Sean McGuckin - EVP and CFO: Good afternoon and Welcome to the presentation of Scotia Bank's 2013 Second Quarter Result. I am Sean McGuckin, Chief Financial Officer. Rick Waugh, our CEO will lead off with the highlights of the quarter. Next, I will go over the financial results, including a review of business line performance. Rob Pitfield, our Chief Risk Officer, will then discuss credit quality and market risk. Rob will be followed by Brian Porter our President who will provide an outlook for each of our business lines for the remainder of 2013. We will then be glad to take your questions.
Also in the room with us to take your questions is Scotiabank's business line Group Head. We have Anatol von Hahn from Canadian Banking; Dieter Jentsch from International Banking; Chris Hodgson from Global Wealth Management; and Mike Durland and Steve McDonald from Global Banking and Markets. As with prior calls we also have joining us Sabi Marwah, Vice Chairman and Chief Operating Officer; Jeff Heath, our Group Treasurer and Stephen Hart, our Chief Credit Officer.
Before we start, I would like to refer you to Slide 2 of our presentation, contains Scotiabank's caution regarding forward-looking statements. Over to you, Rick.
Rick Waugh - CEO: Thanks, Sean. We are pleased to report a strong second quarter driven by good revenue growth and solid contributions from all our business lines. Net income was over C$1.6 billion, representing growth of 10% year-over-year. Diluted earnings per share were C$1.23 for the quarter, up 7% from last year. Return on equity remained strong at 16.2%.
Revenue grew by 11% from last year. Excluding acquisitions, revenue growth was 7% and was specifically attributed to asset growth, higher fee income and stronger wealth management and insurance revenues. We delivered positive operating leverage and we continue to put a priority on expense management. The credit environment remains stable and as expected provisions grew in line with asset growth and portfolio mix, particularly in Latin America. Impaired loan formations have continued to decline and Canadian retail delinquency has improved as Rob will discuss shortly. Our capital is strong. Our Basel III all in common equity Tier 1 ratio increased by 40 basis points, with 8.6% this quarter.
Looking at the first half of the year, revenue and earnings growth has been solid. Canadian Banking had revenue growth across several categories. The acquisition of ING Direct is performing well, in addition to strong customer growth in credit card, deposits, in payment services and in wealth management. International Banking results were also driven by strong revenue growth, particularly Latin America, higher contributions from associated companies, investment gains and acquisitions partly offsetting was increased PCL and as I said, they grew in line with expectations.
Global Wealth Management had a very good quarter with both our wealth management and our insurance businesses contributing strong sales, both domestically and internationally. Improved marketing conditions were primary drivers. And finally, global banking and markets saw stronger revenues in the lending, fixed income and equity businesses partly offset by lower precious metals and commodity revenues.
Looking forward, we expect growth in the United Sates to favorably impact our Americas footprint. Expanded U.S. trade with Canada and Mexico, in particular, will benefit our customers and business conditions. With a strong performance to the first half of this year we are well-positioned and confident we will meet or exceed targets for the full year growing in each business line.
I'll now turn it over to Sean.
Sean McGuckin - EVP and CFO: Thanks Rick. Slide 7 shows our key financial performance metrics for the quarter. Diluted earnings per share for the quarter were C$1.23, this was 2% lower than the previous quarter, due primarily to the shorter quarter, but up 7% from the same period last year.
Looking at year-over-year changes, Q2 earnings benefited from recent acquisitions particularly ING. Higher net interest income, strong wealth management results and higher growth in transaction based fees. Partly offsetting, were lower trading revenues, higher operating expenses and higher provisions for credit losses.
Moving to revenues on Slide 8. Revenues during the quarter were C$5.3 billion, up 11% from last year. The increase reflects the impact of IMG as well as asset growth in international banking, corporate lending, and Canadian residential mortgages. The core banking margin was in line with last year, after adjusting for the ING acquisition impact. Growth in net fee and commission revenues was driven by stronger wealth management revenues and higher net gains on investment securities, partly offset by lower trading revenues.
Quarter over quarter, net interest income was up modestly a stable margin and asset growth was offset by short quarter. Net fee and commission revenues due to better performance in wealth management. However, trading revenue was down due to lower results and fixed income previous metals and commodities.
Turning to Slide 9, non-interest expenses were up C$276 million, or 11% from last year. Acquisitions accounted for approximately C$116 million of this increase. Underlying expense growth year-over-year was spread out across most operating categories and with the result of the supports of ongoing initiative. Premises costs were also up due to the real estate sale from last year. Compared to the prior quarter, expenses were up 1% with acquisitions accounting for half of the increase. Higher marketing and premises costs were offset by lower compensation related expenses. Excluding the real estate gains last year, year-to-date operating leverage was positive 1.5%. We continue to expect to achieve positive operating leverage for the full year.
Turning to capital on Slide 10, you can see that the Bank continues to maintain a strong high quality capital position that is well above regulatory minimums. The common equity tier 1 capital ratio increased by 40 basis points to 8.6% this quarter. The increase came from internally generated capital and stock issued under the Dividend Reinvestment Plan, while risk-weighted assets were in line with last quarter.
Turning to the business line results, beginning on Slide 11. Canadian Banking had another strong quarter with net income of C$547 million, an increase of C$86 million or 19% from a year earlier. Revenue growth was strong at 15%, or 6% excluding ING. Strong organic asset growth, including 7% growth in residential mortgages, 24% growth in consumer auto loans and 7% growth in commercial lending drove the revenue performance.
The margin decline of 9 basis points year-over-year was entirely due to ING. Net fee and commission revenues increased, primarily as a result of growth in credit cards and higher wealth management distribution fees. The higher credit provisions were due to one account commercial banking.
The ING acquisition accounted for the majority of the increase in expenses. Excluding ING, expenses increased 4%. Quarter-over-quarter, revenue was down 1%, as a shorter quarter and lower card revenues were only partly offset by higher investment gains and the full quarter impact of ING. Expenses were up 1% due in part to the full quarter effective ING, partially offset by the shorter quarter. On a year-to-date basis, operating leverage was positive 1.7%.
Moving to International Banking on Slide 12, International earnings were C$419 million this quarter, up 5% from C$399 million a year-earlier. Year-over-year revenues increased 11% due to retail loan and deposit growth, securities gains, the positive impact of foreign currency translation, higher earnings from associated companies and the impact of acquisitions.
Provisions for credit losses increased by C$49 million to C$194 million with approximately half of the increase due to acquisitions. Balance of the increase was in line with asset growth and changes in our product mix. Expenses were up 11%, with approximately half the increase attributable to acquisitions and foreign currency translation, and the remainder due to business driven growth.
Quarter-over-quarter, net income was up modestly. Revenue was up due to loan growth, particularly in Latin America. Foreign currency translation and securities gains partly offset by the shorter quarter.
While last quarter we benefited from a tax recovery in Puerto Rico, this quarter we benefited from a gain on sale of securities in Mexico, which is in fact the recovery of a loan loss. Each of these items was in the range of C$25 million to C$30 million after tax. Provisions for credit losses increased C$8 million from last quarter as growth in provisions in Columbia, Mexico, and Peru were partially offset by lower provision in the Caribbean. The increase in provisions was in line with asset growth and the loan loss ratio remained stable. Expenses were up 5% due to acquisitions and foreign currency translation. On a year-to-date basis operating leverage was positive 2.6%.
Turning to Slide 13; Global Wealth Management had record operating earnings C$326 million in net income, an increase of 12% from last year. Revenues increased 12% year-over-year driven by strong growth across the wealth management and insurance businesses. The wealth business was driven by strong net sales, including record Scotia funds – mutual fund sales, improved financial markets and the acquisition of Colfondos, the pension management business in Columbia.
Assets under management and assets under administration grew 24% and 14%, respectively. Of the total revenue approximately 83% was attributable to wealth management and 17% to the insurance businesses. Expenses were up 13% from the same quarter last year, due mainly to the Colfondos acquisition. Higher volume related expenses and the change in dynamic funds administrative fees. Quarter-over-quarter net income increased 8% with revenues increasing 5%, mainly from higher brokerage and mutual fund fees.
Expenses were up 4%, primarily reflecting the fourth quarter impact of the Colfondos acquisition and higher volume related expenses. On a year-to-date basis, operating leverage was negative 2% due primarily to the change in the Dynamic funds administration fees.
Looking at Slide 14, Global Banking & Markets net income was down C$26 million from a strong quarter last year to C$361 million this quarter, reflecting market-driven challenges in commodities and the precious metals business along with lower underwriting and advisory fees. This was partly offset by stronger results in the lending and fixed-income businesses. Year-over-year revenues decreased 1%. Provisions for credit losses remain modest at C$12 million versus C$1 million reversal last year. Expenses were up 8% over last year, reflecting higher salaries and benefits partially offset by lower performance-based compensation.
Quarter-over-quarter net income decreased by C$38 million or 10% from a very strong first quarter, this was due to both the impact of the short quarter and challenging markets which impacted trading revenue, particularly in the fixed-income, commodities and precious metals businesses. Partly offsetting this was solid loan growth in corporate lending. Expenses decreased 2% from last year, due primarily to seasonally higher stock-based compensation cost in Q1. On a year-to-date basis, operating leverages was negative 1%.
I will now turn to the other segment on Slide 15, which incorporates the results of group treasury, smaller operating units and certain corporate adjustments. The results primarily reflect the impact of asset liability management activities. The other segment reported a net loss of C$119 million this quarter compared to a net loss of C$147 million last year. A reduced loss was partly due to lower operating expenses. In addition, the prior-year results included the offset to underwriting revenues reported in other business segment related to the Bank's common share issuance in Q2, 2012. Quarter-over-quarter, the net loss decreased C$12 million lower taxes and lower operating expenses were partly offset by reduced gains on investment securities.
This concludes my review of our financial results. I'll now turn over to Rob, who will discuss risks.
Robert H. Pitfield - Group Head and CRO: Thanks, Sean. Good afternoon. The risk in our credit portfolio continues to be well managed and overall credit quality remained strong. Provisions for credit losses increased by C$79 million year-over-year and C$33 million quarter-over-quarter to C$343 million. The increase in provisions was firmly due to three factors. Retail provisions in Latin America grew in line with asset growth and product changes.
Canadian commercial provisions increased due to one account and corporate provisions increased due two names in the U.S. portfolio. Net impaired loan formations were C$326 million, an improvement from both the prior quarter and the prior year. Market risk remained low and well controlled. Our average one-day all bank VAR was C$16.8 million, down slightly from C$17.4 million in the prior quarter. There were two trading day losses in the quarter compared to none in the previous quarter. Our exposure to Europe is not significant and it was down C$3 billion from last quarter. The credit risk in the Canadian residential mortgage portfolio remains benign and delinquencies are continuing to decline.
Slide 18 shows the trend in provisions over the past five quarters. As you can see Canadian retail provisions remained relatively stable. Portfolio of quality remains extremely high with 94% of asset secured. As I mentioned, Canadian commercial provisions increased this quarter due to one account. International retail provisions increased C$47 million year-over-year to C$180 million. Provisions were higher although in line with expectations, largely due to the acquisition in Columbia. Provisions were also higher in Peru and Chile, due to asset growth and an adjusting portfolio mix.
Quarter-over-quarter, retail provisions grew in Columbia and Mexico, partly offset by improving retail conditions in the Caribbean. International commercial provisions were relatively flat year-over-year as lower recoveries in Latin America were offset by reduced provisions in the Caribbean. Quarter-over-quarter there were broad-based provision recoveries in the Caribbean although these were substantially offset by lower recoveries in Latin America. Global banking and markets had provisions for credit losses of C$12 million this quarter compared to a reversal of C$1 million in the same period last year and provisions of C$5 million in the prior quarter. While lending assets grew strongly, the bank's overall PCL ratio remained low and within expectations at 35 basis points.
Slide 19 shows our Canadian Banking residential mortgage portfolio. Our total portfolio of residential retail mortgages is C$188 billion. Our portfolio continues to be approximately 90% freehold and 10% condo. As you can see from the Slide approximately 58% of the portfolio is insured, 42% uninsured; the uninsured portion has an average loan-to-value ratio of approximately 55%. The Canadian Housing market generally remains balanced between supply and demand. Reasonable economic performance has allowed consumers to manage debt levels well. However, we do expect some softness in the Canadian Housing market in the short-term.
Credit quality and performance of the resident portfolio remains strong, a disciplined and consistent underwriting standards (indiscernible) have resulted an extremely low loan losses and again have been stressed under a series of severe tests which confirm the appropriateness of our risk appetite.
To summarize on Slide 20, our asset quality remains high with retail and commercial portfolios performing as expected and our corporate portfolios continuing to demonstrate strength. However, a combination of growth in portfolios and changes in portfolio mix will result in somewhat higher provisions this year compared to 2012. We expect Canadian Retail provisions to remain stable. Although international Retail provisions are expected to rise, the pace of growth will match the natural loan growth of the portfolio. We expect Corporate and Commercial provisions to remain controlled, although as this quarter has shown from time to time Corporate and Commercial provisions can be lumpy.
This concludes my remarks and I will now pass it over to Brian. Brian?
Brian J. Porter - Group Head, International Banking: Thank you, Rob. Beginning with Canadian Banking for the balance of the year we expect to see asset growth in line with what we have experienced so far this year. Automotive finance which has been a source of strength recently and residential mortgages will both continue to achieve solid growth. Our commercial banking pipeline remained strong. In deposits and payments, we continue to see positive results, especially from our cash back and rewards credit cards, as well as our innovative checking products. We have gained market share in both deposits and payments and we remain confident about our ability to grow these businesses. In mutual funds, we continue to experience solid market share gains and we expect to see continued growth in the sale of wealth management products and the cross sell of creditor insurance throughout our branch network.
Turning to the margin, we expected it to stay relatively stable going forward as favorable changes in product mix will continue to offset the pressure from low interest rate environment and competitive pricing pressures.
Looking at PCL, we expect increases to be in line with asset growth and our loan loss ratio to remain in line with the current experience. We now have a full quarter contribution from ING and we expect to continue to see solid results.
Finally, while we will continue to invest in our business initiatives, expense management will also remain a key priority. Overall, the outlook for Canadian Banking for the remainder of the year is for solid growth. Moving to International Banking, the outlook continues to be favorable. Our diversification balances the higher growth business outlook we have for Latin America and Asia with the more modest outlook we have for the Caribbean and Central America. Overall, we continue to expect low double-digit growth across the divisions loan portfolios for the rest of the year.
Our Retail Banking segment continues to have good momentum with solid performance expected in Latin America. We also expect positive contributions from our premium banking launch in Latin America, the Caribbean, and Central America. We are also building out our distribution capacity in Mexico by expanding our ATM network and through alliances with local partners.
For our commercial businesses, our pipeline is in good shape and is significantly higher than last year. In particular, the prospects are solid for Latin America and we are seeing continued momentum in Asia, particularly in commercial volumes. We expect PCLs to rise in line with the growth in our portfolios. Despite some pressure on margins, we expect them to remain stable overall due to our well diversified business and geographical mix. We are facing greater regulatory requirements in the areas of consumer protection, throughout our footprint, which may slightly slow the pace of revenue growth. We are pleased with International Banking's current trajectory and its growth prospects for the balance of the year.
In Global Wealth Management, our outlook is for good underlying growth across our key businesses supported by our diversified business mix and geographic scale. Global asset management continues to grow with AUM and AUA reaching all-time highs of C$135 billion and C$313 billion. Net sales of ScotiaFunds reached a record C$1.2 billion this quarter and had the strongest percentage growth rate among the Canadian Banks. We have received regulatory approval to operate a fund management joint venture with the Bank of Beijing, which provides us with the vehicle to expand our fund management capabilities. We will continue to recruit talent, fill product gaps, grow our distribution pipeline and better target and serve high priority segments and markets.
Our wealth distribution businesses will continue to be driven by better market conditions and strategic initiatives. Our international wealth business continues to yield strong results driven by asset volume growth and augmented by our strategy of select acquisitions. The recent purchase of 50% of AFP Horizonte in Peru will allow us to increase the scale of our existing (indiscernible) pension management business and become a bigger presence in this growing segment.
In Canada, we continue to be focused on recruiting talent and improving advisor productivity to drive growth through new client acquisition. The outlook for our Canadian insurance business remains positive as ongoing product enhancements and higher branch cross-sell continue to grow our client base. Internationally, our focus in insurance remains on leveraging the Bank's global distribution networks to experience improved cross sell and to expand our non-creditor business. In Global Transaction Banking, we are continuing to enhance cross-sell activities with our business line partners and have a number of key strategic initiatives underway. GTB is focusing on developing and marketing innovative Basel 3 friendly deposit products globally and providing enhanced cross-border payment capabilities. We are also expanding our commodity trade finance capabilities across all our geographies.
Moving to global banking and markets, we will continue to focus on producing high quality, low volatility earnings from our diversified business platform. Global and domestic, economic uncertainty will continue to moderate client activity. However, we continue to see good growth opportunities across our international platform, in our focus sectors and from our cross-sell and global FX initiatives.
The corporate loan portfolio is expected to experience mid-to high single digit growth rates for the balance of the year with loan spreads remaining stable. Conditions for loan underwriting remain modest in the absence of improved M&A activity. However, we are optimistic of continued improvement for the remainder of 2013.
Credit quality of the loan portfolio remain strong and loan loss provisions are expected to remain modest. Our long-term strategy is to continue to be client focused in order to generate high-quality and sustainable earnings in global banking and markets. We will accomplish this through our continued investment in the business and our ongoing focus on diversification and growth across products and geographies.
Finally, at the all bank level, as Rick mentioned earlier, we have had a very good first half of the year and are well positioned to meet our financial targets for 2013, including delivering positive operating leverage through prudent expense management.
Now, I'll turn it back to Sean.
Sean McGuckin - EVP and CFO: Thanks, Brian. That concludes our prepared remarks. We will now be pleased to take your questions. Please limit yourself to one question and rejoin the queue to allow everyone the opportunity to participate.
Operator, can we have the first question on the phone please.
Operator: Steve Theriault, Bank of America/Merrill Lynch.
Steve Theriault - Bank of America/Merrill Lynch: I wanted to ask a question on capital for Rick or Brian, but Sean just quickly could you -- you mentioned during your remarks that the security gains in international can be viewed as essentially loan loss reversals, can you just clarify that? And was that C$25 million to C$30 million after tax?
Sean McGuckin - EVP and CFO: So this relates to a loan we had on the books many years ago. It came in the form a security, the security was eventually sold this quarter, but it relates more to an original loan many years and the amount was close to C$30 million after tax.
Steve Theriault - Bank of America/Merrill Lynch: There is some sort of an exchange for security at some point.
Sean McGuckin - EVP and CFO: Many years ago when it got converted into a restructured loan and we've got it in the forms of security. So when we sell it, it comes to (indiscernible) as a loan loss book.
Steve Theriault - Bank of America/Merrill Lynch: So just on capital. Your Basel III tier 1 commons coming well nicely over 8.5% at quarter-end, you're tracking to 9%, pretty short order it looks like. Is there any thought to eliminating the drift discount or buyback stock at some point in the next few quarters or are still on the mode where you want to keep your powder dry, you want to hold back a little and I guess you have the potential completion of the China acquisition at some point.
Sean McGuckin - EVP and CFO: Yeah, as you know, we've got a really dynamic couple of management plan process. In the past, we've used share buyback primarily to offset option dilution. We've been very successful over the years deploying our capital on to our four business lines, so we would see that as a continued key strategy going forward. That being said, sometime in the future we may share buybacks as a tool to add to our household management toolkit but again it would not be a significant part of our capital deployment strategy. In terms of the DRIP, yeah, we look at that every year to determine whether to keep the discount on that and if we do decided to assure buyback program in the future we would obviously turn off the DRIP.
Dieter W. Jentsch - Group Head, International Banking: I will just add to Sean's remarks. We are going to be consistent with our capital management and as you can see by our results, especially on the revenue and the asset growth our first priority is always to grow our business and that's what we've done in the past and I see we do have the advantage. Of these opportunities that you can see how throughout the business lines we are already growing our business priority, number one. Second priority, obviously in capital management, as we do believe in rewarding our shareholders with dividend; we have been consistent in regularly increasing our dividend and again in these results we see that's consistent. Share buyback, we have in the past to offset dilution for any stock issued and lower towards doing that. So, again I think we are going to be very consistent. We are very comfortable with our capital ratios and again we are just seeing (indiscernible) see again.
Operator: Gabriel Dechaine, Credit-Suisse Securities.
Gabriel Dechaine - Credit-Suisse Securities: Just another clarification. So, the securities gains in international is 30 million, but you also had positive credit mark amortization of 18 million, correct?
Sean McGuckin - EVP and CFO: That credit market you're referring to the Bank of Colpatria, but our increase in loan losses, we still got an increase in loan losses quarter-over-quarter because of Colpatria that just reduced the increase in provision.
Gabriel Dechaine - Credit-Suisse Securities: So, just speaking of loan losses, I'm just wondering you talked about PCLs being kind of growing in line with loan growth, but if I look at the retail formations in international, the ratio of formations to retail loans has been going up pretty consistently. I'm just wondering if you are seeing anything that that's diverging a bit from your earlier expectations this year, but maybe a bit worth than you are expecting then also there is no recoveries to speak of in that retail formations line. I believe you hired some collections agents in Peru last year a large number. I wonder if there is (indiscernible) there where we start seeing recoveries on these impaired loans later in the year or if that's just the nature of the business that you have unsecured lending, that's driving that impaired loan formation.
Dieter W. Jentsch - Group Head, International Banking: At LatAm investor conference, we signaled that we'll be seeing a rise in our -- in some of our formations and in line with some of the businesses that we have in Latin America. Now, we also articulated some of our increases will be due to the acquisitions and so if you look at where the rise has come in the last six to nine months, it's being a function of the acquisitions Colpatria and Credito Familiar. It's been the growth in our retail business, which in LatAm has grown 18% year-over-year. And as Rob mentioned in his remarks that we've had in Peru we signaled that we had changed some of the mix and there was some moderate deceleration in the market. At the same time what we were doing was we were adding to our allowances, and our allowance today stands at 60%. We added two allowances, notwithstanding that our book is 68% secured. So we look at over the past year, we took a very I think a proactive approach to dealing with our allowance, dealing with our coverage ratios. We watched some of the underwriting practices in Peru, so we didn't grow as fast as the market. Going forward – if you look forward we see that the catch up that we would have done on some of the allowances is behind us and that we'll grow our PCLs in line with our retail growth. The recovery as you talked about were largely in the Peru on the commercial side and the business that you would see improve would generally be on the Micro Finance and on the unsecured side where we don't have a lot of recoveries.
Gabriel Dechaine - Credit-Suisse Securities: Then just, because we don't see the commercial loan broken down in your presentation by country and international. So, I see PCL in Columbia, I don't see in retail, I don't see it in commercial. Just wondering if you're still on track for that 3.75%, 3.50% PCLs ratio as it normalizes I guess beyond America?
Rick Waugh - CEO: Our PCL on the commercial side are sitting around 10 basis points to 15 basis points, and still relatively what you call benign formations on the commercial side.
Operator: Robert Sedran, CIBC World Markets.
Robert Sedran - CIBC World Markets: Question on trading, I guess, it came in a bit there has been a step back this quarter and I know couple of comments were made about rates and commodities. I'm wondering if perhaps you can tell us why the interest rate size seems to be so volatile quarter-over-quarter and perhaps give us a little color around Mocatta and its various businesses during the quarter. It feels like whatever happened in Q2 is still happening in Q3 on the precious metal side. I am just curious how the various businesses including the fee-based ones that Mocatta performed during the quarter?
Rick Waugh - CEO: Let's start with fixed income side. It is just the opposite of the comment you made. They have been extremely stable Q-over-Q for the last six quarters. Fixed income actually had a very good quarter – we had extremely strong first quarter and still had a very strong second quarter. So, fixed income itself is performing very well. On the commodity side, we were soft on the energy trading side and year-over-year on Mocatta we had a very strong Q2 2012. In the last six quarters – last five quarters, we've had two quarters that have been better than this quarter Mocatta too have been worst. So, it is kind of in the middle of the pack it was on it planned number. But on the metal side, the way you should think about it is we have a loan book – in that book the net interest margin does decline as the commodity price goes down. Having said that the offset is that the consumers tend to be more active, so we tend to get a little bit more of a flow bias to the business with a lower commodity price. So, Mocatta is doing very, very well. For us it was just a slower quarter on the client side of the business and that really explains it. It was slightly weaker across the majority of the businesses. It wasn't really one that was materially – it was unusual in anything in anyway.
Robert Sedran - CIBC World Markets: When I look at the interest rate line and the supplementary on Page 9, I'm seeing 120, 160, 120, 180 like that I guess that it's not tremendous amount on a volatility. It just seems to bounce around plus or minus C$50 million in the quarter. I'm just wondering, if there is a reason for it or if it's just flow related?
Sean McGuckin - EVP and CFO: If you include the fee parts of the business because that kind of -- we have tough time reconciling that number our self, but if you look at the all-in quarter-over-quarter over quarter over quarter results from fixed income and extremely stable business. Actually of all of our businesses and this is somewhat unusual because we think that fixed income has been slightly higher volatility, but it's been one of our lower volatility business for the last...
Operator: Michael Goldberg, Desjardins Securities.
Michael Goldberg - Desjardins Securities: You had very robust loan growth in a number of sectors, but I see that you had virtually no increase in credit risk weighted assets. I am looking at Page 33 of your sub pack for the detail, but could you just explain what's happening here? I mean why there was no increase?
Sean McGuckin - EVP and CFO: Sure. When you look at our loan growth, you'd expect risk weighted assets up maybe about C$2 billion to C$3 billion. The investment portfolio went down that would have reduced risk weighted assets by about C$1 billion, but for the loan growth, there is some asset mix change we had the bigger portion of trade finance, which has a much lower risk weighted assets than commercial lending. And there is also some data refinements as we were better able to apply the collateral within our risk weighted assets methodology. So, we would expect next quarter though with that risk weighted asset growth would be bit more in line with the after growth.
Operator: John Reucassel, BMO Capital Markets.
John Reucassel - BMO Capital Markets: Just back to Dieter on International. Dieter, I'm just trying to understand what happened in the quarter and there is a credit mark gain. I guess if you look through that, it doesn't look like there was much earnings growth. I'm sure that's not the way you view internally. Can you just tell us what's going on and where we should expect things to go from here, how much is left in the credit mark gain and where you're going to get some more operating leverage?
Dieter W. Jentsch - Group Head, International Banking: Let me take some time and walk through both the revenue and the expense side. As we all kind of – (indiscernible) pretty multidimensional issue, but first of all in our revenue gains of 11% year-over-year obtained, notwithstanding that 25% of our revenues derived from the Caribbean, which is working at above 5% to 8% single-digit revenue gain. So, you got some revenue that hasn't normally coming in line with what we would see in other parts of our portfolio. Our revenue this quarter also and notwithstanding was 11%, we had margin compression in Chile for the last two quarter's that impacted our revenue gains and we see that returning as inflation comes back to more normalized levels going forward. The other that we saw last year and as you look at our revenue gains last year we had a considerable spike in our trade finance assets in the first two quarters. So when you take that in together and you add into the mix the loan recovery came as a foremost security, you've actually had good revenue gains and notwithstanding some offset variances that would -- that mitigate some of the revenue surpluses. On the expense side, and it's something that Sean mentioned, and looking at our other operating expenses half of those would be acquisition related and then if you look to the PCL side which would have moved to (indiscernible) number 5% year-over-year it goes down to the explanation I gave in the earlier question where we had increased PCL from acquisition related, some product and mix changes in Peru and some addition to our allowance coverage ratios to bring them up to a very acceptable level of 60%. So, when you look at what we consider to be revenue that's been impacted this should (lower) the business on an ongoing basis going forward and combined that with the double digit loan growth that we continue to put forward is achievable for this year and driven mainly by Latin America and Asia. The underlying fundamentals going forward were positive.
John Reucassel - BMO Capital Markets: Was there organic operating leverage in the quarter?
Dieter W. Jentsch - Group Head, International Banking: Our operating leverage in the quarter was negative 0.3% to 0.6%. So, we are going to get some natural volatility quarter-to-quarter. Year-to-date operating leverage was about 2.6% and we are targeting positive operating leverage for the year.
John Reucassel - BMO Capital Markets: When do the credit marks expire is that some time next year Q2 or something…?
Sean McGuckin - EVP and CFO: It will take another 18 months or so to run out. And again as those come off those are just merely decreasing – current increase in provision that we are getting out of Columbia and as that benefit runs off we've got growing revenues in Colpatria that helps offset that decline in the credit mark over the next 18 months or so.
Operator: Stefan Nedialkov, Citi.
Stefan Nedialkov - Citi: It's Stefan from Citigroup. I have a question on LatAm interest margin. Dieter, if you can just give us some color on a country-by-country basis maybe Chile, Peru, Colombia, Mexico are you guys seeing any ease in competitive pressures on the asset yield side of things or any pressure on the funding side. We are seeing a bunch of your peers report a variety of different trends at the NIM level within the Latin American country. So, just really looking for some more color here?
Dieter W. Jentsch - Group Head, International Banking: Overall, our net interest margin for the quarter went up 6 basis points and it is due to the portfolio impact of the various countries, you are absolutely right to notice that. You are really seeing different impacts from Chile where the margin would have compressed as well as you've seen some slight margin compression in Peru. This would have been offset by our operations in Colombia and Mexico, where there were increases in the interest margin because of business mix. You are going to see some continuing margin pressures in Asia. We've seen them going forward, but overall given where we're up and in some cases, where we're down, consistent to portfolio we are going to have a stable interest margin going forward. In some markets and that was a point where, no, in some markets we have excess liquidity and we are able to reduce some of the deposit costs lower and maintain some of the margin as well.
Operator: Peter Routledge, National Bank Financial.
Peter Routledge - National Bank Financial: A couple of questions on Canadian Banking, a short one. What industry was the Commercial Banking PCL account in? You had an account that goes…
Rick Waugh - CEO: In the petroleum servicing industry.
Peter Routledge - National Bank Financial: Just thinking about P&C banking I mean revenues overall probably be flat in that segment given spreads and demand for credit Canada. PCLs may start to rise just consistent with what happens in a credit cycle. It seems to be at near all-time lows. So earnings probably gets squeezed, what do you do? Either to get earnings growth you can implement a more broad and deep cost-cutting program. We were cutting meat, not just fat or you buy back shares to help bolster your EPS? How are you thinking about that?
Sean McGuckin - EVP and CFO: I think you heard in the comments that Brian made earlier. First in terms of the expense comment that you just made, I think if you look at Scotia Bank we always do and always have is just be a very lean operation and the Canadian Bank is no exception. So, I don't think that's the way for us, if you look at us, look at the revenues that we've had, the growth that we've had, I think we perform as well or better on the growth side than the market does. And if you look at the cross sell that we've been getting that's given us some lift. In the last nine months on the mortgage portfolio you've seen that the customers who are renewing their mortgages or came in on a variable basis are now taking fixed term mortgages, which are giving also additional better margins. I think if you look at our different businesses the Commercial Bank is doing quite well, we have a very good pipeline. We continue to expect growth from there. Small business has done very well and will continue to do well. In the retail space it has slowed down to your point, but it's done very, very well and on the cross sell side. If you look at things like mutual funds, insurance business, we've don't very, very well by it. So I think it's really just very straightforward tackle and blocking type of banking, back to what it was prior to the crisis…
Peter Routledge - National Bank Financial: I agree with you on expenses. I mean, your expenses are below 50% on efficiency and I expect that will continue. Revenues may top out not because of anything happening at Scotia, but just because the market is not conducive to growing revenues. I mean, loan growth is slowing down. If the households starts to slowdown business may also start to slow down. Do you have plans in terms of cost reduction to address that potential outcome or is that something where you might look at share buybacks as a tool in order to defend both position of your franchise, the strength of your franchise and deliver some EPS growth?
Dieter W. Jentsch - Group Head, International Banking: Let me (take) the buyback question into two. Firstly, from the business side let me take that and then Sean can take the question on the share buyback. On the business side, we have a number of initiatives that are in motion both in terms on the revenue side, in terms of having more cross sell and also expanding certain businesses organically as well as controlling our costs. So, I'd say this is part of regular normal business where we set ourselves up for success in the coming quarters and year-over-years so that's just regular business and maybe…
Sean McGuckin - EVP and CFO: As you know, Peter, diversification is the key element of our strategy here at Scotia Bank and the Canadian P&C business makes up only about a third of our overall income. As you have seen in prior years when some divisions are a bit slower we've got the benefit of having some stronger growth in some of the other business. So, on balance we are pretty comfortable with our strategy of continuing to grow earnings and our EPS target range of 5% to 10%.
Rick Waugh - CEO: This is Rick. I think it will be a little hard on Canada in terms of Canada's growth. There is definitely a move away from commodities and energy, but broadly-based Canada we are growing and we are going to let this go from our greatest trading partner United States that is pulling up. So, we are still talking about growing in Canada, albeit some of these Americas is growing faster, but that's good for us. So, the broadly-based you talked to the auto parts industry, you talk to some of the manufacturing, even in lumber business and those kind of things that are up. So, I wouldn't quite get to. I know there is a lot of talk about how well the America is doing and we think that's just great because they are biggest trading partner.
Peter Routledge - National Bank Financial: Share buybacks and now when you talk it as a possible tactic?
Rick Waugh - CEO: I'd just say that's we're seeing and I think if you look at our top line revenue growth in Canada and around the world, we have still great opportunities for – we are growing our customers and we are growing in that and that's our priority and then we'll look at dividends because I think consistent, stable, increase in dividends (indiscernible) go. And so while it is in the toolkit and it should be in the toolkit again, historically, we've used it just to offset dilution, that all is on predicted that we've got prices to grow and we firmly believe we got places to grow.
Operator: Sumit Malhotra, Macquarie Capital Markets.
Sumit Malhotra - Macquarie Capital Markets: First question is a two part for Sean and maybe Dieter. On the gain that (Standard Chartered) is going to take next quarter on the sale of their insurance business if the numbers I have run are correct that should be in the range of C$150 million. Is that in the ballpark or do the economics change because of the ongoing relationship the two entities are going to have, that's going to differ some of that over time.
Sean McGuckin - EVP and CFO: We purposely not disclose that gain amount, Sumit. Out of respect for our partner at (Standard Chartered Bank), it's going to be much more material for them than it is for us, and they haven't announced it yet. So, we're not in a position to comment on your estimate.
Sumit Malhotra - Macquarie Capital Markets: So let's go to the recurring part of it. This is maybe more for Dieter. I will appreciate some help if you can tell me was the insurance business a meaningful part of the ongoing earnings stream for (Standard Chartered) this has changed the pickup that you've had and they kind of measure where do you not see this material?
Dieter W. Jentsch - Group Head, International Banking: It's not going to have a significant impact. Part of the agreements as we've disclosed that there is a bank assurance agreement where we will be distributing the products or we'll be getting distribution revenues, which will offset part of the existing insurance revenue that will fall off, so there will be a slight reduction, but it's not going to be meaningful to Scotia Bank.
Sean McGuckin - EVP and CFO: What I would add to that our underlying core banking both in terms of car lending, business lending continues to be very strong in Thailand.
Sumit Malhotra - Macquarie Capital Markets: My next question is for Anatol. Anatol, when I think about the credit card business for Scotia's Canadian segment. I've heard some of your colleagues and predecessors say over the years of the business has been more about the lend than the spend for Scotia. When I ask you in this time of secured real estate lending slowing, is there an opportunity for the bank to perhaps change their credit card offering and especially with ING now on board, a different type of customer base, perhaps get more aggressive on the credit card sort of the equation. What steps are you considering there if any?
Anatol von Hahn - Group Head, Canadian Banking: Let's divide this question into two as well, one for the Bank and the other for ING. The first, with respect to the Bank, I'd argue a little differently than what your comments were that you just made. We've actually in the last two to three years have done exceptionally well in terms of our credit card growth business and it's been part of our payments strategy, though it wasn't on the lending side only, it was more about using it as the primary vehicle through which our customers pay many of their bills as part of the anchoring of the relationship with individuals. As you know we launched the American Express Scotiabank card which has done exceptionally well and has exceeded our expectation and the Moneyback card as well. So, overall, I'd say in credit cards we've had very good organic growth understandably from a small base but we've done over the last couple of year and particularly in the last 10 to 12 months I think exceptionally well. In that, I think, you will see us continue to do to be aggressive in that. With respect to ING, with ING we are looking at longer term strategy in terms of how to position ING and clearly credit cards will be something that we will consider there. Today, ING does not offer a credit card, but we will see what we will do in the short to mid-term.
Sumit Malhotra - Macquarie Capital Markets: Very quick one for Rick before I leave. Rick, I have heard some talk that the CVA impact for risk-weighted assets that has been delayed until Q1 2014 may end up being delayed again. Is there anything you can offer on that?
Rick Waugh - CEO: It continues to be under discussion and of course we want a level playing field by the other jurisdiction. Internationally, they've got a long way to go before they talk about outlet. So, it is under discussion because we want the level playing field to compete. So, we are actively discussing it as an industry – the Canadians.
Operator: Brad Smith, Stonecap Securities.
Brad Smith - Stonecap Securities: Two very quick questions. I note that your average earning assets and your revenues in your domestic segment is growing faster than the pace that we've seen so far from your peers. I was wondering, I may have missed it, but I didn't -- I don't see any reference really to your market share positioning in your presentation there. I was wondering if you could talk a little bit about your domestic market share and the mortgages, the personal lending and on the personal deposit side and the SME side.
Sean McGuckin - EVP and CFO: Okay. Let me take it in terms of market share, if we compare ourselves and there different ways of course there, but if we look ourselves in relative to the other Canadian major banks. If you look at us on the mortgage side, both quarter-over-quarter and year-over-year, we've had good growth in the mortgage side in secured lending and we look at us on a total personal lending basis again the same is true both quarter-over-quarter and year-over-year. Look on the deposit side, particularly on the checking and savings and on the account both with ING and ex-ING, we had positive growth quarter-over-quarter and year-over-year. The numbers are striking with ING because of the acquisition and it really is showing the benefits of the strategy of having acquired it both in terms of the size that it gives us, but also more importantly access to new customers.
Brad Smith - Stonecap Securities: Terrific and I don't -- the advertising spend in the quarter went up quite substantially. Can you just talk a little bit about what that was -- it looks a little lumpy there or was there something specific or should we be expecting that to recur going forward?
Rick Waugh - CEO: Yes. There are two effects in there. One is on our hockey strategy. As you know, in the first quarter, the hockey season hasn't started yet. And so what you are seeing in the second quarter is part of that hockey spend taking place, which has given us also very good recognition both in terms of brand and in terms of activation. Secondly, the other reason that's go it's on the ING marketing side. Last quarter, ING had relatively little amount of marketing and it wasn't a full quarter. This quarter in ING, we have both GIC campaign, the savings campaign and a third campaign and all of three of those were are very successful, but we launched and are reported in the second quarter.
Brad Smith - Stonecap Securities: So, just to be clear the C$51 million of contribution from ING, would have reflected that spend I take it, and I have another question, would it also include any contribution from the excess capital that without ING Bank when you acquired it?
Sean McGuckin - EVP and CFO: Yeah. As we've described in the past. As we free up liquidity in ING and back to the bank, it does increase the incoming we earn off-off ING. So, that's a factor as the year progresses.
Operator: Mario Mendonca, Canaccord Genuity.
Mario Mendonca - Canaccord Genuity: I'll try to be quick here. On a spot basis, ING's deposits core earning?
Rick Waugh - CEO: It was 131 -- sorry 131, I wish.
Sean McGuckin - EVP and CFO: C$31.4 billion.
Rick Waugh - CEO: C$31.4 million.
Mario Mendonca - Canaccord Genuity: Then also fairly quickly quarter-over-quarter retail and this is in the international segment. Retail on commercials loans were up over 7% presumably that's we are seeing some of the effects of the acquisitions and perhaps FX as well. Dieter, do you have those numbers quarter-over-quarter for both retail and commercial international the loan growth.
Dieter W. Jentsch - Group Head, International Banking: Yeah. What we have on retail side, we were form 18% year-over-year, but quarter-on-quarter, we would have grown. It's both 4%.
Mario Mendonca - Canaccord Genuity: 4%.
Dieter W. Jentsch - Group Head, International Banking: Excluding FX and is that also excluding quite a bit familiar.
Sean McGuckin - EVP and CFO: Yeah. It's part of closer to 3% when you exclude the acquisition.
Mario Mendonca - Canaccord Genuity: So, about 3% retail and then commercial?
Dieter W. Jentsch - Group Head, International Banking: It's about 5%.
Mario Mendonca - Canaccord Genuity: Quarter-over-quarter?
Dieter W. Jentsch - Group Head, International Banking: But well, a of that was trade finance in Asia.
Rick Waugh - CEO: Yeah. What we are seeing is good momentum in the latter part of the quarter on Asia. In fact, Asia on the last quarter would have grown almost 8% within the quarter over the last quarter? Very good strong momentum in our loan book, both commercial and trade in Asia.
Mario Mendonca - Canaccord Genuity: So, that 5% is excluding anything to do of acquisitions and FX that's just essentially the Asia growth you are referring to?
Rick Waugh - CEO: Yeah Yeah. That's predominantly on Asia and LatAm, year-over-year, you'll see some Colpatria impact. For quarter-over-quarter, it would be predominantly Asia and LatAm.
Mario Mendonca - Canaccord Genuity: If I could just one final thing to clear this up on Colpatria. Last quarter, you explained to us that as loan losses normalize there, we could see losses in Colombia C$40 million to C$50 million a quarter. It will be helpful to understand this quarter's where we were relative to that C$40 million to C$50 million, was it still really modest I'd say C$5 million or has it already started to migrate higher?
Dieter W. Jentsch - Group Head, International Banking: For loan losses you are talking about?
Mario Mendonca - Canaccord Genuity: Yeah. Colpatria specifically and this just following up on the question that I asked last quarter?
Dieter W. Jentsch - Group Head, International Banking: So, after market was closed, the C$30 million provisions in the quarter?
Mario Mendonca - Canaccord Genuity: On Colpatria specifically?
Dieter W. Jentsch - Group Head, International Banking: Colpatria specifically.
Mario Mendonca - Canaccord Genuity: So, you are already -- you are well underway to the C$40 million to C$50 million you refer to last quarter?
Dieter W. Jentsch - Group Head, International Banking: As I was saying it will take us over the next 18 months before that credit mark disappears and we are kind of running at a full rate of provisions.
Rick Waugh - CEO: All right. Thank you all for joining the call and we'll talk to you next quarter. Bye.
Operator: The call is complete. Ladies and gentlemen, this does conclude the conference call for today. Thank you for participating. You may now disconnect your lines.