The Bank of Nova Scotia (NYSE:BNS) Q4 2023 Earnings Call Transcript

The Bank of Nova Scotia (NYSE:BNS) Q4 2023 Earnings Call Transcript November 28, 2023

The Bank of Nova Scotia misses on earnings expectations. Reported EPS is $0.93 EPS, expectations were $1.19.

John McCartney: Good morning, and welcome to Scotiabank’s 2023 Fourth Quarter Results Presentation. My name is John McCartney, and I am Head of Investor Relations here at Scotiabank. Presenting to you this morning are Scott Thomson, Scotiabank’s President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Phil Thomas, our Chief Risk Officer. Following our comments, we will be glad to take your questions. Also present to take questions are the following Scotiabank Executives: Aris Bogdaneris from Canadian Banking; Glen Gowland from Global Wealth Management; Francisco Aristeguieta from International Banking; and Jake Lawrence from Global Banking and Markets. Before we start, and on behalf of those speaking today, I’ll refer you to Slide 2 of our presentation, which contains Scotiabank’s caution regarding forward-looking statements. With that, I will turn the call over to Scott.

Scott Thomson: Thank you, John, and good morning, everyone. This month marks the completion of my first year in this role as President. I’m pleased to have had the opportunity to spend the year listening to and learning from our shareholders, clients and employees. I have seen personally the passion and commitment that Scotiabankers across the footprint have to making us a better bank. Our results for the year reflect a period of decelerating industry loan growth as well as our own deliberate actions to focus on balanced growth, and a thoughtful approach to improving the profitability of our businesses and client relationships. We’ve made significant progress on key initiatives that are fundamental to strengthening our balance sheet and improving our business mix.

Both will be important as we embark on our next phase of growth. The Bank reported adjusted earnings of $8.4 billion or $6.54 per share in fiscal 2023. Our return on equity was 11.7%. We believe our improved balance sheet strength and liquidity positions us to manage through potentially a more difficult economic scenario that could materialize. We took actions to strengthen our capital position to meet my January 2023 commitment to a CET1 ratio of greater than 12%, up from a 11.5% at this time last year. Raj will explain in more detail the impact of the regulatory capital changes, which began in Q2 and will continue to impact us in the future. We also bolstered liquidity over the course of the year, meaningfully improving the liquidity coverage ratio to 136%, up from 119%, and the net stable funding ratio from 111% to 116%.

Importantly, we made progress focusing the organization on deposits. Deposits across the Bank increased 9% year-over-year. The all bank loan-to-deposit ratio improved to 110% from 116%, resulting in the wholesale funding ratio dropping 100 basis points year-over-year to 20.6%. 2023 reflects early success in our enterprise-wide focus on thoughtfully growing both sides of the balance sheet. In keeping with our commitment to ensure the Bank is well positioned to manage through periods of slow growth and uncertain macroeconomic times, we have significantly increased the allowances for credit losses throughout the year across all portfolios by approximately $1.1 billion, mostly in performing allowances. As previously announced, in conjunction with our strategy review process, we made adjustments to our global workforce in the fourth quarter.

This productivity effort reflects a continuation of the Bank’s long-term commitment to achieving positive operating leverage, while ensuring the appropriate resource allocation in support of our future growth initiatives. Turning to our economic outlook, our base case assumption is that economic growth will continue to moderate in the near-term in North America. Higher interest rates are having central bank’s desired economic impact which we are seeing through moderating inflation and our own clients’ behavior. Recognizing that rates could remain elevated for the foreseeable future, we do expect some interest rate easing in North America later next year, which will be a tailwind to our profitability. Our international banking markets experienced more notable impacts of higher rates given an earlier and more rapid tightening response to inflationary cycle.

Chile and Peru are currently in the midst of modest economic contractions, and have seen central bank easing this past quarter. Economic growth is expected to rebound in the region later next year. Mexico has consistently seen GDP growth beyond expectations, currently forecast to deliver 3.5% growth this year and 3%-plus growth again next year, significantly outpacing the sub-1% growth expected for Canada and the U.S. We expect consumer spending to moderate as this higher rate environment persists, leading to the very modest growth in our Canadian economic forecast. Our current balance sheet strength, structural interest rate positioning and deliberate approach to loan growth reflect our cautious near-term outlook. We look forward to sharing detailed business line strategic plans with you at our upcoming Investor Day, so I’ll be brief today with a few updates on each business.

In Canadian Banking, the performing ACL build materially impacted our profitability in Q4. However, I was encouraged by progress in certain key operating performance metrics. Deposits, up 10% year-over-year in Q4, outpaced loan growth in the Canadian bank for the fourth consecutive quarter, resulting in notable early progress on reducing our loan-to-deposit ratio, which moved from 138% to 125% over the course of the year. Solid net interest margin expansion of 21 basis points benefiting from higher deposit growth, loans repricing at higher rates, and business mix changes driven by more balanced loan growth across products. In retail, growth in the Scene+ loyalty program continues to outpace expectations, surpassing 14 million members this quarter.

The program continues to accelerate as a strong customer growth engine responsible for over half our new to bank customers in the recent quarter. New day-to-day account acquisition is up 6% year-over-year, aligned to our commitment to grow everyday banking relationships. Tangerine delivered another year of strong earnings, a result of its strong deposit position and continues to widen its lead as J.D. Power’s number one ranked bank in its class for retail banking client satisfaction for the 12th year in a row. Global Wealth results this quarter reflect the impact of more challenged market performance in recent months, and the resulting impact on investment industry fund flows, which have been negative throughout 2023. We continue to broaden what is already a very robust product offering with the announcement last month of a new alternative asset partnership with Sun Life to bring a more complete offering of private credit, real estate and infrastructure products to our high-net-worth clients.

We have a differentiated wealth offering in Canada through our total wealth advice model and a unique international opportunity that our team is delivering on. Our international wealth management business delivered double-digit earnings growth again this year. Our Global Banking and Markets business has delivered resilient results in a challenging year for capital markets businesses while continuing to add product capabilities and sectorial advisory expertise. Loan growth has moderated considerably in recent quarters as our GBM team continues to take a more targeted approach to client selection with a focus on industries and geographies where we can deliver higher returns and more multi-product value-add to our clients. We continue to target deeper client relationships and leverage our footprint to grow our business.

International Banking had a solid 2023. Results were negatively impacted by higher PCLs and moderating capital markets activity, offset somewhat by encouraging margin expansion and continued momentum in our deposit-strong Caribbean franchise. Deposit growth in Q4 continued, up 3% quarter-over-quarter and 9% year-over-year. This, combined with a more disciplined approach to loan growth, has seen our loan-to-deposit ratio improve from 140% to 129%. Despite inflationary pressures, International Banking held expense growth to a modest 3% on a constant dollar basis for the year, as a result of continuous efforts to rationalize our operations and further digitize the Bank. International Banking continued to deliver positive operating leverage. Our 2023 financial results reflect a year of transition; economic transition in the markets in which we operate and transition within the Bank as we prepare for our next phase of growth.

We are seeing early signs of progress across the Bank on the strategic priorities previously outlined that will lead us to more consistent earnings growth over time, more specifically: client primacy, earning a greater share of the client wallet with a focus beyond the balance sheet; disciplined capital allocation, managing resources with a view to value over volume; and operational excellence, a continuous focus on productivity, process simplification and a relentless effort to build a culture that will give us competitive advantage better, faster, and at a lower cost. All underpinned by a strong balance sheet, ample liquidity and appropriate allowances for credit losses. I’m encouraged by the franchise strength across our businesses. We are recognized again this year by The Banker magazine with both the Bank of the Year in Canada Award, and the Global Award for Banking in the Community, recognizing our ScotiaRISE Program and the positive impact it is having in our communities.

The Bank is also a recognized leader for our commitment to fostering a more sustainable and inclusive future for our stakeholders. We were recognized by Global Finance with five awards for Leadership in Sustainable Finance, including Global Leadership in Sustainability Transparency and Best Bank for Sustainable Finance in Canada. And, we continue to build on our position as an employer of choice. This year, we were recognized as one of the best workplaces in Canada by Great Places to Work, and we are once again included in the Bloomberg Gender-Equality Index for a sixth consecutive year. Going forward, as we focus on execution of our strategy and a cohesive enterprise-wide mindset to meeting the needs of our clients, we’ve also made important senior leadership additions to the Bank.

I’m confident in the strengthened leadership team as we focus on the future and our plans to deliver sustainable, profitable growth for our shareholders. I would like to sincerely thank Glen Gowland for his contribution since joining the Bank over 20 years ago. I am delighted that we will continue to benefit from his expertise as he transitions to the role of Vice Chair, reporting directly to me. As previously announced, Jacqui Allard will assume the role of Group Head, Global Wealth Management on December 1st this year. I realize 2023 has been a difficult year financially, but the actions taken have been decisive, deliberate and necessary. A strong balance sheet, a relentless focus on becoming more efficient and appropriate allowances will set the Bank up for success going forward.

As I look to 2024, I’m confident earnings will increase, driven by benefits from the productivity initiatives and a more stable rate environment. We look forward to sharing our new strategy at our Investor Day on December 13. With that, I will turn the call over to Raj for a detailed financial review of our results.

Raj Viswanathan: Thank you, Scott, and good morning, everyone. This quarter’s net income was impacted by adjusting items of $289 million after-tax or $0.24 of earnings per share, and about 6 basis points on the common equity Tier 1 ratio, all of which were recorded in the Other segment. This consisted of a $258 million restructuring charge relating to workforce reductions, a $63 million charge related to the exit of certain real estate and service contracts, a $159 million impairment charge to the Bank’s investment in Bank of Xi’an, a $114 million impairment of certain software. These were partly offset by a $319 million gain from the sale of the Bank’s 20% equity interest in Canadian Tire Financial Services. The full year results were also impacted by the $579 million Canada Recovery Dividend recorded in Q1 2023.

All my comments that follow will be after adjusting for these items, and the usual acquisition-related costs on a year-over-year basis, unless specified otherwise. Starting on Slide 5 on fiscal 2023 performance. The Bank ended the year with adjusted diluted earnings per share of $6.54, and a return on equity of 11.7%. Revenue was up 1%, and expenses increased 9%, resulting in negative operating leverage of 8.3% for the year. Provision for credit losses were $3.4 billion in 2023, approximately $2 billion higher, of which over $1 billion was performing allowance build. Phil will speak to this later. Canadian Banking earnings were $4 billion, down $757 million or 16%, primarily due to higher provision for credit losses that increased by $1.2 billion, while revenues grew a strong 7%.

International Banking earnings were $2.5 billion, down 4% on a constant dollar basis. Revenues were up $710 million or a strong 7%, while provision for credit losses increased $638 million. Global Wealth Management earnings of $1.5 billion were down $126 million or 8%, as a result of the very challenging market environment. Canadian wealth was down 12%, impacted by lower fee income, while international wealth earnings grew 19%. Global Banking and Markets reported earnings of $1.8 billion, down $143 million or 7%. Even in a slow capital markets environment, revenues grew 7%, but expenses were up 15% to support business growth initiatives. The provision for credit losses were higher by $167 million compared to the prior year. The Other segment reported a net loss of $1.4 billion, compared to a loss of $229 million in 2022.

The higher loss of approximately $1.2 billion was due to lower revenues driven by higher funding costs and lower investment gains that were partly offset by higher income from liquid assets. The segment had some offsetting benefits from a lower provision for taxes and lower non-interest expenses. The Bank’s earnings in 2024 are expected to benefit from strong net interest income growth while non-interest revenues are expected to grow modestly. Loan growth is expected to be modest; however, we expect the benefits of repricing to support net interest margin expansion. Expense growth is expected to moderate largely in-line with inflation, as strategic investments are mostly offset by efficiency savings. The Bank expects to generate positive operating leverage in 2024.

The Bank’s earnings are expected to improve marginally this year despite higher PCLs and a higher tax rate with first half profitability improving from the current quarter and the second half of the year being stronger than the first. Moving to Slide 6 for a review of the fourth quarter results. The Bank reported quarterly adjusted earnings of $1.7 billion and diluted earnings per share of $1.26. The return on equity was 8.9%. Net interest income was $4.7 billion, up 1% year-over-year and 2% quarter-over-quarter from a 6 basis point margin expansion from higher lending margins and business mix changes, including deposit growth across all business lines. Deposit growth outpaced loan growth again this quarter, resulting in a loan-to-deposit ratio of 110% compared to 116% in the prior year.

Non-interest income was $3.3 billion, down 3% year-over-year, mainly due to lower trading revenues and investment gains, offset by higher fee and commission and wealth management revenues. The provision for credit losses increased $437 million or 53% from the last quarter, driven by higher-performing loan provisions which were $454 million this quarter. The PCL ratio was 65 basis points this quarter, of which 23 basis points were performing PCLs. Quarter-over-quarter expenses were up 4%, mainly from higher technology costs, performance-based compensation and professional fees. Expenses increased 10% year-over-year or 7% excluding the unfavorable impact of foreign currency translation, reflecting higher staffing-related costs, technology costs and performance, and share-based compensation.

The productivity ratio is 59.5% this quarter, an increase of 340 basis points quarter-over-quarter. The effective tax rate was 14.7% this quarter compared to 17.6% a year ago, driven by higher tax exempt income and higher income from lower tax jurisdictions, partly offsetting an increase in the Bank’s statutory tax rate and lower inflationary adjustments. Moving to Slide 7, the Bank reported a common equity Tier 1 ratio of 13%, an increase of approximately 30 basis points this quarter. Net internal capital generation was 19 basis points. The sale of our 20% equity interest in Canadian Tire Financial Services contributed 16 basis points, and the dividend reinvestment plan contributed 11 basis points. This is partly offset by 10 basis points impact from the restructuring and one-time items, and the negative 8 basis points from the fair value impact of available for sale securities.

Risk weighted assets were $440 billion, flat quarter-over quarter as the decline in book size was offset by the impact of foreign exchange. The estimated impact from the adoption of the Basel III reforms is approximately 75 basis points in Q1 2024. The 2.5% increase of the capital floor to 67.5% is approximately 40 — 45 basis points, and the implementation of the fundamental review of the trading book is approximately 30 basis points. In addition, the Bank’s liquidity coverage ratio improved to 136%, and was significantly up from 119% last year. The net stable funding ratio also improved at 116% from 111% in the prior year. The capital and liquidity ratios are expected to remain strong in 2024 with our plan to manage our common equity Tier 1 ratio in the 12.5% range.

Turning now to the Q4 business line results beginning on Slide 8. Canadian Banking reported earnings of $810 million, a decrease of 31% year-over-year due to higher provision for credit losses and higher non-interest expenses. Year-over-year revenues grew 6%, while expense growth was 9%. Average loans and acceptances were in-line with prior year and down 1% from the prior quarter, while the mix changed. We saw continued growth in our higher-yielding portfolios as business loans grew 11%, personal loans grew 3%, and credit cards increased 18%. This was offset by a decline of 4% in residential mortgage businesses. We continue to see deposit growth, primarily in term products with average deposits up 2% quarter-over-quarter. Year-over-year deposits grew 10%, and the loan-to-deposit ratio improved to 125 basis points — sorry 125% from 138% last year.

Net interest income increased 8% year-over-year as deposits grew a strong 10%. Quarter-over-quarter margin expanded by 12 basis points, benefiting from asset repricing and intentional changes in business mix. Non-interest income was in-line with last year due to lower banking fees, mostly offset by higher insurance revenue. Expenses increased 9% year-over-year primarily due to higher personnel costs and inflationary adjustments. Quarter-over-quarter expenses were up 4%. The PCL ratio was 63 basis points, an increase of 36 basis points quarter-over-quarter from significantly higher performing loan provisions. Looking forward to 2024, deposit and loan growth is expected to moderate from 2023 levels. This, along with the improving net interest margins, is expected to drive revenue growth.

Solid revenue growth in retail, including Tangerine is expected to continue, while business banking revenues are expected to moderate. The segment will grow expenses in-line with revenue growth while balancing strategic growth investments. Turning now to Global Wealth Management on Slide 9. Earnings of $333 million declined 10% year-over-year as strong 8% growth within international wealth was offset by Canadian wealth results declining 12%, largely due to lower average assets under management. Revenues grew 3% year-over-year due primarily to higher brokerage revenues in Canada and private banking revenues within our international business. Expenses were up 11% year-over-year, driven by higher volume-related expenses and technology costs. Spot assets under management increased 2% year-over-year to $317 billion as market appreciation was mostly offset by net redemptions.

Assets under administration increased 5% over the same period to $610 billion from higher net sales and market appreciation. Investment fund sales in Canada continued to be under pressure with approximately $60 billion in net redemptions over the last year. Under this backdrop, Scotia Global Asset Management investment results continue to perform well against their benchmarks. International wealth management generated earnings of $52 million, driven by higher revenues from business volume growth. AUA and AUM grew 12% and 16%, respectively, year-over-year. Global Wealth Management expects to deliver revenue growth in 2024, driven by retail mutual fund volume growth, solid growth across our Canadian advisory businesses, and continued expansion across key international markets.

Earnings are expected to grow in-line with recovering market conditions and strong new business volume growth. Turning to Slide 10. Global Banking and Markets generated earnings of $414 million, down 14% year-over-year. Capital markets revenue was up 9% year-over-year as global equities grew 25%. However, business banking revenues declined 5% as loans were flat year-over-year. Net interest income was down 19% year-over-year as a result of higher trading-related funding costs and lower corporate lending margins. Non-interest income grew $95 million, or 11% year-over-year, primarily due to higher fee and commission revenue, partly offset by lower trading-related revenue. Expenses were up a modest 3% quarter-over-quarter, mainly from higher technology costs, and the negative impact of foreign exchange.

On a year-over-year basis, expenses were up 12%, due mainly to higher personnel costs and technology investments related to business growth. The provision for credit losses increased 13 basis points quarter-over-quarter to $39 million, mostly on performing loans. The U.S. business generated strong earnings of $228 million. GBM Latin America, which is reported as part of the International Banking segment, reported earnings of $251 million, down $63 million from a record third quarter with lower earnings in Chile, Peru and Mexico due to lower capital markets activities. In 2024, in capital markets, revenue growth will be led by FICC, while business banking is expected to grow fee-based revenues. Expense growth will be focused on key investments in priority segments and markets.

Earnings in GBM LatAm are expected to moderate in 2024 to more normal levels from the elevated earnings in 2023, and the impact of reduced capital allocation. Moving to Slide 11 for a review of International Banking. My comments that follow are on an adjusted and constant dollar basis. The segment reported net income of $570 million, down 12% or $75 million quarter-over-quarter, primarily from lower earnings from GBM LatAm of $63 million. Revenue was up 3% year-over-year, driven by higher net interest margins. Year-over-year loan growth moderated to 2%. Mortgages were up 7%, while business banking decreased 1%. Deposits grew a strong 9% year-over-year and 3% quarter-over-quarter. The loan-to-deposit ratio improved by over 1,000 basis points year-over-year to 129%.

Net interest margin expanded 8 basis points quarter-over-quarter from asset margin expansion and business mix changes. The provision for credit losses was 119 basis points, or $512 million, up a modest 1 basis point quarter-over-quarter. Expenses were up 3% year-over-year due to inflationary pressure, partly offset by the benefits of cost reduction initiatives. Expenses were up 2% quarter-over-quarter driven by technology expense. Operating leverage was positive for the year. Looking ahead to 2024, revenues in International Banking are expected to benefit from loan growth and net interest margin expansion. Expenses are expected to grow at a lower rate than revenue, reflecting expense saving initiatives. Earnings are expected to be impacted by higher provision for credit losses and a higher tax rate.

Turning to Slide 12. The Other segment reported an adjusted net loss attributable to equity holders of $487 million, that was higher by $188 million compared to the prior quarter. Revenue was lower than last quarter by $222 million. Higher interest from liquid assets was more than offset by increase in funding costs. Also contributing was further improvement in our liquidity levels which comes at a net cost. Revenue was also impacted by minimal investment gains and lower income from associated corporations and unrealized gains on non-trading derivatives. This was partly offset by lower taxes and non-interest expenses. In 2024, the Other segment loss is expected to remain elevated as funding costs are expected to remain at these levels for most of the year with significantly lower investment gains.

We will see improvements in this segment as rates decline towards the second half of 2024. I will now turn the call over to Phil to discuss risk.

Phil Thomas: Thank you, Raj. Good morning, everyone. We continue to strengthen our balance sheet by increasing our ACL ratio from 71 basis points to 85 basis points this year. With this, we have now increased our allowances for credit losses by $1.1 billion in 2023 with $780 million of this increase from performing allowances. Given the macroeconomic backdrop of higher unemployment levels, higher for longer interest rates and upcoming renewals of fixed rate mortgages in Canada, we have focused on strengthening the balance sheet, including: a further increase in performing allowances this quarter of $440 million leveraging expert credit judgment for Canadian banking and global banking and markets; higher quality originations with a focus on affluence in international, and higher credit quality in business banking; shifting business mix to a more secured across our footprint; and finally, a continued focus on building performance allowances in international, resulting in an approximate $200 million increase over the past six quarters.

This improved ACL coverage provides us with a solid foundation to manage through periods of slow growth and an uncertain macroeconomic environment. It is important to note that while delinquencies are still within historical norms, consumer health in Canada continues to weaken, and we expect households may continue to experience financial pressure through 2024 with the build in ACL addressing this. In business banking, we are not seeing increased defaults due to high quality of our portfolios. However, we are increasing our coverage ratio given the expectation of continued elevated interest rates and the potential impact on client performance. Moving to Slide 15. The quarter-over-quarter PCL increase was primarily driven by the performing allowance build which was 23 basis points.

This compares to 4 basis points last quarter. The build was primarily in Canadian banking. As a result of the increased ACL, our total PCLs in Q4 were $1.26 billion, including $454 million of performing PCLs. Total PCLs were up $437 million quarter-over-quarter. This translates to a PCL ratio of 65 basis points. Impaired PCLs trended higher at 42 basis points compared to 38 basis points in Q3. Canadian banking total PCLs were 63 basis points. Quarter-over-quarter, total PCLs increased by $393 million, resulting in a total PCL of $700 million. $414 million or 37 basis points of the PCLs were related to performing allowance build, of which $240 million was for Canadian retail and $174 million was for business banking. Retail customers in Canada continue to spend less on discretionary goods and more on essential items year-over-year.

Overall, spending has continued to slow as total debit and credit card spend fell 3% quarter-over-quarter and remained flat year-over-year, despite inflation. Variable rate mortgage customers continue to spend less than their fixed rate counterparts with total spend down 11% year-over-year, while spending for fixed rate customers is only down 5%. Additionally, delinquencies continue to trend up across all products in Canada. 90-day delinquency levels were 3 basis points quarter-over-quarter to 25 basis points, and were up 10 basis points year-over-year. Quarter-over-quarter, we saw a deterioration in HELOCs and auto, increasing 9 basis points and 6 basis points, respectively. In Canadian business banking, we are cognizant of uncertain macroeconomic conditions.

Included in our ACL coverage is an additional build for our real estate portfolio, which includes impacts to collateral values. Our exposure to U.S. real estate is largely to investment grade borrowers, and as disclosed in the investor presentation, our U.S. office exposure is immaterial. Global Banking and Markets provisions for credit losses were $39 million or 11 basis points this quarter and included a performing allowance build of $30 million. Total PCLs in International Banking were $512 million or 119 basis points, up 1 basis point from the prior quarter. Total retail PCLs decreased $17 million quarter-over-quarter to bring the PCL ratio to 211 basis points, driven by lower allowances and increases in Colombia and Chile. Performance in these markets have started to stabilize with improving macroeconomic outlook.

Central banks have paused interest rate hikes in Colombia and in Chile. They have started reducing rates. Mexico continues to perform within expectations, supported by resilient underlying economic fundamentals. Headwinds persist in Peru, with delinquencies remaining elevated and GDP contracted. Peru entered a recession and will likely be further impacted by the upcoming El Nino. Contingency plans and loss mitigation tools are ready, and have been deployed where needed. Looking to fiscal 2024, we expect a challenging environment will persist for consumers and businesses. Canadian GDP growth is expected to remain muted and inflationary pressures on households is expected to persist with the outlook for rate cuts uncertain. We expect PCLs in 2024 to be in the 45 basis point to 55 basis point range, assuming no significant changes to our expected economic scenarios.

With that, I’ll pass the call back to John.

John McCartney: Great. Thanks, Phil. Operator, could you open the lines for questions?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala: Hey, good morning. So, I guess maybe, Raj, you went through a lot in terms of the outlook for next year. I just want to make sure we heard you right. It sounds like you’re guiding for PTPP to be up either year-over-year and from fourth quarter levels given revenue growth should exceed expense growth and revenue growth driven by NIM expansion. So, if you don’t mind, just quantify the level of margin expansion you expect at the all bank level if we don’t see any action from Bank of Canada from here on? And what is the expense growth that we should think about would be the right way for ’24, either year-over-year or relative to fourth quarter expense run rate? Thank you.

Raj Viswanathan: Thanks, Ebrahim. I’ll start. Margin expansion should continue for the whole bank in 2024, Ebrahim. Couple of reasons. One is repricing of our loans has already commenced, as you saw this quarter. Frankly, you saw it in last couple of quarters across our portfolios, and that should continue in 2024. We know our deposit margin contribution to 2023 will be muted in ’24, because there’s been lots of deposit growth. And I said in my prepared remarks that deposit growth is expected to be lower than what we saw in 2023. The net of it is, you should see pretty decent margin expansion from where we finished Q4 2023, both in the business lines as well as across the Bank. Like you pointed out, with the Bank of Canada and the U.S. Fed expected to stop rate increases.

Obviously, if they do increase, it’ll be a headwind to this Bank. So, I think margins will be a good news story. That’s where we expect net interest income to grow next quarter, in my prepared remarks what I talked about. Expenses is, Q4 tends to be seasonally higher. I think it’s not unusual for us. Like Q1, next year will be higher because we have what we call eligible to retire costs that comes through our business lines, which gets recorded in Q1 across our employee base. But for the whole year, like I mentioned, we expect to generate positive operating leverage for the Bank, i.e., revenue growth exceeding expense growth by some margin. We know that the Canadian bank has to invest, so there we think our revenue growth will be strong and offset the expense growth that is expected as we look forward.

International bank will continue to generate positive operating leverage, as it did this year. And the Wealth and GBM businesses, it depends a bit on the markets. But I think for the whole bank, we expect to generate positive operating leverage. Expense growth will be significantly lower than what you saw this year. Adjusted for FX, like I said, it was about 7% for the whole year. And next year, we’re going to benefit from the productivity initiatives that we took as well, part of it is expected to come through in ’24, and the full year benefit should come through in ’25. So, all that points to an expense growth, I would call, in the low-end of the mid-single-digit range is what we expect next year.

Ebrahim Poonawala: That was helpful. Thank you. And just on a separate question, Raj, you laid out the 75 basis point impact to CET1 from the Basel FRTB-CVA changes and the floor factor in 1Q. So, as we get to [12.25%] (ph), remind us where you want to be on CET1 as we think about the DRIP? And are there any actions that you can take to materially optimize the balance sheet to reduce that drag either on the market risk side or on floor factor? Thanks.

Raj Viswanathan: Thank you, Ebrahim. I think as far as capital ratio goes, we’d like to run around the 12.5% range for the rest of 2024, and the DRIP is a contributor to that without any doubt. Lot of the actions that you referred to on muting loan growth, you’ve already seen it. You’ve seen our — we’ve been targeted about where we want to deploy our capital, and we’ve been pulling back capital from certain parts of the business where it has not been providing the appropriate returns in a capital constrained environment with higher cost of capital coming at us. So, 12.50% is what we expect to run for 2024. Obviously, it also depends on what OSFI will do and some of the other regulatory changes that can come across starting December 8.

We want to be prudent. We want to run at 12.5%, and we’ll revisit all the actions that we need to take or not as we see how the regulatory environment evolves through 2024. Beyond that, we’ll talk about it at Investor Day to see what is the right capital levels that this Bank should be running at. But for ’24, that’s what you should expect from us.

Ebrahim Poonawala: Thank you.

Raj Viswanathan: Thanks.

Operator: Thank you. The following question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Gabriel Dechaine: Hi. Good morning. I just want to put a fine tune on the outlook commentary there, and I heard a few things from Scott and then in the MD&A, of course. You’re suggesting that earnings growth will be marginal in 2024. That’s off of the full year adjusted base from 2023, I assume. And if we’re looking at it from an earnings per share standpoint, you got marginal earnings growth, then you’ve got the DRIP, which might be ongoing for the full year, we’re probably going to see lower than marginal EPS growth. Is that a reasonable interpretation?

Raj Viswanathan: No, I think — Gabe, I’ll start and Scott might have a comment or two on that. I think on an EPS basis, you should see growth, like marginal growth, right, from the $6.54 that we reported this year.