As much as Canadians like to complain about the Big Six banks—for their usurious ATM fees and for their CEOs’ eight-figure pay packages—they are also, oddly, incredibly proud of these institutions. Our banks are, after all, globally famous for staying solvent in the worst of times. Any resentment toward those paycheques is just one byproduct of a twisted love-hate relationship that also produces a level of respect otherwise reserved for prime ministers and premiers. Our bankers are larger than life.
“Some CEO types, they fill the room; they take all the oxygen out of the air when they come in,” says Adam Waterous, head of Scotiabank’s investment banking group. “That’s not Brian.”
That would be Brian Porter, who on Nov. 1 takes the top spot at Scotiabank, replacing Rick Waugh, the loquacious CEO who beefed the bank up beyond Canada’s borders. The handover kick-starts a transition that will likely see the chief change at most of Canada’s banks over the next few years.
To ease his transition, Porter was named president a year ago. He quickly learned it’s a new ball game. “You have to be your very best every day. My days and evenings are very full. Whether it’s a customer, or a staff function, you’ve got to be on,” he says. Yet people who know Porter describe him this way: thoughtful, private, calm, enigmatic. He sounds more like an English professor than someone set to take over the country’s third-biggest bank.
And what a bank it has become. Under Waugh’s leadership, Scotiabank’s profit soared to $6.5 billion in the last 12 months, up from $2.5 billion in 2003. It is now also by far the most international Big Six bank, with a footprint in 56 countries. Last quarter, nearly half of its bread-and-butter banking profits came from abroad. So much for the stereotype of Canada’s banks being cosseted by a protected domestic market.
Not only will Porter be judged against Waugh’s impressive record, he must also cope with an industry that is rapidly evolving. Growth is expected to be much harder to come by at home because Canadians are massively indebted and the economy is expanding at little more than a snail’s pace.
Scotiabank does have an edge in uncertain times—the bank makes a point of meeting earnings expectations, building investor trust.
This isn’t by accident. Though the lender has expanded aggressively since the financial crisis, inking $13-billion worth of acquisitions, the campaign has been carefully plotted. Scotiabank may have made two large purchases in personal and commercial banking, but they were on different continents—Waugh bought ING Bank of Canada for $1.9 billion, and acquired 51% of Banco Colpatria in Colombia for about $1 billion. And while his other big-name deal was also a Canadian one, scooping up the portion of DundeeWealth the bank didn’t already own for $2.3 billion, it was struck in an entirely different sector, wealth management.
The bank also has a healthy mix in its international unit, which it groups into three regions: Latin America, Central America and the Caribbean, and Asia. “A lot has to go wrong in a lot of different places for their growth strategy to be dramatically impaired,” says National Bank Financial analyst Peter Routledge. Those regions’ economies rise and fall for different reasons, he explains.
Scotiabank has also relied on an expansion playbook that emphasizes discipline. Porter cautions against growth for growth’s sake. “I always like to say, buying’s the easy part. Executing the integration of the purchase is the hard part.” Scotiabank management has a history of acquiring a minority stake in another bank, maybe 20% of the shares, then getting on the board, and then buying more if they like what they see. “They’re not prone to hubris,” Routledge says. “They know they can screw up, so they go very slowly.”
But no bank is bulletproof, and emerging markets are inherently unpredictable. When Scotiabank entered Peru and Venezuela 16 years ago, Peru was risky, while Venezuela was the promising star. Now their positions are reversed. Scotiabank has also made some bad calls, notably its investment in Quilmes, once Argentina’s 12th-largest commercial bank. In 2002, after the country’s economy went belly up, Scotiabank had to transfer the unit to local lenders, incurring a $540-million writedown.
And if it isn’t a region’s economy acting unpredictably, it’s the politics. In 2011, Scotiabank touted its acquisition of a 20% stake in China’s Bank of Guangzhou—a no-brainer bet on a hothouse region in one of the world’s most important economies. But that deal was scrapped this past summer. A formal explanation was never given; it seems the only hurdle Scotiabank couldn’t jump over was political approval from the highest levels of the Chinese government.
For all these reasons, plain-vanilla Canadian banking can’t be ignored by any prudent bank executive. Plus, it still brings in the lion’s share of profits. Yet it’s the one unit the new CEO of Scotiabank has never worked in.