The Bank of Nova Scotia (BNS) Barclays 22nd Annual Global Financial Services Conference (Transcript)

The Bank of Nova Scotia (NYSE:BNS) Barclays 22nd Annual Global Financial Services Conference September 9, 2024 2:00 PM ET

Company Participants

Aris Bogdaneris – Group Head of Canadian Banking

Conference Call Participants

Unidentified Analyst

Good afternoon. Welcome back. We’re just at the 2:00 time. This afternoon, to start off, we have Aris Bogdaneris, He’s the Group Head of Canadian Banking at Scotiabank. So thanks, Aris.

Welcome.

Aris Bogdaneris

Good day.

Question-and-Answer Session

Q – Unidentified Analyst

You’re a relatively recent addition to Scotiabank, having a previous banking experience in the U.S. and Europe. Could you tell us your initial impressions of the Canadian banking market? And what attracted you to Scotiabank?

Aris Bogdaneris

Okay. So hi, everybody. It’s great to be here. I’ll answer the second part first and then I’ll close with the first part of your question. So I had the opportunity of winding down in ING to be part of the transformation actually going on at Scotiabank led by Scott Thomson.

In the last year, we brought in four actually new business leaders across our business lines and a new CEO with Scott, and then actually a new strategy, which we talked about during the Investor Day.

And after almost 30 years abroad, at ING, leading their global retail business, and in a big Austrian bank and previously GE Capital, I just thought it was a great opportunity to come back to Canada. I’m Canadian, but I have never worked in Canada. So I was born and raised in Montreal, but never had, had a chance to work in Canada. I’ve worked everywhere else in the world, funny enough. And so it was a great opportunity to come back and have my kids and have this adventure, which is really a mission for us to transform Scotia, and we’re on that mission now.

In terms of what I’ve seen and having worked in Europe, Eastern Europe, Western Europe, Australia and Asia, it’s interesting to look at the Canadian market. It’s quite concentrated. 75% or more is consolidated around six banks. It’s heavily branch-based business model, different from what we saw in Germany, certainly in Europe and certainly different from how ING operated across its footprint. Very profitable.

A lot of young talent, growing population, which is unusual in Europe, where many of the markets I was operating in the population was shrinking.

And legacy banks, big legacy banks, meaning they’ve been around for a long time, and that has implications on its IT stack and the work you have to do around IT, and transforming IT comes part and parcel with any transformation. So — but very exciting, very exciting to be here.

Unidentified Analyst

Excellent. Thanks. Sticking to the Canadian banking market. At the start of the year, there were some concerns around the slow economy, rising unemployment and the impact of higher interest rates on residential mortgage renewals. We’ve now seen three rate cuts from the Bank of Canada.

What are you seeing within your footprint? And are there any areas of specific concern? Have you seen any response in terms of consumer behavior even with pressure on the mortgage renewals? Is that more of a 2025 story?

Aris Bogdaneris

So similar to the U.S., Canada has been impacted by high inflation. Rates were rising post-COVID. And only now do we start to see the cycle reversing. There will be two — probably two more rate cuts in October and December. What we’ve seen, particularly in our mortgage business, which is a big part of every bank’s business in Canada, we’ve seen quite a bit of resiliency on how customers — our mortgage customers have managed what we call the payment shock.

Just to give you an example, for those variable rate mortgage holders who originated in ’22, the monthly payment shocks, their monthly payments have gone up 55% in that period, and they’ve been managing. We’ve seen a slight uptick, very slight uptick in delinquencies for our variable rate customers.

And remember, we — as soon as rates change, we change — the rates change on the mortgage, so it’s instant. So we see right away how people are managing, but Canadians are very resilient. The savings rates in Canada are 7%, pretty high still versus what you see in the U.S., roughly 2%. So Canadians are a little more conservative in how they save. They pulled back on a lot of their discretionary spending, less traveling, less going out to dinners, and paying for groceries, they’re managing.

And I think over time, as we plateau and the rates slowly come down, I think they’re going to manage. We have big renewals coming up in ’25, ’26, ’27 in our fixed rate book. But if the variable rate customers are anything to go by, I think we will be able to manage. But of course, it’s not an easy situation for Canadians.

Unidentified Analyst

Great. And then kind of — you’re seeing some of the response, after declining throughout 2023, residential mortgage loan balances kind of rebounded in 3Q. With the recent recuts, are you seeing more demand from customers for residential mortgage loans? Are you seeing anything in payment or delinquency rates that would give you concern?

Aris Bogdaneris

Right. So as you mentioned, in the third quarter, at Scotia, our Canadian business, we booked, I think, net increase of $5 billion versus $2 billion in the previous quarter and actually, previously, we’re actually shrinking the mortgage book. So the demand is coming back. More interestingly, we’re seeing now customers who’ve been on the sidelines starting to come into the market. So the pipeline is very, very active.

More importantly for us is we’ve taken a different tack now as we start to build up the mortgage book again in Scotia, and that tack is to try and have a more fulsome relationship with the customers that we’re originating. And what does that mean? We’re a leading — we’re a leading originator in Canada in brokers — through our brokers. We have the highest market share. But more importantly now with our brokers, we’re driving as part of our strategy, if you heard on Investor Day, multiproduct origination.

That means whenever we do a mortgage today through our broker channel, which is by far the biggest channel we have, we’re adding multiple products, a day-to-day banking account, either a card or a savings product. And we’re focused less on market share and growing market share, as was the case in the past, to more driving more value because of the whole idea of value versus volume. You see it in the P&L. Although we did grow the balances of our mortgage business really year-to-date, we’ve actually increased revenues and profits by more than 20%, so again, driving higher returns in the business we do.

Again, I mentioned delinquencies already. We’re managing delinquencies. We see a slight uptick, but it’s starting to plateau. Again, it’s early days. We’re watching unemployment very closely because that is a big driver, of course, for any mortgage holder.

But so far, so good.

Unidentified Analyst

Can you — and the consumer, are you seeing a difference between like the homeowner, mortgage holder versus a renter in terms of pressure or delinquencies, payments, savings?

Aris Bogdaneris

To be honest, I don’t know on the specifics versus the renter, but what we are seeing is that where we’re seeing actually the best performance is on our credit card book. And that’s surprising because usually that’s the first to show stress. And actually, our credit card book has held relatively resilient, and actually the delinquency rates in our Scotiabank credit card business is actually at or below what it was pre-COVID.

Unidentified Analyst

Keeping on the consumer, you mentioned credit cards. They’re only about 2% of the portfolio. Are you seeing any more traction with customers enrolled in the Scene+ program, if you could talk about that a little bit more? And what other steps are you taking to expand this category? Or you prefer to stay with kind of secured products within consumer?

Aris Bogdaneris

So at Investor Day almost a year ago, I talked about getting our fair share. And what I meant by that is outside of mortgage in Scotiabank Canadian business, we punch below our weight in credit cards, small business, commercial and mutual fund sales through our branches. So when I look at our credit card book, which is roughly 2% of our overall lending balances, I would like to double that at a minimum. And how to double that going forward in a market, that’s highly competitive, 40 million Canadians, six big banks all competing in the same space, we have a unique advantage, I would say, unique. We have what we call Scene+.

It’s a loyalty program which is roughly 16 million strong. And this loyalty program allows us to actually have a wealth of new potential customers who we cross-sell and integrate into our banking products. Today, 50% of our new acquisition of credit cards at Scotia is coming through this Scene+ loyalty program. And 39% of Scene+ members, or 39% of the 16 million members had a Scotia product. And this is just a relatively the program has been around for a while, Scene+, but only in the last year have we really been able to start to mobilize data at our disposal to start getting insights on our customers and driving this cross-sell with our card business.

So I think it’s an important growth lever. And I think through that, we won’t have to start to lend to walk-ins and customers we don’t know, but through Scene, with all the data we have, I think this is a huge opportunity for us. And we’ll only get bigger as we enlarge the Scene+ ecosystem with other loyalty partners in the coming years.

Unidentified Analyst

One of the areas you mentioned that really doesn’t get as much attention is commercial and small business. Maybe could you also talk about how commercial and small business fits into your overall strategy?

Aris Bogdaneris

Great question. So as I mentioned, commercial and small business, we punch below our weight. Historically, we’ve punched below our weight. I think we’re number five in Canada. What commercial and small business represent for me is the opportunity to diversify our revenue business outside of mortgages, which is a big part of our business already.

I would say, too big.

So in commercial, what we’ve tried to do is drive what our CEO has been talking about for a year now, primacy as a North Star. And primacy in commercial banking means starting to pull away from these lending-only relationships, and you hear it from many banks of how do we start to deselect those customers who will never do more with us than the lending relationship and start to mobilize around driving more primacy. And what we can see early days, in the first — year-to-date, we’ve added 20% growth in deposits in our commercial business. We’ve only increased lending by 4%.

But more interestingly for shareholders, ROE has gone up every sequential quarter. Risk-adjusted margins have gone up every quarter. Return on assets has gone up every quarter and return on risk-weighted assets has also gone up every quarter. So this whole idea of value versus volume is actually materializing. Obviously, we want to grow our commercial business.

That’s important. And there’s a lot of other things we need to do there. But I think this idea of just focusing on those relationships that will drive long-term value matters. Small business is another area that matters. It matters so much that I’ve taken the small business organization, carved it out of where it was in the past, retail, and it now reports directly to me.

So I have four pillars of our Canadian business: small business, commercial, retail and our digital bank tendering. So four business lines independent of each other, leveraging each other. They share some of the same channels. But in order to really grow small business, and that’s what I think the biggest difference from my time in Europe and my time so far in Canada, is the focus and, I would say, sophistication of small business banking in Europe, particularly in Western Europe and in Poland, for example, another market I worked in.

I think what we need to do in small business is obviously get the cost to serve right in terms of adding a digital component to how we do small business banking. That is not really embedded in the Canadian banks today. Obviously, we’re going to look at segments within small business, lawyers, doctors, and focus and start to get more specialization. And then obviously, a big part of small business is coverage. How do you cover small business clients across Canada?

The way we think we can cover it better is, a, digital for servicing, but b, virtual advisers. And here’s where we’re going to ramp up our virtual adviser capability. Today, we’ve already started, but there’s no limit on how many virtual advisers today, with the technology you have at your fingertips, what you can do and provide advice at every corner of Canada virtually. I think this could be a competitive advantage over time.

Unidentified Analyst

You did mention quickly on your digital offering in commercial and small business. And you’d also talked about it at Investor Day, kind of the importance of technology. Maybe you can talk a little bit more about your digital offering? Even with a nice pickup in digital sales in 3Q, are you kind of still trailing the peer averages or able to kind of close that gap? And are there any constraints on your digital sales channels?

Aris Bogdaneris

Again, digital is another topic you’ll hear everywhere, everyone is focused on digital. And what does digital mean actually in Scotiabank? For me, I start most obvious places, start is how we deliver products and services. I think the focus, and it was a focus in my previous slides, is how do we go on mobile quickly. So how do we kind of skip over desktop web and go directly to mobile?

And directly to mobile starts, how do you service and provide self-service capabilities on mobile? Because once you’re able to do that, your whole branch footprint and your whole branch changes than what you do in branches. So one feeds off the other.

And I think the struggle we’ve had in Scotia is making that decisive break in terms of investing in mobile to drive a different type of branch and physical footprint. So the first — and we talked about it during Investor Day, how we’re bringing an increasing investment into Canada substantially from abroad, because Canada is a focus as is the U.S. and Mexico. So the first point is getting that mobile capability for servicing, but obviously for product, and be able to do more than deposit gathering through digital or mobile and trying to get the full pilot. That’s one.

The second, obviously, is how do you deploy digital in your other alternative channels, whether it’s your contact center using AI and bots, which every bank is obviously on that journey. But also in Canada, you need to understand there’s a lot of processes that are heavily manual. And of course, like every bank has to do, to go through them in a systematic way and deploy digital that you get straight through processing, it’s not magic, but it’s a lot of work.

And so front-end digital to improve the employee experience or the customer experience and then back-end digital to drive operational excellence. This is a playbook everywhere. It’s a playbook that was successfully, you see in Europe, quite — implemented quite strongly. So this is the area we want to go. And I believe we’re on the right track, but it requires investment, goes without saying.

Unidentified Analyst

I guess keeping on the technology theme and digital. Can you compare kind of digital offering versus you also have a digital platform, Tangerine, which incidentally also came from ING Interac. And maybe how you’re continuing to gain traction with the Tangerine customers? How do you weigh your investments in your digital platform versus the branch?

Aris Bogdaneris

I think it’s very hard to differentiate in Canada in one market. It’s very hard. All the banks are trying to do the same thing. They’re hungry to go after deposits. They’re hungry to grow their share in mortgages.

But what could be points of differentiation in Canadian banking? I can tell you, one that was a point of differentiation in the U.S. when they were there, but also in Europe, and that was the direct banks that ING built.

Actually, ING in Canada launched what is now called Tangerine. It was the first digital bank they launched globally. Today, Tangerine is a unique asset for Scotia. It’s an asset that’s been around for 10 years, been quite successful in gathering deposits. But I think in a market that doesn’t have any fintechs at scale or much foreign competition in the retail space, I think Tangerine could be a secret weapon for Scotia.

And it’s part of our plan to do several things with Tangerine.

Today, it has roughly $48 billion in deposits and roughly $7 billion in lending. And I think the biggest differentiator I see and the biggest opportunity is how does Tangerine become a primary bank for the digital-savvy Canadians who will never be caught dead going into a branch, for whatever reason. And I think that’s the space I think we can carve. It will require us to be mobile first. It will require us to build products first on mobile, lending products, investment products and other products that customers value and also be a deposit driving arm for the overall Canadian bank.

We haven’t invested sufficiently over the last few years, but this is something now we’re focused on. Remember, Tangerine has the number one Net Promoter Score by far in Canada. The issue is just too small. It needs to get bigger. It needs to get much bigger in terms of what it can do for Canadians.

And today, it’s a nice, very, very successful franchise, but it needs to scale. And that’s where a lot of incremental investment will go in the coming period.

Unidentified Analyst

Okay. Now I know it’s in early days and likely not in your wheelhouse, but I’m not going to let you off stage. There’s at least one question about the recently announced investment in Key. From your perspective, what are the main strengths you’re bringing to this relationship? And what do you hope to learn from it?

Now keep in mind, they are presenting next.

Aris Bogdaneris

Okay. I better be careful. So KeyBanc is an interesting bank because when you look at it, it has very much ancillary to what we do. It’s a very deposit-led bank. Very strong in commercial, has a wealth, very good in corporate.

In short, it’s a very good bank, right? We saw an opportunity. We have built capital over the years. We had an opportunity to deploy some of that capital that we built up in excess of what we required. And we looked at different options available to us, share buybacks, other things, and we saw an opportunity in Key to invest that excess capital for several reasons.

I think, one, if you listen to Scott and you saw on Investor Day, the U.S., Mexican, Canadian corridor is paramount to our strategy. And for us to be able to deploy excess capital at a very attractive and accretive ROE and earnings into Key, get two seats on the board, represented for us a low-cost, low-risk opportunity to learn about the market in the U.S. and provide us with optionality going forward. So that was the genesis behind. There’s a lot of learnings from both sides together as we start working together, but we’re really, really optimistic with the opportunity that we start to earn our way in the U.S. over time and start to really understand how we can further develop there.

Unidentified Analyst

I just wanted to maybe move on to an expense question. Kind of as it relates to the productivity ratio, how are you balancing efficiency goals versus the need for continued investments? What areas are you targeting to achieve improvements in efficiency? And can you continue to see improvement in productivity ratio even in a declining rate environment?

Aris Bogdaneris

I think every bank has this challenge. Over the last three quarters, our Canadian bank, for the first time actually in a very, very long time, has managed to generate positive operating leverage every quarter. So in the three quarters I’ve been in the job, positive operating leverage, check, first. Second, in the last quarter, we achieved an all-time record low for cost to income, I think, 43%. But truth be told, given my experience, the cost of income, our operating leverage is only one part of the equation.

I see tremendous opportunity to actually drive more productivity in the Canadian bank. When I look at things like cost of balances, how we evaluate our business by looking at the total cost of our Canadian bank over the balances we have on our balance sheet loans, deposits, AUM, you get a number there and you can compare it to what you see best-in-class around the world.

Customers to FTE, when I look at that metric at Scotia, we also fall short from what I call the world leaders. Digital sales, when I look at that metric across the best in the world I’ve seen, we also have an opportunity to improve. So there is opportunities to improve, notwithstanding the operating leverage is positive, the cost to income is an all-time low. There’s a huge opportunity in Canada to drive more productivity.

Now that will require investment. I talked about it a little bit, where are you going to invest to get the biggest bang for your buck? I can tell you right away, you could not ignore when you have 940 branches in Canada, no different from our others, there’s an opportunity to optimize the footprint. Optimizing the footprint doesn’t necessarily mean closing a handful of branches. It means investing in your other channels like mobile, as I told you, contact center and virtual advice.

If you do that, you’re able to actually reengineer what your branch does. I think everyone in this room knows that as well.

And the idea for us is to be able to get more throughput through the branches. No matter how many we decide ultimately to have, that’s driven by a lot of things, but you’re going to have branches that are actually having much more sales throughput than ever before because your service staff starts to diminish and you’re starting to replace it with what I call virtual RMs who are selling, financial advisers who are going deeper in financial conversations with clients to drive more primacy. So you’re getting this whole mix more efficient. You have a fixed cost you have to pay across all your channels and you want to drive more revenues across it. And the way to do that, again, is to invest in those channels that are the most cost efficient without losing the revenue power that you’re trying to create.

Unidentified Analyst

Great. Last year at Investor Day, you provided a set of medium-term financial objectives for Canadian Banking, including a 9%-plus earnings growth, about 24% ROE, 2.4% risk-adjusted margin and 44% productivity ratio. Could you update us on how you’re making progress towards these objectives just almost a year since Investor Day?

Aris Bogdaneris

I smile because I had Investor Day and I had been in the job like 2.5 weeks. And I got up there and I gave these targets and I was praying that a year later, I wouldn’t regret them. And I don’t regret them, actually. Let me go through from my memory. We had five things, targets or areas of particular focus.

I think the first area we talked about was fixing the balance sheet or correcting the balance sheet. What I meant by that was the amount of loans we carry, particularly mortgages in relation to the deposits we had, was totally out of whack. And over the last year, we’ve added $27 billion in deposits in the Canadian Bank, and we haven’t grown our loan balances at all. Now not growing your loan balances is not a long-term strategy. But short term, we managed to do it and drive 11% net interest income in the process.

That is a result of what I talked about very early in how we’re working our assets and our customers much more effectively than before. So point number one, fixing the balance sheet, becoming more of a primary bank by driving deposits first and developing relationships beyond lending is a strategy that we continue to pursue.

The second part of the Investor Day that I talked about, which I talked about here was getting our fair share. In Canada, when you look at us, in some product categories, we’re number three or even number two. And in others, we’re dead last. That shouldn’t be. And so for mutual funds sold in branches, we’ve increased the gross sales up 44% because we’re just changing what our branches do.

I talked about small business, I talked about commercial where we’re starting to build some more resiliency, but more scale, take the heat off and the pressure off, obviously deliver on mortgages quarter after quarter. And then I talked about the card business, which is our fastest-growing business, and I talked about Scene+. So on that point, getting our fair share, we’ve made progress.

The third area, I would say, was this whole concept of value versus volume, and there’s no better place to look at that than in the mortgage space. I talked about it previously. We’re building mortgages in a different way. We’re competing in a different way. We’re competing to get primary relationships out of our mortgage business.

And as I mentioned, 90% of the mortgages we book today through our dominant channel are coming with primary relationships and daily banking. That is an important change. And on that score, we’ll continue to drive, and I talked about commercial, about ROE, return on risk-weighted assets versus market share. But we need to do this for our shareholders.

Fourth, we talked about productivity at Investor Day. And I mentioned on operating leverage, of course, positive three quarters, low-cost income, but the challenge for us, and you alluded to it earlier, how do we invest to drive productivity going forward with those marginal dollars that come into the Canadian bank? It’s not easy. You have to deal with a lot of legacy. Whether it’s your branch legacy, your tech legacy, you have a lot of legacy.

You have tremendous pressure on margins. You’ll see that as rates come down, there’s going to be a frenzy around mortgages. There’s going to be a fight for deposits.

How do you create that discipline to maintain your returns while you’re investing? It’s very difficult, and it requires difficult choices, I think, that all executives have to make. But I do believe I’ve seen the future in many respects in some of the leading banks around the world and how they’ve made that pivot, that transition from the traditional branch-based model to something far more dynamic, far more variable in terms of the cost structure because effectively, you’re trying to reduce the amount of fixed cost you carry. You want to make your business more variable in retail banking, and digital is a great play on that.

And then finally, we talked about Tangerine at Investor Day. And I’m still optimistic, but I haven’t yet really started to go in earnest on Tangerine as we started to build the foundation in the red bank, in the core bank. We spent a lot of time in the last nine months building the foundation. But I think we’re ready now to give it the old college try in Tangerine. We’ve increased net customers 37% last year — or year-to-date.

37% is a big number. And we’re doing that because we’re focusing on mobile, getting mobile adoption, mobile engagement and then getting mobile sales. So this is where our focus is. It’s very targeted.

Obviously, we can’t invest in everything. We have to make trade-offs. But in terms of Tangerine, I think we are on a good trajectory because, as I said, it’s one of the unique assets we have in the bank that very few banks can copy us in Canada. Yes. So that’s where we are.

We’re adding primary customers, of course, but I think early days, it’s a long-term strategy. We’ve talked about our 2028 targets, but I think we’re on a good way.

Unidentified Analyst

Thanks, Aris. The few minutes we have left, let’s open up the floor to any questions, see if anyone? Wait for a mic runner to come by. I see first, Julian in the front row.

Unidentified Analyst

When you got to Scotia about a year ago, it was kind of performing kind of right across the board in [indiscernible]. Can you explain why — what are the common causes apart from just the fact that Scotia may have been more focused on corporate and international banking. What were the sort of deep causes of the things that were not doing — not going well?

Aris Bogdaneris

A good question. I think about it often, actually. I think first and foremost, it comes back to retail banking in general. And from my own — my experience, it’s been 30 years, I’ve only done retail banking. I’ve done it my whole life.

We lost sight of the importance of having a day-to-day banking relationship with your customers. We lost sight that having that day-to-day banking relationship coming from the checking account deposits, you learn about your customer. You learn about the flows in and out of their account, you learn through the data that you have, and this is what I’ve seen other banks do extremely well, which from that information and those insights you’re able to serve them and cement the relationship much stronger.

And once you build this core banking relationship on the day-to-day banking account, maybe it’s common knowledge around, but we lost our way. We lost our way in thinking that we could make the numbers through lending and particularly make the numbers through mortgage lending. And mortgages, like everything else, is cyclical. It requires a lot of infrastructure. But it’s only part of the equation.

And mortgages are super important, don’t get me wrong. When you have a mortgage over its lifetime, there’s so much value in the mortgage. They’re highly profitable. But not having that day-to-day liquidity banking low-cost deposits was mistake number one.

Second mistake, I think, we could have maybe done more in terms of making some bets on digital earlier, whether it be in Tangerine or whether it be in the core bank in allocating more investment on tomorrow, I would call it, where things are moving versus where things have been. And of course, branch networks are super important. But a branch network in 2024 that is still having — and I’ve seen it, a fax machine or a payphone is something that shouldn’t be the case. So maybe a little bit more investment in taking that stuff out and helping your sales force actually be enabled to have those high-quality conversations in the network. And then just actually doubling down on digital and being a bit braver, right?

There’s a lot of other things Scotia has done very well. And we’re number one in auto. We’re very strong in wealth. We’re very strong in mortgages. We have strengths, but we have opportunities as well in other product groups.

And I think if we can hold on to those strengths that we have actually and close the gap on the others that I mentioned throughout the last 30 minutes, I think we’re going to create a lot of value in the bank.

Unidentified Analyst

Actually, I’ve got three questions, but I’ll let you pick which one you want to because I see there are others in the room. The first question would be, is there any attribute of your fixed rate mortgage customers that might be materially different from variable rate customers that would potentially be a risk for as they roll over? The second is, you mentioned you’d rather just leapfrog desktop, go straight to mobile. And I guess I was surprised to hear that. That sounds — it sounds like desktop. It’s really a cost intensive.

So would love to hear more about that. And the third thing, and maybe this is the one I’d actually prefer you to answer. It’s legacy manual processes, are these dictated by regulation? Or is this just how it’s been done? And this is something that you actually really can change because I mean it’s almost figures to leave?

Aris Bogdaneris

Not every branch, but I did see a fax machine in one of them. So I think one of the benefits when I was working abroad, let’s take Europe, very interesting because in the portfolio I ran, you would see innovation in one part of Europe which would actually inspire, and [misbussed] in another part of Europe by something couldn’t be done. So why do you have to have a mortgage through brokers? Why don’t you go direct-to-consumer and cut out the middleman? We had that.

We saw that. Why have — why couldn’t you do all your unsecured lending on mobile? Possible. So great innovations would quickly disseminate across Europe, right? So you get best-in-breed in different parts of the value chain and you would copy it.

The difficulty in Canada is you don’t have that luxury of being surrounded by different models and things. People move like in a peloton, all together. And so it takes somebody very brave to get out of the peloton and challenge conventional wisdom. And maybe that’s part of the reason I’m here, is to come in and ask the question, why do you do that, that way? Is it regulatory?

Or is it just because that’s what we’ve always done and the guy before you did it? But how do we actually challenge ourselves, cannibalize ourselves, think completely different? How do we become a disruptor to ourselves, actually? And it takes a bit of courage because that’s not how people often do it in two years. So I think I’m of the school — like in mortgages, when people said a broker will never try and help you get a primary relationship with their customer or sell multiple products, they’re just mortgage brokers, they want mortgages, not true.

90% of our mortgage brokers now, the volume coming through, they’re giving me day-to-day banking accounts. No one would have thought that possible, but we never asked. We never insisted. And so I think part of what we have to do, not only in Scotia, but in Canada, is challenge conventional wisdom. The branch is important.

But I do believe if you fly around the world and go see what or ask your own kids, how do they want to bank, I can assure you, they’re not going to want to stand in the queue in the branch. And I think this is what we have to bring to the Canadian bank, don’t lose the value, the assets we’ve created, and the branch is a valuable asset, but we have to modernize a little bit. And we have to be almost a catalyst to change because maybe the big banks have no incentive to change. They’re very profitable, they’re very dominant. It’s maybe the Scotias of this world who are right underneath tucked in who have to be that catalyst.

Unidentified Analyst

Great. We have less than a minute left with the final question.

Unidentified Analyst

A little bit of a follow-on to the previous one. So I heard you speak and you said we have a lot of areas where we need to invest. We need to grow this data, punching below our weight, et cetera. You had a fair amount of excess capital, and you chose to have an investment in Key. Wouldn’t that have been better spent investing in the company, investing in areas and opportunity steps that you outlined earlier?

Aris Bogdaneris

As I mentioned, we have a strategy that’s predicated on this North American corridor. So Mexico, Canada, U.S. and the investment in Key is a step forward in that, furthering that strategy. That said, I’m not starving. 50% more investment has come back into Canada for the Canadian business.

I’m not lacking in investment. So I don’t think it’s a zero-sum game, mutually exclusive. I think we can do both, further our strategy in that corridor that I talked about, but also double down into Canada and invest in those areas because 50% more investment is substantial.

The challenge for me in the Canadian bank is, where do I put that marginal investment? Do I invest in the digital, as we talked about, do I invest in my tech legacy, do I invest in my branches to make them smarter, faster, whatever? That’s the challenge I have, but I don’t think we lack for investment in the Canadian business.

Unidentified Analyst

Well, thanks. We’re out of time. Please join me in thanking Aris for his presentation.