it altogether our loan losses which are running at about 22 basis points in the last few years are sustainable. They are significantly less than the industry, certainly in Canada and North America, and we think that the combination gives our customers the best value and for our shareholders produces more than adequate returns.

  • Quentin Broad - Analyst

  • But there hasn't been a test to see deterioration outside of credit to say that was reasonable to give up the margin that you're having to give up to bring (multiple speakers)?

  • Rick Waugh - President, CEO

  • We haven't been able to say with that much precision.

  • Sabi Marwah - SVP, CFO

  • The other point that I would make Quenton is to the extent that our retail portfolio gets more and more secured another byproduct of that is the fact that it does hurt your margin slightly but we hope we will make that as credit markets turn. That is an ongoing impact on the margin too which we really is there.

  • Okay, if there are no further questions we thank you all, and we look forward to seeing you in August. Thank you.

  • Operator

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