Scotia’s Rick Waugh didn’t love ING before he bought it

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When ING Bank Canada went up for auction last summer, it set off a feeding frenzy among Canadian banks. And for good reason – it's not often that $30-billion in assets and 1.8 million customers come up for grabs.

To secure the acquisition, Bank of Nova Scotia paid a hefty price, coughing up $3.1-billion – though the net investment was $1.9-billion after stripping out excess capital.

But on Tuesday, Rick Waugh, the bank's chief executive officer, admitted it took him a long time to warm up to the prospect of acquiring ING.

Speaking at a banking conference hosted by Royal Bank of Canada, Mr. Waugh noted that before he bid, his team had a discussion about how to grow and what types of assets they would like to acquire. During the conversation, ING's name "certainly wouldn't have come up," he said.

That changed when the auction opened and his team started doing its homework. "When we did our due diligence, it was highly obvious that it was different than I thought," Mr. Waugh admitted.

While he assumed that a good chunk of ING's retail deposits came from people who stashed their cash in short-term accounts to earn a few extra basis points of interest, it turned out the average tenure of an account was about seven years. Plus, the customers were more affluent than the average Scotia retail banking client.

Realizing his perception of ING was all wrong, Mr. Waugh gave the go-ahead to bid aggressively. To add $30-billion in assets on their own, "it would have taken us years to get there," he said.

To win, Mr. Waugh acknowledged that he paid a hefty price, saying that "we always pay more than what I want to pay." However, he later backtracked a bit and described the cost as including a "fair premium."

Despite his initial thoughts, Mr. Waugh now says that ING "has the potential has being a game changer."

And if you're wondering about his thoughts on the prospect of privatizing Canada Mortgage and Housing Corp., Mr. Waugh decided to weigh in on that, too.

Following in the footsteps of Ed Clark at Toronto-Dominion Bank, Mr. Waugh ardently defended CMHC, arguing that its current structure does wonders for the banks. "It's not a Fannie Mae. It didn't break," he said. Because of CMHC, the average duration of a mortgage on Scotia's balance sheet is just two to three years – whereas U.S. mortgages have 30-year lives – and Mr. Waugh said that allows his bank to fund these mortgages in the shorter-term markets with things like GICs and covered bonds.

CMHC "ain't broke" he said, and it survived what he described as the biggest financial stress in our lifetime.

"Why would you ever want to change that?"