All right. Our next speaker is Philip Thomas, Chief Risk Officer of Scotiabank. Phil has been in that role for a year and a half, which would mean you were hitting it around a very, you know, look at things we're looking up at that point in time from a risk standpoint. Obviously, different environment today. Uh-huh. Thanks, Phil, for joining us and answering my questions. I wanna start. I don't wanna get too accounting here, but in the weeds, I mean, you know, there's, you know, a lot of questions around the economic outlook. From a chief risk officer standpoint, that economic outlook feeds into how you set your provisions. Under IFRS 9, as we all know, there can be a lot of swings in the provisions depending on, you know, what goes bump in the night. Mm-hmm. Maybe, we can spend a few minutes talking about, you know, what you're seeing, what your most recent outlook, look like, and then, if anything is possibly changing given, recent events. Sure. No, listen, thanks for having me today. It's a real pleasure to be here, and thanks for everybody for showing up. I frankly wasn't expecting this many people, so congratulations on a great turnout. Mostly National Bank employees. No. Just kidding. You paid people to be here? Yeah. Yeah. you know, it's, you said I've been in this job for a year and a half. I think I had one quarter where everything was, like, cool. Mm-hmm. Coming out of the pandemic, and you have the war in Ukraine, you have the tail of the continued discussion around normalization of credit portfolios. You know, the last two weeks, I met David Skurka in the back there and just saying it's just been like a crazy fire drill. It's like, it feels like this job I haven't had a minute to rest. I think my kids have forgotten what I've looked like over the last year and a half. It has really been an interesting period in both from an economic perspective and just from a geopolitical perspective. I think there's a Confucian saying about living in interesting times, and it's actually a curse as opposed to a blessing, but that's sort of how I'm feeling about things a little bit these days. You know, we at Scotia are still calling for a mild recession in the sort of mid to latter part of this year, and that's what I've got built into my forecast as I look at my allowances. I'm obviously very thoughtful about, and we can joke about what's happened over the last couple weeks, but it's been pretty serious. Yep ... for the global economy. I will say from a Canadian perspective, I've never been prouder to be a banker or a Canadian banker. You know, we saw a lot of connectivity between OSFI, the federal government, Bank of Canada, CDIC, the other CROs and myself and the D-SIBs and the treasurers were on daily phone calls. I was on twice-daily calls with the regulators. You know, one of the things I think we as bankers or investors or what have you should be, we should be pretty proud of our what we do here in Canada. You know, a lot of what we saw coming out of the U.S. and coming out of Europe, knock wood, probably wouldn't have happened given the regulations and how we operate in banks in Canada. That gives me a lot of comfort as a Chief Risk Officer. It gives me a lot of comfort as a shareholder in a bank. I think it's important that we talk about this and we recognize, you know, the stability of our banking system in Canada. You know, as far as allowances go and how I'm thinking about that, I am thoughtful in terms of what's... Is there another shoe to drop? Is there something else that's gonna happen coming out of the last two weeks? Still monitoring, still watching. I'll do that for the next few weeks until we close the quarter. The deposit business isn't, you know, directly under you, of course, but you're keeping an eye on, you know, liquidity and, you know, you mentioned daily discussions with Treasurer and things of that nature. Yeah. What's been the, you know? Have you seen any signs of, whether it's in Canada or your international businesses, the behavior of depositors, has it changed? You know, we, Martin Weeks, who's our treasurer, and I are on speed dial. I think we were before, certainly now we're definitely BFFs. You know, one of the, one of the great things about the way my job is structured, My previous role, I was the head of data and analytics for the bank, I was allowed to keep that role coming into this job. The first thing I did was ramp up our data team to be able to pull live feeds and look at how we are, how deposits are trending, corporate, commercial, and retail. As of now, as of the through that period, we saw there was nothing untoward. There was nothing... you know, there was no outflows from a retail perspective into the bank or inflows or outflows. It was the same on our corporate and commercial portfolios. I think that's a good thing. I think certainly from a Canadian perspective, again, that the stability of the Canadian banking system held. Mm-hmm. You know, we don't have the presence in the U.S. that some of our peers would have, so we didn't necessarily see that movement. I was comfortable with, you know, the normality of the deposit flows. Again, like, you know, we saw Silicon Valley Bank, it was insane. You had $46 million or $46 billion of deposits running out of that bank in a day. It just goes to show the world we're living in now with the digital transactions. Mm-hmm. Could you imagine in 2008 it would have taken two weeks to remove that amount of money out of a bank? A few trips to the A.T.M., yeah. Yeah. Yeah, one or two trips to the ATM. What about the LatAm business? Those markets have, you know, historically experienced periods of, you know, volatility. you made the comment about Canada- Yeah and normalcy, I guess. Does being a Canadian bank down there probably doesn't hurt? I- What are you seeing in the system overall? You know, it's a great question. You know, I think this situation was really limited to the U.S. and Europe. Okay. I feel, as I talk to... I have One of the way my job is structured, I have the chief risk officers in each one of our countries report directly to me, so it's like a hotline of what's going on in the pulse of these markets. We saw nothing, you know. For these markets during the past two weeks, it was really what they were watching on CNN or BNN or CNBC. There was really no implications to what was happening for them. From my perspective, I was watching the Spanish banks carefully. Obviously, there's large Spanish banks that deal in these markets, and to see if any contagion was sort of the word of the last two weeks, to see if anything could potentially spread to Latin America, and it didn't. I think your point is well taken. I mean, Scotia is a Canadian bank. Again, going back, I've said it three or four times today, but worth saying, Canada is a stable banking environment, and I think that bodes well for Scotia in these markets. Bringing it back to the credit, you know, the area. You know, I asked you earlier about the performing provision. Are you seeing, no, in terms of actual loan losses, where are you seeing the pockets of weakness, and has it changed at all, you know, in the... probably not the last few weeks, but where are you seeing the signs of stress, I guess? You know, I think for all of our. The Chief Risk Officer job should be called the chief worry officer job. My job is to worry about things. Obviously, I spend a lot of time staring at numbers, which is why I now wear glasses, which I didn't before I took this role, or at least bifocals. You know, as I said on the Q1 call, we are starting to see things normalize. You know, I particularly watch credit cards. That's generally where you start to see softness. Every market is different. You know, one of the things I even found interesting through my career working in Latin America for 16 years of my career. I'm now looking at Canada. Canadians tend to. If you see deterioration in a credit market, Canadians go to cash advances on the credit card, then they go to credit card defaults, then it's on other unsecured lending, then it goes to the auto, and then it goes to the mortgage. Which is fascinating. I think if you're not Canadian, you're looking outside, you look at our big mortgage book and you think, "Maybe that's where the big worry is." It's always going to be in the credit card in Canada. Any crisis we've gone through, that's where it always starts. Anecdotally, when we did business in Puerto Rico, Puerto Rico was always the auto loan because people value their automobile more than their mortgage and more than any other part. Each culture, each country has a nuance, but Canada is always credit card defaults always start first. As the Chief Risk Officer of Scotia, you know, and we spend a lot of time thinking and talking about our credit card portfolio, you know, we are obviously not a big credit card player, and most of the originations we've done post-pandemic have been really focused on sort of the prime plus segment. I get a lot of comfort there. I watch carefully the tail risk, you know, this is where tail risk, single service credit card customers, that's where the banking industry will start to see cracks. On credit card's a twofold question. One, is inflation having a quote-unquote "positive impact" on the business because, you know, low revolving balances have been a revenue issue. On the other side of the coin, well, not really the other side of the coin. Whenever we enter a recessionary environment, as you say, we look at credit cards and then, "Oh, let's double the loss rate." Since payment rates are, you know, stuff like that, you know, just to be crude about it. Yeah. Payment rates are still so high. That is the conundrum that we are in today. The what used to happen might not be as relevant today, so how... Absolutely. You know, the Canadians are whole, and I think the previous speaker was saying something similar from CIBC. Like, Canadians are holding more money in their accounts than they ever... Like, our payment rates on credit cards is still much higher than pre-pandemic. Canadian consumers are holding much more, our variable rate mortgage portfolio, which I know is a question-. Next one, yeah. We always get asked, maybe I'll bleed into that just to say, you know, our variable rate mortgage customers are holding three times their payment cushion in their deposit account in cash. That's not even looking at investments or other things that they could liquidate to start to make mortgage payments. You know, A lot of folks outside of Canada are looking at the Canadian mortgage business as this bubble that's gonna burst. You have, obviously, people speculating around. I sit here as the Chief Risk Officer of one of the largest banks in Canada thinking, "Well, there's tons of money in their account, way more than they had pre-pandemic. Default rates are still way below pre-pandemic levels. Unemployment's at 5%. You know, demand, every study you read says that we have to build. We, as Canada, need to build, you know, millions of houses to be able to house Canadians, not even talking about affordability. Like I struggle to see, and I look for it every day, I struggle to see where the breakpoints is in the mortgage portfolio. Maybe I'm missing something, maybe you or all the banks are missing something. Yeah. Well, that's, you know, your mortgage, along with National's, the design of your variable rate product, it's a truly variable mortgage rate. It's truly a floating rate. I remember initially thinking, "Oh, that's riskier. Well, I remember some of your papers and. Yeah. I was young-. They were a great topic of discussion. I was younger and more naive, I guess. It does give you some perspective that's a bit unique. Different, yeah. ... that, your customers have absorbed these higher payments- Yeah you know, as the rate hikes have taken place. What kind of behavior are they exhibiting? You mentioned they've got a cash cushion. Yeah. Is there any? Are they reducing spending on their cards? Or how are they adapting to their, you know, higher monthly expenses? I actually think, I mean, as inflation is rising, Canadians are making choices. Mm-hmm. Over the Christmas, sort of Christmas period into the last few months, pardon me, we've seen Canadians start to spend less on travel, dining, and entertainment in as we look at sort of deposit and credit card spend. They're spending about 10% more on groceries. They're making choices. Earlier, we saw consumers even shifting the type of grocery spend that they were doing away from sort of maybe even bigger brands to the, you know, bulk brand type of- The Loblaws to No Frills. Our customers, at least, when we look at data, and I'm sure it's consistent as a, as a statistical representation of what's going on in Canada, people are making selections in order to maintain a certain level of liquidity and solvency, like the average Canadian is, which I think is very positive for the economy. When I, when I hear that, and I totally get it's just I start to think of maybe that's the indirect impact. If I've got a CAD 500 increase to my mortgage payment, my discretionary spending is gonna go down. Wherever that was going is going to be where the, you know, their revenues are going down. Is that how you're looking at it? Possibly. I mean, I've been carefully watching... I mean, you're going towards small business. Yeah. I've been carefully watching our small business delinquencies, any friction I'm not seeing that yet. Okay. Maybe it does go there. You know, it's not, it's not, it's not approaching that. I mean, I think, you know, where we are right now, interest rates will stay high, maybe stay high for longer, maybe it'll come back down, Canadians are absorbing that. I'm encouraged by that. I mean, as again, as John said earlier, we gotta watch what's going on in the U.S. Yeah. Obviously, the old adage, if the U.S. catches a cold, we catch the flu. Let's be very, very cautious, and that's why we're talking about the mild recession right now too. You know, the other thing I'm worried about is just as we look at liquidity in the system, you know, does that, to your point earlier, does that start to create a contraction in terms of the banks lending? What are we lending as we start to look at our own liquidity levels very carefully? Are we, you know, are we doing less mortgages or lending less to commercial customers? Does that start to create a bit of a credit crunch which leads to also what you just described? There's a few factors that are going on right now, that like from where I sit, I sort of spend my nights staring at the ceiling thinking about. Oh, I thought I had a bad time sleeping, but let's move to the international business. In the past few years and, you know, of course recently, you've had political unrest in Chile that's, you know, simmered down a bit. I think you were there, weren't you? Yes. Yeah. Well, I left my wallet there. Peru, and then there's pockets of violence in Mexico. There's been a lot of headlines in key geographies for you. Has there been a quantifiable impact on your credit performance from these situations? Yeah. As I said earlier, I've spent close to 16 years of my career working in Latin America. I know the markets very well, and perhaps I'm, you know, more comfortable with operating there than, you know, the sort of the outside-in perspective that one may have. You know, we work... Obviously, as we evaluate and as I evaluate how countries are performing and, you know, as presidents change over, how is the central bank operating? You know, who's the finance minister? You know, what's the regulator doing? Like our interactions generally tend to be on the economic side and on the banking side. What we have found over time is that you may have a... Peru is a great example of where we've had, I think, five or six presidents in the last six years. We've had a lot of stability at the central bank. We've had stability with who the finance ministers of these markets have been. You know, in terms of credit. You know, we always look whenever there's a flare-up of whether it's violence or whether it's a, you know, a weather event that's earthquake or a flood or what have you, we always look at that region. We look at what our exposures are. If it's a commercial or corporate clients, we look at how we can help them in the short term, what behaviors are going on there. If it's a retail customers, we'll segregate that or that geography and be able to say, "Well, you know, what are payment rates look like there? Do we need to help customers with payments if they can't get into a branch or if they can't pay with digital? How do we help them through this difficult situation?" The flip side of that is maybe we don't do proactive selling or outbound calling to that market while that piece of the market perhaps stabilizes. We've got a lot of experience doing this over the years. Frankly, it's not unlike what we would do if it was a fire in Alberta or if it was a flood in BC or Newfoundland. It's the same type of outbound calling activity, making sure our customers know that they're there for us. I think oftentimes, you know, we sit back in Canada and we look at our perception of Latin America is what we see on Netflix. You know, we watch. Narcos. We watch Narcos, and we think that's what Latin America is. I mean, at the end of the day, there's people and there's customers, and I think, you know, once you figure out and you understand how the businesses run there, it's. Again, it all comes down to how you deal with people, how you're managing customers. You know, I see, I see a ton of opportunity, particularly in Mexico and into Latin America with what's going on. Again, speaking of geopolitical and, you know, what's caused by what's going on in Russia, Ukraine or through the pandemic, there's a lot of nearshoring and onshoring that's starting to happen, bringing manufacturing back to this hemisphere. I'm super optimistic that Scotia can capitalize on, you know, what's going on in Northern Mexico, building of plants, connectivity into the US and Canada. I, you know, as I said, I've spent a ton of my career personally there, and I understand the markets and, you know, I still see a lot of opportunity. Bringing it back to Canada, the auto business, you're, you know, top lender in both the, you know, personal and the commercial side of that business. You know, used car prices are still high, so the security is good. I'm starting to see some increases in delinquencies and losses in the, you know, near prime, subprime, whatever, term you wanna use. Is there any anecdotal discussion around your business or what you're seeing overall in auto lending in Canada? Yeah. I mean, we have a great perception to that portfolio because we're one of the largest players there. It is interesting because, well, I mean, Firstly, we are seeing American manufacturers come back with supply. Mm-hmm. If you drive by your local Chevrolet or GM dealer, it's full of trucks. Where we're not seeing supply or supply still slowly coming is on the German and Japanese and European auto manufacturers. I think one anecdotal thing I think we think. When we think used car, we always traditionally have thought sort of subprime, near prime or whatever you wanna call it. The shift during the pandemic has really been because of supply chain issues, people have been buying used cars. Like, I bought a used car. I have a FICO score, it's like eight-something or I think I bought two of my kids' cell phones. It's on my plan, it may now be like seven thirty after they forgot to pay their bill two or three times. I'm a generally a good customer. I went out and bought a used car because I couldn't get a new car. Right. I think that's very germane in terms of what's happening in the Canadian market. If actually you look at our SDA portfolio, we're not seeing, you know, we're not seeing big levels of delinquencies there right now. I mean, we're seeing some normalization. Things are starting to come back, but not yet where they were, not yet where they were pre-pandemic. We have to think, because a customer's buying a used car doesn't mean they're a bad customer. We still have a lot of quality coming there. What I am watching carefully for is, as supply starts to come back and people are buying European, Japanese autos again, does that have a impact on residual values? That's something that may have a long tail for us, but we'll see. I mean, if you would ask me, six months ago, I would have thought by now that, you know, we would have had a better supply in of automobiles in Canada. You know, I drove by the local Volkswagen dealer recently, and the place was empty. All right. So, um- Well, I'm in the market for a Tundra, and. Like you- It's a one-year waiting list still. Yeah. Maybe you're gonna buy a used Tundra. Yeah. Just to wrap up on another, you know, topical issue these days, your exposure to whether it's European financials or U.S. regional banks. I guess everybody's gonna say, "Oh, it's manageable," or whatever, but how much lead time, you know, did you have saying, "Oh, we might wanna be cooling off our counterparty exposure to Deutsche," or whatever? If we have another 25 minutes. We can go a little bit over. Probably. We can go a little bit over time. You know, given our geographic footprint, We do not have or have, you know, a fairly small exposure to European and mid-sized regional U.S. banks. I think as I was going through the last two weeks and, you know, we had a lot of phone calls late at night and over weekends, I became very comfortable with our levels of exposure. It's very well managed and maintained. I think that's one thing. You know, we haven't played in the U.S. in a big way and, you know, if you're looking at Scotia, it's like a sort of a bit of a safe haven from that perspective right now. Your second point on, counter- I guess it's, you know, the lead time, if you will, of when you're. Maybe it's more on the wholesale business. Oh, yeah, start. Let's trim our exposure to Deutsche Bank or Credit Suisse. Yeah. I mean, you know what? We've done a lot of that trimming already over the last sort of five or six years. Mm-hmm. You know, I'm really comfortable with where we are in terms of exposure there. The one thing that strikes me about the comment is this whole situation over the last two weeks from a macro. Forget Scotia, forget Canada for a second. Yeah. From a macro perspective, has always been an issue about confidence. Even asking questions about, like, imagine two or three months ago, if you were asking me questions about DB, like, it would have been unheard of. Mm-hmm. I do think we need to be thoughtful around, you know, what if this is a confidence issue in banks, you know, we need to be thoughtful about, you know, what trades we're doing, obviously, but we also wanna be thoughtful about what trades we're not doing. I think there's a component of us as bankers being responsible and being thoughtful through this period as well. That, that's a wrap, and we've got a break coming up, and well, thanks for the 25 minutes.