When Scotiabank’s long-serving chief executive Brian Porter stepped down at the end of January 2023, after 10 years at the helm and more than 40 years at the bank, he left an institution that was in better shape than he found it, but one that still had much to do.
With the fresh perspective of an outsider, Scotiabank’s new chief executive, Scott Thomson, has seized the opportunity for a strategic overhaul and is making excellent progress, not least in transforming how the bank thinks about capital allocation.
For the work done so far and the way in which it is implementing its plan, as well as its continued excellence in areas such as sustainability and digital banking, Scotiabank takes the award for Canada’s best bank.
Thomson’s previous role was chief executive of Finning International, the world’s biggest dealer of Caterpillar construction equipment. But he was no stranger to Scotiabank, having been on the board of directors since 2016. He also knew the firm’s slightly curious Americas corridor footprint well from his previous career.
It meant that when he got the chance to step into his new role, he had a clear idea of what he wanted to do. He describes it as a volume-to-value transition.
“The starting recognition was that we had deployed a lot of capital into emerging markets, but returns had not been commensurate with the risk and, as a result, shareholder returns had been lagging,” he says. “And so the first objective was around capital allocation.”
That led to the realization that one place for renewed focus should be Canada. In its home market, Scotiabank had strong penetration in business lines like autos and mortgages but was arguably not getting its fair share of the wallet in commercial, small business and credit cards.
The second target was to pivot the entire organization around ensuring that a client’s experience of dealing with it was as seamless as possible. That applies to clients who were used to dealing separately with the bank’s Canadian retail and Canadian wealth franchises as much as it does the firm’s multinational corporate clients, who might be doing business with the bank in multiple jurisdictions.
One advantage of Scotiabank’s footprint – stretching across Canada, US, Mexico, Peru and Chile – ought to be the ability to act as a bridge between these markets for clients that need to do business in more than one. Too often that wasn’t tied together.
Thomson is reengineering that now, perhaps helped by a freshness of approach that has not been shaped by a professional background in the famously siloed world of banking. The changes are captured in what Thomson described as a new enterprise strategy at a December 2023 investor day.
The bank is prioritizing growth and scale in its priority markets to take advantage of its presence in the North America corridor. That does not mean exiting countries like Peru, but it does mean making the capital deployed there work a lot harder by focusing on securing primary client relationships rather than serving customers with just one product – something that also applies across the bank as a whole.
Already returns are increasing in the international business despite lower loan growth – exactly the change Thomson wants to see.
Thomson has also changed almost all his senior management team, moving many people internally but also bringing in outside talent to run some of the business lines.
Much of what Scotiabank is putting in place will play out over years, but that overlooks what was already excellent and what has already changed for the better.
The bank is prioritizing growth and scale in its priority markets to take advantage of its presence in the North America corridor
“There were two big macro events that impacted the way we thought about the business in 2023, which informed us and created more urgency,” says Thomson. “One was the financial dislocation in the US with Silicon Valley Bank, which forced us to create the resiliency in the balance sheet to withstand any externalities that might come at us.”
Managing the institution through that period was pleasing, because the bank saw deposit inflows in its international business and in the Caribbean, something that Thomson says proves the worth of the diversity of the footprint.
It also gave the bank the ability to build that resilience. Common equity tier-1 capital went from 11.5% to 13.0% over 2023, the liquidity coverage ratio rose from 119% to 136%, deposits grew by 9%, and the bank was able to add C$1.1 billion ($804 million) to its allowance for credit losses, taking the coverage ratio up 14 basis points to 0.85%.
The bank’s Scene+ loyalty programme is a critical way to build primary clients in retail. Relaunched at the end of 2021 by merging it with the bank’s separate rewards programme, it has gone from strength to strength in 2023, now encompassing more retailers and counting about 15 million members.
The bank also launched Scotia Smart Investor through its Advice+ financial education programme, allowing customers an easier way to invest, with artificial intelligence recommendations. Revenues in Scotia’s highly regarded Tangerine digital bank rose by double digits in 2023.
He might not be in construction equipment anymore, but Thomson has a strong foundation on which to build at Scotia.
