Scotiabank shares how it beat the crisis
By Margaret Cappa
On the day the International Monetary Fund (IMF) said sovereign stress in the euro area had spilled over to banking systems, Rick Waugh, president and chief executive of Scotiabank, said a tight hand on the purse strings had helped the bank to some “considerable” success during the economic crisis.
Attention to costs and a strategy to be at the forefront of emerging markets had enabled the bank, which operates in more than 50 countries and has over 70,000 employees, to weather the storm of the economic crisis and expand its presence in Latin America and China.
Frugality and expertise in emerging markets are two things that Waugh knows well: “Some people call us cheap,” he joked.
“We made it through this crisis with around 20 acquisitions for about $12 billion, with half of those in the emerging markets, mostly focused on wealth management,” said Waugh during a conversation with Howard Green of Business News Network at Sibos yesterday.
“And you know why? Because we made 16-18 per cent return on capital [throughout the downturn], and when we made those acquisitions, we didn’t raise any equity.”
Scotiabank’s international strategy remains focused on emerging markets, explained Waugh, and has been that way for more than a century. The bank recently celebrated its 115th year in the Dominican Republic, 100th year in Puerto Rico, and is the oldest bank in Haiti.
“We’re not a global bank, we try to be the local bank,” he said, staffing branches with local talent rather than flying Canadians around the globe. The entire management team in Haiti is native-born, he said. Scotiabank will remain committed to emerging markets, even if Brazil slows down as some critics opine, as it’s highly likely more expedient growth will still be experienced there than in the US or Europe, he said.
Waugh believes heightened regulations are hampering growth in North America and Europe. “Regulators, due respect to them, cannot manage banks,” he said. “They can regulate, supervise, and make sure we’re doing the right things, but to get in and prescribe how we compensate, how our technology is going to do it … I don’t see it getting better.”
The crisis at this stage is not one of inadequate regulation, it’s about jobs, he said, and heavy regulation hampers job growth. “Not only are we de-leveraging, we’re being told how to do it.”
While banks such as Lehman Brothers and insurer AIG made major mistakes, the crisis was a failure due to a many reasons, not just risk management, said Waugh, noting a number of American banks have fared quite well.
To Waugh, the bottom line is that regulators don’t have the depth of expertise that banks hold, and they should allow banks to fulfill their mandate: to grow.
Meanwhile, the IMF’s Global Financial Stability Report found risks to global financial stability had increased, signaling a partial reversal in progress made during the past three years.
The report stated: “The pace of the economic recovery has slowed, stalling progress in balance sheet repair in many advanced economies. Sovereign stress in the euro area has spilled over to banking systems, pushing up credit and market risks. Low interest rates could lead to excesses as the ‘search for yield’ exacerbates the turn in the credit cycle, especially in emerging markets. Recent market turmoil suggests that investors are losing patience with the lack of momentum on financial repair and reform.
Policymakers need to accelerate actions to address longstanding financial weaknesses to ensure stability, said the IMF.
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