Scotiabank CEO Brian Porter is bullish on Canadian exports

“The Canadian economy is pivoting quite quickly, from energy and housing to an export economy”

 
Scotiabank CEO Brian Porter at the bank’s AGM in April 2015
Scotiabank CEO Brian Porter at the bank’s AGM in April 2015. (Cole Burston/CP)

It’s rare to see Canadian corporate marks outside of Canada.

One notable exception is Bank of Nova Scotia. In Lima, the political and business capital of Peru, “Scotiabank” competes for attention in the city’s skyline with the country’s domestic financial institutions. Scotia is a major player in the countries of the “Pacific Alliance,” a group that includes Mexico, Peru, Chile and Colombia. That makes Scotia’s CEO, Brian Porter, one of the better placed Canadians to discuss the state of the global economy. I met him in Lima earlier this month to do just that. Here are the highlights of that conversation:


On emerging markets:

“Despite the headlines you read in some papers about emerging markets or developing countries, you still see economic growth here (in Peru). Things are happening. Infrastructure projects are bing built and executed. That’s throughout the Pacific Alliance countries. If you look at most economic forecasts, Peru is going to grow at 3.5% next year. I publicly said as late as our Q3 earnings call is that we can run very good banks at growth rates of 2-3% in the Pacific Alliance countries. Now, growth rates aren’t going to stay there for long, given the backdrop of the economies, but balance sheets in these countries, government balance sheets are in extremely good shape. Debt to GDP is low. Governments are focused on the right things. The economies are well run from a macroeconomic perspective.”

On Canada’s economy:

“There’s a lot of good things going on in the export economy. We see it in our business. We see businesses investing in plant and equipment and doing what companies, enterprises small, medium enterprises, do to expand their businesses. I think there has been a disconnect between the marketplace and the real economy. I’m not saying it is rosy all over Canada. I was in Halifax earlier this week and things are okay. I think that there’s been a lot of negative news about commodity prices and other things. And I’m not saying it hasn’t been severe, but these are cyclical businesses that tend to come back. Sometimes when you are looking at these numbers you are looking in the rearview mirror. I think some of the indicators are saying things aren’t as bad. And actually, the Canadian economy is pivoting quite quickly, from energy, housing to an export economy.”

On China:

Everybody seems pretty negative about what is going on in Asia. I would categorize China as a bit of a black box. It’s always hard to know exactly what is going on. We’ve got operations there and business is fine. The government has been tackling the corruption issues. It’s not for me to say, but I think that has been the right thing to do and they have been serious about it. The economy is pivoting from an export economy to a consumer-driven economy and goods and services. That road is going to have a few pot holes in it. They think long term. This isn’t quarter by quarter. When you back and look at what they said they were going to do in terms of moving rural people into the cities, they built the cities. They have done all of these things. They basically have executed on their plan. I would give the Chinese credit for an excellent balance sheet as a government. It’s out belief that they are going to find their way through this. I cant tell you whether the economy is growing at 6, or 6.2, or 6.5%, but it certainly is not zero.”

On whether the U.S. Fed should raise interest rates:

“I would like to see the Fed tighten. It feels like it is time to do it. We still are a major lender to U.S. corporations and with the exception of energy, everyone one of our industry groups, the companies within that, are meeting or exceeding pretty aggressive profit-plan targets. So what we see, from my traveling, and my colleagues’ traveling through the U.S., whether it is in Los Angeles, or New York, Atlanta or wherever, Minneapolis, is that business is pretty good. I’m also concerned too that when you have rates this low, there are some unusual things happening in markets. You look at what is happening in the shadow banking system and the amount of money that is in that system. History would tell you that usually doesn’t end very well. As a participant in a large part of the economic fabric in the countries we participate in, I’m concerned about that.”

On whether Scotia would expand in India, the fastest-growing emerging market:

“We’re looking at them. It wouldn’t be the first place we would look. Like any other household or organization, we have a limited amount of resources. We just find the potential here (in the Pacific Alliance) is so significant for us. Now, India is an important country for us. We are the largest physical trader of gold in the world, so India is a very significant market for us in terms of the commercial jewelry business, for instance. We’re looking. We’ve had discussions with the RBI. We’ll see what happens.”

On the possibility of economic stagnation:

“We’re all impatient. There’s a lot of scar tissue that’s built up. Some European banks haven’t adjusted their strategy to the new reality, to the regulatory reality. the banking system is still adjusting to new regulation. In Canada, we are in pretty good shape in the that regard, very good shape, from a capital liquidity standpoint. I would argue it has made the system safer. We have embraced the change. Banks are transmission vehicles to provide small businesses, commercial businesses, corporate businesses, households the (finances) they need to do whatever they need to do…In parts of the world, that mechanism hasn’t worked very well. Europe would be one. The U.S. would be another. In Canada it is working pretty well, very well I would say. Here it is working very well. Is that stagnation? I would be careful with labels. I really would. I am worried about the volatility in the marketplace today. We knew there would be a degree of volatility as quantitative easing ends in the U.S. A lot of currencies, including our own, have been under a fair degree of pressure. Again, I think the adjustment mechanism is working pretty well.”

On Canada’s housing market:

“Outside of Toronto and Vancouver, the housing market is very well in balance. We look at a lot of different factors. Immigration. Rent controls in different markets, all those types of things. Housing prices versus income growth. Different shocks to the system which may happen over time. I’m not overly concerned, but I’m mindful about it, of those two markets in particular because they are seeing some influence of capital from elsewhere. So I’m mindful of it.”

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