Gabriel Dechaine

Gabriel Dechaine questioned the bank's credit performance, specifically the divergent trends of impaired loans increasing while performing PCLs saw a release, and asked about the macroeconomic changes driving these material releases.

Answer

Ajai Bambawale, Group Head and Chief Risk Officer, TD Bank, explained that the performing PCL release was driven by two factors: improvements in macroeconomic forecasts (lower unemployment, higher GDP in Canada and the U.S.) and the migration of loans from performing to impaired, which necessitates reversing the performing PCL and adding it to the impaired category.

Gabriel Dechaine inquired about the drivers behind the performing PCL recovery, specifically asking what macro changes contributed to these material releases, given the differing directions of impaired and performing loan provisions.

Answer

Raymond Chun, CEO, and Ajai Bambawale, Group Head and Chief Risk Officer, TD Bank, explained that the performing PCL recovery was driven by two main factors: improved macroeconomic forecasts (better unemployment and GDP numbers in Canada and the U.S.) and the reversal of performing provisions when loans migrate from performing to impaired status.

Gabriel Dechaine questioned the Canadian NIM outlook, specifically if wider mortgage spreads from renewals would provide a positive surprise, and sought clarification on the bank's commitment to the 3-4% expense growth target for 2026, given the 10% growth in 2025 against a 5-7% guidance.

Answer

Group Head of Canadian Personal Banking Sona Mehta confirmed that positive expansion from mortgage renewals is a tailwind, contributing to sequential origination margin expansion in RESL, despite strong loan growth outpacing deposits. CEO Raymond Chun attributed the 2025 expense growth to outperformance in earnings and variable costs, noting moderation in Q4 and high confidence in achieving the 3-4% target for 2026 through identified initiatives and a commitment to positive operating leverage.

Gabriel Dechaine of National Bank Financial inquired about the full scope of the U.S. loan exit program, the risk/return profile of exited portfolios, the extent of indirect AML-related costs in other segments, and the bank's commitment to its $8 billion share buyback program.

Answer

Leo Salom confirmed the loan exit program is fully defined and targets non-accretive, non-core portfolios. CFO Kelvin Vi Luan Tran, CRO Ajai Bambawale, and Wholesale Head Tim Wiggan detailed how governance and control investments are being made bank-wide, beyond the direct U.S. AML costs. CEO Raymond Chun reaffirmed the bank's commitment to completing the $8 billion buyback, noting the pace is market-dependent.

Gabriel Dechaine of National Bank Financial asked about the full scope of the U.S. loan exit program, the risk-return profile of exited loans, the extent of indirect AML-related costs in other segments, and the commitment to the share buyback program.

Answer

Leo Salom confirmed the loan exit program is fully defined. Kelvin Vi Luan Tran, Group Head & CFO, and Ajai Bambawale, Chief Risk Officer, acknowledged that governance and control investments are being made bank-wide, beyond the direct U.S. AML costs. Raymond Chun, Group President & CEO, reaffirmed the bank's commitment to completing the $8 billion share buyback.

Gabriel Dechaine from National Bank Financial inquired about TD's excess capital position, the potential for another large share buyback, the NII uplift from the bond portfolio repositioning, and the cause of higher Corporate segment NII.

Answer

CEO Raymond Chun confirmed the commitment to the $8B buyback and noted another could follow if excess capital remains after strategic investments. Leo Salom, President and CEO of TD Bank AMCB, stated the bond repositioning's NII benefit would be at the high end of the $300M-$500M range. CFO Kelvin Tran attributed the Corporate NII jump to investing proceeds from the Schwab share sale.

Gabriel Dechaine questioned if the increase from mid-single-digit expense growth guidance to the current ~10% run-rate was solely due to risk control investments and asked if these costs would persist into 2025. He also sought clarity on what potential "nonmonetary penalties" could entail, such as a U.S. asset cap.

Answer

CFO Kelvin Vi Tran reiterated that the higher expense growth is driven by risk and control spending, strong markets-related business performance, and discrete items, plus the full-year impact of TD Cowen. He confirmed the AML program is multi-year and costs will persist. CEO Bharat Masrani declined to speculate on specific nonmonetary penalties while discussions are ongoing, stating the bank will provide full disclosure when a resolution is reached.

Gabriel Dechaine from National Bank Financial asked about a positive hedge gain, the cost outlook for the AML program beyond 2024, and the pace of share buybacks.

Answer

CFO Kelvin Tran directed the question on hedge gains to broader trading disclosures. CEO Bharat Masrani indicated AML costs could extend into 2025 but stated efficiency initiatives are business-as-usual, not just to fund remediation. He also affirmed the intention to complete the current share buyback program, subject to market conditions.

Gabriel Dechaine asked for clarification on the impact of HSBC acquisition's Purchase Price Accounting (PPA) accretion runoff on Canadian banking Net Interest Margin (NIM) in Q2, and Dave McKay's strategy for deploying capital given RBC's high ROE and capital levels, including appetite for acquisitions.

Answer

CFO Katherine Gibson explained a 2 basis point PPA runoff impact in Q1, with a 4 basis point impact expected in Q2, but anticipates stable NIM due to positive momentum from structural hedging and deposit mix shifts. President and CEO Dave McKay stated that RBC's consistent 17%+ ROE is driven by business strength, not just buybacks. He expects future benefits from AI and continued share buybacks, foresees organic growth from Canadian infrastructure projects, and maintains discipline on acquisitions, only pursuing those that meet accretion hurdles and create shareholder value in global wealth, US Wealth, and commercial banking.

Gabriel Dechaine asked for clarification on the impact of HSBC PPA accretion runoff on Canadian banking NIM in Q2 and questioned RBC's strategy regarding capital deployment given its high ROE.

Answer

Katherine Gibson, CFO, explained that the HSBC PPA accretion runoff had a 2 basis point impact this quarter, with a 4 basis point impact expected next quarter, but anticipates stable NIM due to positive momentum from hedging and deposit mix shifts. Dave McKay, President and CEO, stated that RBC's 17+% ROE is driven by business strength, not just buybacks, and highlighted anticipated organic growth from large infrastructure projects and a disciplined approach to acquisitions that meet shareholder value hurdles.

Gabriel Dechaine sought clarity on RBC's credit outlook, specifically whether downside scenarios, such as CUSMA not being extended, are already reflected in current reserves. He also asked about the potential for pulling forward and upsizing payoffs from RBC's AI investments.

Answer

Graeme Hepworth, Chief Risk Officer, explained that significant provisions built in Q2 last year due to CUSMA uncertainty have been retained. He outlined potential scenarios: reserves could be released if CUSMA concludes favorably, or they could pre-fund stage three losses if it's unsatisfactory. Dave McKay, President and CEO, expressed increased confidence in executing AI benefits, seeing generative AI as a key driver for outperforming the 17%+ ROE target, with payoffs accelerating in 2027.

Gabriel Dechaine asked about RBC's credit outlook, specifically if downside scenarios related to CUSMA not being extended are already reflected in reserves, and what the implications would be if that scenario materializes. He also questioned if the payoffs from RBC's AI investments are being pulled forward and potentially upsized, similar to the ROE target adjustment.

Answer

Graeme Hepworth, Chief Risk Officer, clarified that significant provisions built in Q2 last year due to CUSMA uncertainty have not been released. He outlined three paths: favorable CUSMA resolution could lead to reserve releases, an unsatisfactory outcome would mean pre-funded stage three losses, and prolonged uncertainty would keep reserves in place. Dave McKay, President and CEO, confirmed greater confidence in AI execution since Investor Day, with 30,000 employees using generative AI, and sees AI as the primary driver for outperforming the 17%+ ROE target, with payoffs accelerating in 2027.

Gabriel Dechaine asked about the drivers of the strong trading result, questioning the impact of market dynamics, and also inquired about the credit outlook, seeking to balance positive macro forecasts with signs of consumer stress.

Answer

An executive explained that the strong trading results were broad-based across FICC and equities, driven by client activity and strategic investments, with only a modest benefit from credit spread tightening. Chief Risk Officer Graeme Hepworth addressed credit, stating that while the environment is challenging, the acceleration of credit issues is slowing and they are nearing a stable, albeit elevated, level of losses, supported by a resilient portfolio.

Gabriel Dechaine inquired about the increase in gross impaired loans (GILs), asking if Royal Bank is being more proactive in its classifications and seeking clarity on the portion of the increase attributed to administrative factors.

Answer

Chief Risk Officer Graeme Hepworth clarified that approximately 40% of the quarter-over-quarter increase in GILs was due to administrative issues from the HSBC integration, which have been resolved and are expected to reverse. He affirmed that RBC's impairment process is consistent, based on well-defined rules that include forward-looking views, not just payment status.

Inquired about the significant increase in gross impaired loans (GILs), the level of discretion in classifying them, and clarification on an "administrative" portion of the increase.

Answer

The increase in GILs was partly due to temporary administrative issues from the HSBC integration (which will reverse), and the bank's impairment classification process is consistent and based on forward-looking views, not just payment status.

Gabriel Dechaine from National Bank Financial asked about the significant increase in gross impaired loans (GILs), questioning the level of discretion used in classifications and seeking clarification on the administrative factors mentioned.

Answer

Chief Risk Officer Graeme Hepworth explained that RBC's process for classifying impaired loans is consistent and includes forward-looking views. He clarified that approximately 40% of the quarterly GIL increase was due to administrative issues related to the HSBC integration, which have since been resolved and are expected to reverse in the next quarter.

Gabriel Dechaine of National Bank Financial asked for the specific Stage 2 provision release tied to the large impaired loan and the potential increase in performing ACL if the bank's pessimistic scenario became its base case.

Answer

Chief Risk Officer Graeme Hepworth specified that approximately $110 million in Stage 2 allowances were released for the account. He explained that the bank's pessimistic scenarios are already weighted at 35% in their models. If the primary pessimistic scenario were shifted to a 100% weighting, the performing ACL would increase by about 30%, representing a high-end marker for potential impact.

Gabriel Dechaine asked a series of questions regarding the credit performance of the U.S. leveraged finance portfolio, whether legacy HSBC Canada balances have stabilized post-acquisition, and the outlook for loan growth at City National.

Answer

Derek Neldner, Group Head of Capital Markets, stated the U.S. leveraged finance portfolio is performing comfortably within expectations due to diversification and modest hold sizes. Neil McLaughlin, Group Head of Personal and Commercial Banking, confirmed that HSBC client and volume numbers are tracking well within original deal estimates. CEO David McKay noted that City National's loan growth has been muted by the high-rate environment but that the bank is focused on repositioning the portfolio for higher-return growth as conditions improve.

Gabriel Dechaine revisited the margin discussion, asking what specific drivers have outperformed expectations, such as mix or yield curve shape. He also inquired about the importance of slow mortgage growth combined with competitive dynamics on spreads, and the impact of increasing revolving balances.

Answer

Senior Executive Vice-President and CFO Robert Sedran attributed the margin outperformance largely to positive mix shifts and product margins, noting that client preferences (e.g., for GICs rolling off) and a stable competitive environment have been favorable. Group Head, Personal and Business Banking in Canada, Hratch Panossian, added that while the mortgage inflow/outflow differential has been a positive factor (around a basis point per quarter), the bigger driver is the mix shift towards cards franchise growth over slower mortgage growth. He also confirmed that interest-earning and revolve balances in the card portfolio are growing at a healthy, responsible pace.

Gabriel Dechaine revisited the margin discussion, asking why CIBC has consistently exceeded its 'stable to positive bias' guidance, specifically identifying which drivers (mix, yield curve) are outperforming. He also inquired about the importance of slow mortgage growth and competitive dynamics on spreads, and the increasing proportion of revolving balances in the cards portfolio.

Answer

CFO Rob Sedran attributed the outperformance largely to favorable business mix and product margins, including shifts in client preferences (e.g., GICs rolling off, focus on transaction accounts/credit cards). Hratch Panossian, Group Head, Personal and Business Banking in Canada, added that while mortgage repricing provides a small positive impact, the mix shift towards a strong cards franchise (co-brand, premium travel, everyday rewards) amidst a muted mortgage market is a bigger factor. He confirmed increasing interest-earning and revolving balances in cards, managed responsibly.

Gabriel Dechaine from National Bank first questioned CIBC's outlook for impaired provisions, specifically how potential USMCA difficulties might influence the anticipated improvement. He then asked about the new leadership's appetite for M&A and the broader capital deployment strategy.

Answer

Frank Guse, Chief Risk Officer, stated that impaired provisions are expected to remain stable in fiscal 2026, with a base case for strengthening economic environment in the latter half, leading to a mid to low 30 basis point range. He confirmed that a breakdown in trade negotiations would likely prevent the back-half improvement. Harry Culham, President and CEO, reiterated CIBC's four-pronged capital deployment approach: organic growth, dividend growth, active share buybacks (with flexibility), and opportunistic, capital-light, strategically and culturally complementary tuck-in M&A accretive to ROE. He emphasized a stable, steady, predictable, and consistent approach to running the bank and capital deployment.

Gabriel Dechaine first asked Frank Guse about the influence of USMCA difficulties on the impaired provision outlook for 2026, especially regarding the expected back-half improvement. He then asked Harry Culham about CIBC's appetite for M&A, given the new leadership, and its role in capital deployment.

Answer

Frank Guse (Chief Risk Officer, CIBC) stated that impaired provisions are expected to remain stable in 2026, with a base case of economic strengthening in the back half leading to a 'mid to low 30s' range. He confirmed that a breakdown in trade negotiations (USMCA difficulties) would likely prevent the back-half improvement. Harry Culham (President and CEO, CIBC) reiterated a four-pronged approach to capital deployment: organic growth, dividend growth, active buybacks (flexible pace), and opportunistic, capital-light, strategically/culturally complementary, and ROE-accretive tuck-in M&A. He emphasized running the bank in a stable, predictable, and consistent manner.

Gabriel Dechaine of National Bank Financial questioned the sustainability of CIBC's net interest margin (NIM) outperformance, asking which contributing factors, such as deposit mix and competitive dynamics, are likely to persist.

Answer

Robert Sedran, CFO, and Hratch Panossian, Group Head of Personal and Business Banking, explained that the margin strength is sustainable. They attributed it to both a favorable rate environment and, more importantly, a deliberate relationship-based strategy. This strategy focuses on higher-margin products like checking accounts and credit cards, leading to a positive and sustainable shift in business mix.

Gabriel Dechaine from National Bank Financial, Inc. asked for clarification on the full-year impaired loss rate guidance and a prognosis for 'peak PCLs,' wondering if elevated losses could persist into 2026. He also theorized whether the overall quality of the borrower cohort has improved post-pandemic.

Answer

Frank Guse, Senior EVP & Chief Risk Officer, reiterated the full-year guidance in the mid-30s basis points range and stated it was too early for a 2026 forecast. He agreed that the bank's strategic focus on mass affluent clients contributes to the portfolio's strong credit performance and high quality.

Asked for a forecast on peak PCLs, whether losses could remain elevated into 2026, and if the current strong credit performance is due to a structural shift in the borrower base post-pandemic.

Answer

The executive reiterated the full-year guidance for impaired losses (mid-30s bps), noting it's too early to forecast for 2026. The strong credit performance was attributed to the bank's strategy of focusing on higher-quality, relationship-based clients (mass affluent) rather than a post-pandemic cohort effect.

Gabriel Dechaine of National Bank Financial asked for clarification on the full-year impaired loss rate guidance and the potential for peak PCLs. He also theorized whether better-than-expected credit performance was due to a higher-quality borrower cohort post-pandemic.

Answer

Chief Risk Officer Frank Guse reiterated the full-year impaired loss guidance in the mid-30s basis points range and noted it was too early to forecast for 2026. He attributed the strong credit performance to the bank's strategic focus on building relationships with mass affluent clients, which results in a higher-quality portfolio.

Gabriel Dechaine sought clarity on the full-year impaired loss rate guidance and asked for a forecast on 'peak PCLs,' suggesting a potential lagged effect into 2026. He also theorized whether the current strong credit performance is due to a higher-quality borrower base post-pandemic.

Answer

Frank Guse, Chief Risk Officer, reiterated the full-year impaired loss guidance in the mid-30s basis points range, noting it's too early to forecast for 2026. He attributed the strong credit results not to a post-pandemic anomaly but to the bank's long-term strategy of focusing on deeper client relationships and the mass affluent segment, which naturally yields a higher-quality portfolio.

Gabriel Dechaine from National Bank Financial sought clarification on the drivers of margin performance in both Canadian and U.S. banking, particularly the impact of deposit repricing, and also asked if the current pace of share buybacks would be maintained.

Answer

CFO Robert Sedran attributed the strong margin performance in both regions primarily to favorable deposit dynamics, including volume, mix, and hedging. He expects the Canadian margin to be stable to gradually higher, while the U.S. margin should normalize to the 350-360 bps range. Regarding capital, he reiterated the intent to complete the full authorized share buyback, environment permitting.

Gabriel Dechaine asked for an explanation of a specific tax adjustment and questioned how the bank achieved positive operating leverage given high expense growth in several segments, suggesting a reliance on opportunistic treasury gains.

Answer

CFO Robert Sedran clarified the tax item was a reversal of a prior-quarter benefit related to newly enacted legislation. On expenses, he acknowledged certain one-time charges and noted that strong revenue growth, particularly performance-based, naturally drives higher variable compensation. He affirmed the bank actively manages expenses to achieve its operating leverage goals.

Gabriel Dechaine asked about BMO's ROE performance, specifically noting the flatter sequential ROE in U.S. banking compared to Canada and Capital Markets, and questioned if the path to the 15% ROE target might differ from original plans, particularly regarding the U.S. contribution. He also inquired about the outlook for U.S. loan growth and its pillars of confidence, including any tailwinds from private credit.

Answer

Darryl White (CEO, BMO) affirmed that the company is on track for the 15% ROE target by exit 2027, noting the U.S. ROE was up 150 basis points year-over-year and that U.S. optimization work is 90% complete, expecting acceleration in the second half of the year. Aron Levine (President of BMO U.S., BMO) added that the U.S. is at an inflection point, with optimization work nearing completion, leading to growing pipelines and expected mid-single-digit loan growth driven by talent, realignment, investments, and client relationships.

Gabriel Dechaine inquired about BMO's standout ROE performance, specifically noting a flatter trend in U.S. ROE compared to Canada and Capital Markets, and sought reassurance on the 15% ROE target. He also asked for the outlook on U.S. loan growth and potential tailwinds from private credit.

Answer

Darryl White, CEO, affirmed confidence in the 15% ROE target, highlighting overall progress and explaining that U.S. improvement was expected to be later. Aron Levine, President of BMO U.S., detailed the U.S. segment's inflection point, 90% completion of optimization work, and strong pipelines driving future growth, emphasizing sustainable growth strategies.

Gabriel Dechaine questioned the rising delinquency rates and shrinking balances in BMO Financial Group's Canadian credit card book, asking if it grew too fast and if a post-Christmas blip in credit metrics is expected. He also asked CEO Darryl White about the bank's M&A strategy, specifically if it would issue stock for a deal or focus on tuck-in acquisitions.

Answer

Mathew Mehrotra, Head of Canadian Personal and Business Banking, attributed the visible stresses in the Canadian credit card book to overall macroeconomic conditions affecting mass consumers and the bank's portfolio composition, noting adjustments to manage exposure and growth in the premium segment. Darryl White, CEO, stated that BMO would not sacrifice ROE targets for M&A, emphasizing discipline and a focus on organic growth and tuck-in opportunities that accelerate, rather than slow down, the ROE journey.

Gabriel Dechaine from National Bank Financial inquired about the U.S. loan and revenue growth outlook, considering macroeconomic shifts and the impact of exiting low-ROE client relationships. He also asked if moving the U.S. Wealth business into the U.S. P&C segment would alter the 12% ROE target for that division.

Answer

CEO Darryl White characterized the current U.S. loan environment as a "positive short term reset" focused on optimizing returns, noting that underlying originations are up. President - BMO U.S. Aron Levine added that he sees significant opportunity for growth across commercial and personal lines. CFO Tayfun Tuzun clarified that the 12% U.S. ROE target remains unchanged as the wealth business's contribution is relatively small.

Gabriel Dechaine asked about BMO's U.S. ROE improvement strategy, questioning the outlook for commercial loan growth and the execution plan for acquiring lower-cost deposits.

Answer

CEO Darryl White acknowledged muted loan demand but highlighted PPPT growth from balance sheet optimization. Erminia Johannson, Head of North American Personal Business Banking, detailed the strategy of shifting the funding mix to core deposits while continuing customer acquisition. Nadim Hirji, Head of Commercial Banking, noted improving client sentiment and expects positive loan growth in the second half of the year, supported by a healthy pipeline and fee-generating initiatives.

Gabriel Dechaine from National Bank Financial inquired about BMO's U.S. ROE improvement strategy, focusing on the outlook for commercial loan growth and the execution challenges of optimizing the deposit mix.

Answer

CEO Darryl White acknowledged the muted loan demand but highlighted the 8% quarterly PPPT growth in U.S. P&C, driven by balance sheet optimization. Ernie Johannson, Head of North American P&B Banking, detailed the strategy of shifting the funding mix to core deposits while growing checking accounts. Nadim Hirji, Group Head of Commercial Banking, noted that while pipelines are healthy, execution is delayed, but he expects positive loan growth in the second half of the year as sentiment improves.

Gabriel Dechaine sought clarification on the performing allowance for credit losses (ACL), asking how potential tariffs were factored in and what the magnitude of a future provision could be if tariffs are implemented.

Answer

CRO Piyush Agrawal explained that while the formal macroeconomic forecast did not include tariffs as of the January 31 quarter-end, the bank applied 'experienced credit judgment' as an overlay to reflect the heightened uncertainty. He stated it is too difficult to quantify a potential future PCL increase due to numerous variables like duration, scope, and government response, but confirmed the provision would directionally increase if broad-based tariffs are implemented.

Gabriel Dechaine asked if the Bank of the West integration distracted from credit monitoring and sought clarification on the credit outlook, specifically if PCLs would be 'higher' than Q3 levels.

Answer

Chief Risk Officer Piyush Agrawal and Head of Commercial Banking Nadim Hirji denied any distraction from the integration, stating the acquired portfolio is performing as expected. Piyush clarified the outlook, stating PCLs are expected to be higher than Q3's level for the next 1-2 quarters before receding to the long-term average of around 36 basis points in 2025.

Asked if the Bank of the West integration distracted from credit monitoring and sought precise clarification on the credit outlook, specifically what 'higher' PCLs means for the next few quarters.

Answer

Management denied any distraction from the Bank of the West integration, stating its portfolio is performing in line with the legacy BMO business. They clarified the credit outlook by stating they expect PCLs in the next couple of quarters to be 'higher' than the 50 bps seen in Q3. After this elevated period, they expect PCLs to recede back towards their long-term average of around 36 basis points through 2025.

Gabriel Dechaine from National Bank Financial pressed for clarity on the impaired PCL guidance, asking if the trajectory is now higher than anticipated a quarter ago and if improvements might be delayed to 2027. He also clarified the definition of 'unsecured' and inquired about the bank's exposure to resorts and the broader tourism industry in Mexico, especially given recent events.

Answer

Shannon McGinnis, Chief Risk Officer, reiterated that the bank is where it expected to be, with elevated impaired PCLs in the first half of the year, and that the outlook given last year still holds. She pointed to early signs of improvement in Canadian Banking's unsecured portfolio (credit cards and ULOC, not autos) and stable but elevated PCLs in International Banking. Scott Thomson, CEO, and Francisco Aristeguieta, Group Head, International & Global Transaction Banking, addressed the Mexico situation, stating that employees and clients are safe, and branches are open. Francisco clarified that the bank does not actively participate in resort financing, with exposure limited to working capital for highly consolidated hotel operators, and they are not concerned about specific exposures in Mexico.

Gabriel Dechaine sought clarification on Scotiabank's impaired PCL guidance trajectory, whether it's higher than previously expected, and the timing of declines. He also asked for the definition of 'unsecured' and the bank's exposure to Mexico's resorts and tourism industry.

Answer

Shannon McGinnis, Chief Risk Officer, reiterated that impaired PCLs are where expected, elevated in H1 with improvement in H2, citing early signs in Canadian unsecured and stable International Banking. She clarified 'unsecured' refers to credit cards and ULOC. Scott Thomson, President and Chief Executive Officer, and Francisco Aristeguieta, Group Head, International & Global Transaction Banking, confirmed minimal direct resort financing exposure in Mexico, focusing on working capital for consolidated operators, and noted no significant financial impact from recent events.

Gabriel Dechaine sought confirmation on Scotiabank's double-digit EPS growth outlook for the next year, asking for a segment-by-segment breakdown and the contribution from buybacks. He also questioned if the modest growth guidance for Capital Markets implied earnings above the previously stated run rate. Additionally, he asked about Scotiabank's strategy regarding its 15% stake in KeyCorp if KeyCorp were to engage in M&A consolidation in the U.S. regional banking sector.

Answer

Raj Viswanathan (CFO) largely confirmed the EPS outlook, clarifying that Global Wealth Management would see high single-digit growth, while International Banking and Global Banking and Markets (GBM) would experience modest (low single-digit) growth. He noted that improvements in the 'Other' segment and share repurchases would contribute, but buybacks were not strictly necessary for double-digit EPS. For Capital Markets, Raj Viswanathan indicated that current earnings (Q4 at $519M) suggest a higher run rate of $475M-$500M, supported by investments and constructive markets. Scott Thomson (President and CEO) stated satisfaction with the KeyCorp stake, with no plans to increase it beyond 15%, and would address any strategic decisions by KeyCorp at that time, comfortable with the current position.

Gabriel Dechaine sought clarification on Scotiabank's double-digit EPS growth outlook for the upcoming year, specifically the segment-level contributions and the role of share buybacks, and inquired about the bank's strategy regarding its 15% KeyCorp stake in the event of KeyCorp's M&A activity.

Answer

CFO Raj Viswanathan confirmed segment growth expectations, including double-digit for Canadian banking and high single-digit for wealth, noting buybacks contribute but aren't solely responsible for double-digit EPS. President and CEO Scott Thomson affirmed satisfaction with the KeyCorp stake, with no plans to increase it, and would evaluate any KeyCorp M&A as it arises.

Gabriel Dechaine from National Bank Financial asked for an updated outlook for the Corporate segment's earnings and questioned if the commercial 'debanking' phase in Canada was ending.

Answer

CFO Raj Viswanathan projected the Corporate segment's loss would improve next quarter and confirmed rate cuts would be beneficial. Aris Bogdaneris, Group Head of Canadian Banking, affirmed the commercial balance sheet optimization is largely complete and the focus is now shifting to market-level growth. He also clarified that while term deposits fell, core deposit growth was strong.

Gabriel Dechaine asked about Scotiabank's lending exposure to pre-construction condo developers amid reports of buyers backing out. He also questioned the mechanics behind the $9 billion quarter-over-quarter increase in Stage 2 residential secured loans, seeking to understand the classification criteria.

Answer

Chief Risk Officer Philip Thomas stated that condo developer exposure is small, representing only 6% of the Canadian commercial real estate portfolio, with a focus on experienced Tier 1 developers, making it a low concern. Regarding the Stage 2 loan increase, he clarified it was driven by model outputs on weaker forward-looking indicators (GDP, unemployment) and a broad-based expert credit judgment overlay, rather than deterioration in a specific geography or postal code.

Gabriel Dechaine inquired about the bank's lending exposure to condo developers, particularly regarding pre-construction projects, and asked for the rationale behind the significant increase in Stage 2 classified residential mortgages.

Answer

Phil Thomas, Group Head & Chief Risk Officer, clarified that condo exposure is manageable, representing 20% of the mortgage portfolio and only 6% of Canadian commercial real estate, with a focus on top-tier developers. He explained the rise in Stage 2 mortgages was not due to specific regional stress but was a broad-based increase driven by weaker forward-looking economic indicators in their models and an overlay of expert credit judgment.

Gabriel Dechaine asked about the underlying performance of the International Banking retail business and questioned if the bank's multi-year balance sheet optimization process is now largely complete.

Answer

Francisco Aristeguieta of International Banking noted that Q1 performance was strong and in line with expectations for a slower growth year. CEO L. Thomson highlighted the segment's improving productivity ratio. Regarding optimization, Mr. Thomson reiterated the 'value over volume' strategy, while CFO Rajagopal Viswanathan confirmed that most of the 'heavy lifting' is done and they are on the 'back end' of the process.

Gabriel Dechaine asked for the outlook on the International Banking segment's loan loss ratio and questioned why it might not trend lower given portfolio mix changes and rate cuts.

Answer

Chief Risk Officer Philip Thomas stated that the International Banking PCL ratio is expected to remain around current levels in Q4. He noted encouraging early signs, such as flat gross impaired loans and net write-offs quarter-over-quarter. While deferring a full 2025 outlook, he acknowledged the strategic focus on acquiring high-quality primary customers, which could positively influence future credit performance.

Gabriel Dechaine followed up on the 17% stop-loss pricing increase, asking if it would quickly restore target margins. He then questioned Sun Life's capital deployment strategy, given the high 157% LICAT ratio and 19% ROE, and the potential for share buybacks, especially with the program expiry in May.

Answer

David Garg, EVP, Head of U.S. Business, Sun Life Financial, confirmed the 17% price increase on renewal business was at target margins. Tim Deacon, EVP and CFO, Sun Life Financial, outlined a disciplined capital deployment approach, prioritizing organic investments and completing private asset affiliate buyouts in H1 2026. He stated that transformative acquisitions are not planned, but bolt-on acquisitions are possible, and share buybacks would resume later in the year, typically not exceeding organic capital generation. Kevin Strain, CEO, Sun Life Financial, added that the high capital position, including CSM growth, does not suppress ROE.

Gabriel Dechaine followed up on the 17% stop-loss pricing increase and then questioned Sun Life's capital deployment strategy, specifically regarding excess capital, M&A appetite, and the timing and scale of share buybacks given the high LICAT ratio.

Answer

David Garg, EVP, Head of U.S. Business, Sun Life Financial, confirmed the 17% price increase on renewal business was at target margins. Tim Deacon, EVP and CFO, Sun Life Financial, outlined a disciplined capital deployment approach, noting the LICAT ratio at 157% (pro forma 150% after buy-ups) and debt issuances for private asset affiliate purchases. He stated priorities include organic investments, bolt-on M&A after affiliate purchases, and resuming share buybacks later in the year, not exceeding organic capital generation. Kevin Strain, CEO, Sun Life Financial, added that CSM growth is a significant part of capital and future income, not negatively impacting ROE.

Gabriel Dechaine questioned the medical stop loss repricing, asking about market share impacts and potential unanticipated dynamics beyond pricing actions. He later followed up on the dental business, inquiring about the difficulty of discussions with counterparties regarding accelerated recognition of loss experience, given the three-year look-back period. He also sought clarification on the Q4 stop loss outlook and reserve adjustments.

Answer

Kevin Strain, President and CEO, and David Healy, President of Sun Life U.S., emphasized the repricable nature of the stop loss business and ongoing efforts in cost containment and care navigation. David Healy explained that Medicaid rates are reset annually by states, considering historical experience and future utilization, but current utilization is higher than projections, making rate adjustments challenging. He clarified that the ultimate loss ratio pick for the 2025 cohort was updated, reflecting reserve adjustments for the first three quarters, with Q4 expected to be a smaller impact.

Gabriel Dechaine questioned the additional considerations beyond pricing actions for stop loss repricing, such as market share impact and counterparty dynamics. He also asked about the challenges in dental repricing, particularly regarding counterparties accepting accelerated recognition of loss experience given a three-year look-back period.

Answer

Kevin Strain, President and CEO, clarified that previous pricing adjustments were for the current year's experience. David Healy, President of Sun Life U.S., discussed cost containment programs, clinical capabilities, and care navigation in stop loss, expressing confidence in managing the cycle. For dental, David Healy explained the annual rate reset by states, the influence of historical experience and forward-looking utilization, and the disconnect between projected and actual higher utilization, emphasizing ongoing efforts to educate on experience.

Gabriel Dechaine of National Bank Financial asked about the drivers of increased claim severity and frequency in U.S. Dental, the outlook considering Q3 seasonality, and the company's pricing power with state Medicaid authorities.

Answer

President - U.S. Dan Fishbein acknowledged that Q3 is seasonally the most adverse quarter for dental claims. He attributed the rising severity to provider billing practices, aided by AI, and some one-time claim reprocessing effects. He explained that while states are required to set actuarially sound rates, the process is annual and has been slowed by funding uncertainty, with a full return to target margins likely taking through 2026.

Gabriel Dechaine of National Bank Financial asked about the drivers of rising claims severity and frequency in the U.S. Dental business, the outlook for Q3 seasonality, and the company's pricing power and timeline with state authorities.

Answer

President - U.S. Dan Fishbein confirmed Q3 is a seasonally adverse quarter for dental claims. He attributed higher utilization to a claims backlog, a one-time reprocessing event, and evolving provider billing practices. He noted that while pricing power exists, the process to get rates to target levels has been slowed by Medicaid funding uncertainty and will likely take through 2026.

Gabriel Dechaine inquired about the employment assumptions in the group business profit models, the sustainability of Asia's high ROE, the impact of a slower monetization environment on SLC's outlook, and the drivers of strong institutional inflows at MFS.

Answer

Kevin Morrissey, SVP & Chief Actuary, explained that expected profits for group businesses are based on short-term pricing assumptions incorporating economic factors, which are reset annually. Manjit Singh, EVP & President of Sun Life Asia, stated there were no unusual items in Asia's Q1 results and the ROE represents a good run rate. Stephen Peacher, President of SLC Management, noted a slower monetization environment has a mixed impact on private credit, potentially extending loan durations but reducing new deal flow. An executive, likely Ted Maloney, President of MFS, attributed MFS's strong institutional inflows to its international equity franchise and positive fixed income flows.

Gabriel Dechaine followed up on U.S. stop-loss, asking about the timeline for repricing to be fully reflected and the potential for another claims blip in Q1 2025. He also questioned the nature of the "onetime" tax-exempt income volatility and the drivers of lower earnings on surplus.

Answer

Daniel Fishbein (executive) confirmed it would take through next January to fully reprice the book but that meaningful impact would be seen from the 1/1/25 actions. CEO Kevin Strain expressed long-term confidence in the business. CFO Timothy Deacon explained the tax volatility was due to unusual FX moves and that actions to mitigate it going forward would have a modest impact. He attributed lower surplus earnings to lower short-term yields.

Gabriel Dechaine sought clarification on the U.S. dental business's $100 million target for 2025, asking if it's a full-year figure and about its expected progression. He also asked for more detail on the U.S. stop-loss pricing strategy and contract duration, and questioned the normalization of morbidity experience in the Canadian business.

Answer

Daniel Fishbein, President of Sun Life U.S., confirmed the $100 million dental target is for the full year 2025, with recovery beginning in Q3 2024 and accelerating in Q4. On stop-loss, he reiterated that contracts are repriced annually, allowing for quick reactions to market changes. Jacques Goulet, President of Sun Life Canada, added that while Canadian morbidity experience is moderating from record highs, the positive results are sustainable due to disciplined pricing actions.

Gabriel Dechaine (National Bank of Canada) followed up on the U.S. mortality issue, asking if it's a persistent trend and if it influences the company's appetite for Long-Term Care (LTC) dispositions, which could hedge higher mortality. He also inquired if the mortality issue is tied to a legacy block and whether the current stock valuation (just over one times book) makes it more challenging to execute EPS-neutral legacy book dispositions compared to when the stock was at two times book.

Answer

Brooks Tingle, President and CEO of John Hancock, reiterated that the U.S. mortality variability is not a long-term trend, noting that Q4 2025 results were within a reasonable range and not tied to a particular legacy block. Naveed Irshad, Head of North America and Head of Long-Term Care, confirmed that the mortality view does not affect LTC transaction considerations, highlighting successful past transactions and ongoing evaluation of opportunistic deals. Colin Simpson, CFO, clarified that the book value multiple of shares is not a constraint for growing EPS, and each deal is evaluated on its own merits, independent of the current share price.

Gabriel Dechaine followed up on the U.S. mortality issue, asking if it impacts Manulife's appetite for LTC dispositions, given LTC's role as a hedge. He also questioned if the mortality issue is tied to a legacy block and whether it's more challenging to make legacy book dispositions EPS neutral now, considering the stock's book value multiple, or if Manulife remains committed to EPS neutrality.

Answer

Brooks Tingle, President and CEO of John Hancock, Manulife Financial, reiterated that the mortality issue is not a long-term trend and not tied to a particular legacy block, but rather normal variability from large cases. Naveed Irshad, President and CEO, Manulife Canada, confirmed that the mortality view does not affect their approach to LTC transactions, noting continued evaluation of opportunistic deals. Colin Simpson, Chief Financial Officer, Manulife Financial, stated that the stock's book value multiple is not a constraint for EPS growth, and each deal's capital allocation will be based on its individual merits.

Gabriel Dechaine questioned the impact of mandatory provident fund (MPF) fee changes on the GMWAM business, asking about Manulife's planned offsets and their timing. He also sought clarification on the actuarial review's LTC component, specifically regarding medical cost inflation and utilization.

Answer

Paul Lorentz, President and CEO of Manulife Wealth and Asset Management, confirmed the $25 million per quarter MPF impact, with most expense offsets taken upfront. Stephanie Fadous, Chief Actuary, explained the LTC review addressed utilization losses from higher medical inflation by reflecting elevated inflation for a longer period.

Gabriel Dechaine questioned the impact of Mandatory Provident Fund (MPF) fee changes on the GWAM business starting in Q4, asking for details on Manulife's offsetting actions, their effectiveness, and timeline. He also sought clarification on the actuarial review's LTC component, specifically regarding morbidity reserves, expected premium increases, and the nuanced message on medical cost inflation and utilization.

Answer

Paul Lorentz, President and CEO of Manulife Wealth and Asset Management, confirmed the $25 million per quarter guidance for MPF impact remains, with system decommissioning and FTE reductions expected to offset costs by Q2. He noted proactive expense actions already taken. Stephanie Fadous, Chief Actuary, explained the LTC review's modest favorable impact, attributing utilization losses to higher medical inflation, which is reflected as elevated for a longer period. She noted consistent termination gains and conservative premium rate increase assumptions (less than 30% of total outstanding ask).

Gabriel Dechaine of National Bank Financial questioned the value of the Comvest acquisition compared to share buybacks and inquired about the potential sales impact from new regulatory caps on return illustrations in Hong Kong.

Answer

President & CEO Philip Witherington defended the acquisition as a strategic investment in a high-growth area, emphasizing long-term value over immediate accretion. Paul Lorentz, President and CEO of Global WAM, highlighted the growth of the private credit market. Steven Finch, CEO for Manulife Asia, stated that the new Hong Kong regulations are not expected to have a material impact on sales.

Gabriel Dechaine of National Bank Financial asked if the sales mix in Asia is still weighted towards lower-margin savings products and questioned the significant increase in U.S. segment expenses.

Answer

Incoming CEO Philip Witherington and CEO Roy Gori clarified that while savings products are in high demand, they are still quite profitable, and they see potential to supplement this with new health and protection products. Brooks Tingle, Head of U.S. Business, described the Q1 U.S. expense increase as an "aberration" tied to strategic investments in GenAI and digital initiatives that are expected to yield future efficiencies.

Gabriel Dechaine asked about the Asia segment's growth outlook for 2025, considering the absence of a 2023 actuarial tailwind and the potential full implementation of the Global Minimum Tax (GMT) across its Asian footprint.

Answer

Philip Witherington, incoming President and CEO, asserted that the majority of 2024's growth was from normal business activity and that Q4's 16% core earnings growth is a sustainable benchmark. CFO Colin Simpson added that the GMT impact is already being provided for and that approximately 80% of the charge originates from Asia, which will be allocated to the segment in 2025.

Gabriel Dechaine of National Bank Financial asked if the significant retail outflows in the Canadian wealth business were linked to recent capital gains tax changes. He also questioned the wide 17% to 23% effective tax rate guidance and the factors that could cause swings.

Answer

Paul Lorentz, Head of Global Wealth and Asset Management, confirmed that the industry saw elevated redemptions ahead of the capital gains tax change, and a separate large-case redemption of $1.8 billion also skewed results. Regarding the tax rate, CFO Colin Simpson affirmed that geographic earnings mix is the primary driver, with higher growth in lower-tax jurisdictions like Asia pushing the rate down, and confirmed the company is operating near the low end of the range.

Gabriel Dechaine from National Bank Financial asked for clarification on the flow of funds from retirement plan redemptions into the wealth business, specifically regarding the 30% increase in rollover sales and the associated dollar amounts.

Answer

Edmund Murphy, President and CEO of Empower, confirmed the 30% year-over-year increase in rollover sales, noting that gross sales in the wealth segment hit a record $6.6 billion for the quarter, primarily from rollovers. He also highlighted improved asset retention as a key factor. Group CFO Jon Nielsen added that while quarterly results may be volatile, the company expects positive net plan sales for the full year.

Gabriel Dechaine sought clarification on the flow of funds from retirement plan redemptions into the wealth business, specifically asking about the dollar amount of rollover sales and how the 30% increase compares to ultimate objectives.

Answer

Edmund Murphy, President and CEO of Empower, confirmed that rollover sales were up 30% year-over-year and that gross sales in the wealth segment hit a record $6.6 billion for the quarter, with the majority being rollovers. He also noted asset retention improved from 86% to nearly 90%. Jon Nielsen, Group CFO, added that while quarterly results can be volatile, the company expects net plan sales for the full year. President and CEO Paul Mahon emphasized this performance aligns with the company's strategic plan.

Gabriel Dechaine sought clarification on the flow of funds from the Retirement business to the Wealth business, specifically asking about the 30% increase in rollover sales and the associated dollar volume.

Answer

Edmund Murphy, President and CEO of Empower, confirmed the 30% year-over-year increase in rollover sales, which contributed to a record $6.6 billion in gross sales for the Wealth segment for the quarter. He noted this reflects high efficacy in capturing money in motion. Group CFO Jon Nielsen added that while quarterly net plan growth will be volatile, the company expects positive net plan sales for the full year, supporting market share gains.

Inquired about commercial real estate exposure, specifically the impact of mark-to-market on the U.K. portfolio and the allocation to Power accounts. Also asked about the sustainability of rate-driven earnings growth in the U.S. and the drivers of positive experience in the Group business.

Answer

It was confirmed that office properties allocated to Power accounts do not impact equity holders' mark-to-market. The U.K. portfolio was marked down about 3% due to higher rates. U.S. earnings from surplus are at a reasonable run rate as the portfolio has mostly repriced. The positive Group business experience is due to sustained pricing and underwriting discipline, not a one-off event.