BNS:CC - Bank of Nova Scotia (BNS) 24th Annual Global Banking and Markets Financials Summit Transcript
2023-09-06 15:48:04 ET
Bank of Nova Scotia (BNS)
24th Annual Global Banking and Markets Financials Summit
Sept 06, 2023, 09:00 AM ET
Company Participants
Scott Thompson - President and Chief Executive Officer
Conference Call Participants
Meny Grauman - Senior Financial Services Research Analyst
Presentation
Operator
Good morning, everyone. My name is Michelle Khalilay, and I'm the Managing Director and Head of Global Equity Capital Markets at Scotiabank. I'm very pleased to welcome you to our 24th Annual Scotiabank Financial Summit. On behalf of Scotiabank, I want to thank you for being here today and for your business and your partnership. We deeply value the trust that you have put in us. And we hope to continue to strengthen it in the future. We've got a great agenda; over the course of the next two days we will hear from CEOs from leading financial services companies. These leaders will talk about their corporate strategies and financial performance, current themes, and trends impacting financial markets, and our industry, as well as their own outlook for the sector.
Over the past few years, the financial services sector has faced the impacts of economic uncertainty stemming from the global pandemic, from the war and Ukraine. The energy crisis, another global and local event. And this is resulted in heightened volatility, inflationary pressures, and rising interest rates. On top of that, the collapse of Silicon Valley Bank and Credit Suisse this past year put a renewed spotlight on bank regulation, especially in the US.
While Canadian banks are far better capitalized and regulatory measures are far more robust than they were before the financial crisis. There are still risks on the horizon. With the backdrop of heightened macro uncertainty, the financial services industry has played and will continue to play a critical role, providing liquidity when it's needed most. As well as timely advice and solutions to help our clients navigate turmoil in global financial markets.
Looking ahead with recessionary pressures and climbing interest rates, continuing to present challenges. The sector's role will be as important as ever, in supporting clients, whether the storm, as well as reap opportunities. We've got a great line up over the next two days, so we hope you enjoy the summit and that you gain valuable insights from the important discussions and conversations that will take place. And on behalf of Scotiabank, thank you to all of our speakers and thank you to everyone in the room for joining us for your continued support and for your partnership.
I'd like to now invite to the stage, Scott Thompson, Scotiabank's President and CEO and Meny Grauman, Senior Financial Services Research Analyst at Scotiabank. Please join me in welcoming Scott and Meny.
Meny Grauman
Thank you, Michelle, for that introduction. Scott, great to see you, so excited that you're here to kick off our conference, and we have two amazing days ahead of us, but I'm glad that we could start with our official host as it were, and a big thank you to all our clients as well I just want to reiterate what Michelle said, so thank you for being here.
Question-and-Answer Session
Q - Meny Grauman
Scott, I want to start off at the beginning and ask you a question about your strategic refresh. I don't want to front run an investor day, but I want to understand the rationale, why strategic refresh, why now? And if you could give us a little bit of insight into the process, that's behind strategic refresh.
Scott Thompson
Yeah, thanks, Meny. And thanks to all of you for attending; all of you are clients of the bank, and it's important. It's an important summer for us and thank you for showing up and thanks for your business.
Strategic refresh. So, as you think about the last time the bank was in front of stakeholders with a strategic refresh or strategic overview, it was 2020, and a lot has changed in the environment, since 2020, interest rates, COVID, the US influence in terms of how they're moving forward, regionalization, so lots of changes in the external environment, that demand us to as leaders to kind of re-look at, how we're positioning the business. Point one.
I think point two, as a board, as a management team, we're not satisfied with the total shareholder return, and when you look at a one, three, five, 10-year period, that return proposition to shareholders is not acceptable, which demands, again, a re-look at how we're positioning the business going forward. And so, as I think about the strategic refresh, a big part of it is going to be profitable growth, right.
And this focus on returns, and I'm sure for those who are in Scotia Bank and part of the process, you're hearing a lot of it, return risk-weighted assets, I mean, that's going to be a continuing theme for me, around how do you drive improvements in our return risk-weighted assets? And a big part of that for me is business mix, and business mix can be, both geographic, but also, within core businesses, how do we think about that business mix?
And I'm a big believer that ultimately, client privacy is a huge opportunity for us to change from a product-oriented bank to a client-centric bank. And with that, we will drive profitable sustainable growth over a sustainable period of time. And so that's the -- the process has been, it's been intense, it's been an intense, I think my first day was February, realistically I started in December, and probably going back to September when the Global [ph]Mental Articles came out and I started September 26th.
And so there's been a very inclusive process involving a lot of senior members of the team. It's been data-driven based on an analysis of all of our business, all of our geographies. And we look forward to sharing that with shareholders by the end of the calendar year.
Meny Grauman
I want to talk about client privacy, and a few of the other key strategic pillars that you've been highlighting to investors over the past year, really. But sticking to the strategic refresh and just even the process, I wanted to understand, when you went into this process, was there anything sacred that was not on the table? How did you view that in terms of the mandate for this strategic process?
Scott Thompson
Yeah, and given the return of the former shareholder perspective, there was no, there's definitely mandate for change. And so this is not going to be continuing on the way we continue to on, because that hasn't delivered the results that all of you should expect. That being said, there's a lot of good things that we're going on in the business. And we need to make sure we build upon some of those great things while also re-evaluating some of the other areas.
And so, yes, mandate for change, yes, we've looked at all of our businesses. And yes, we will continue to accelerate those businesses that are doing well. I'll give you one example, wealth, came very clear to me very quickly that we built a great organically and also through acquisitions, built a great wealth franchise here. And so there's an example of something that we're going to continue to double down on, right.
And so this is not going to be a complete rework, but it is going to be accelerating the things that are working well and re-evaluating the things that we can do better.
Meny Grauman
And more from a management point of view, how do you sort of initiate and bring change to an organization as large and flex and as old as Scotiabank? How do you think about that from the management perspective?
Scott Thompson
Yeah, I mean, that's the biggest part here that probably isn't front and center for investors, but it's really front and center for me as culture. And how do we make sure we bring the 90,000 Scotiabankers along on the journey that we're starting? And so a big part of this strategic refresh was making sure it was inclusive making sure it was collaborative. Making sure it wasn't just me and the board, it was the whole management team was actually involved all the EVPs across the organization.
And then as we continue to get through this, communicate, communicate, communicate and making sure you align your incentives around what you're trying to prioritize. So that's probably the hardest part about this penny is making sure once you've aligned on the North Star and strategic direction making sure that you bring the 90,000 Scotiabankers along on our journey.
Meny Grauman
I want to talk about the key pillars of that strategic vision kicking off with client primacy because you brought it up. I mean, you talk a lot about how the bank needs to prioritize markets where the bank has scale. You talk about prioritize clients where the bank has product capability and connectivity. Can you give us examples that you've identified where those conditions haven't existed or maybe haven't fully existed?
Scott Thompson
Well, let me turn the question around a little bit and focus on areas where we do have scale and we do have the product capabilities yet we don't have the right client primacy. So I'll take the Canadian PNC business as an example. We've spent -- we're over indexed on mortgages and auto relative to our competitors. I would argue that that doesn't necessarily, particularly when you're looking through single product customers drive client primacy.
There's a great opportunity for us to increase our relationship with our clients through multi-product propositions to drive that type of client primacy. And the good news is we're not starting from scratch here. I mean, you look at scene. Scene is a great example of an opportunity to drive that type of client primacy.
And you just go back to the last quarter and you see the growth in our credit card portfolio. A big part of that is on the back of scene. The second pace, I would say, where we have a great opportunity on the client primacy front is our GBM business. I think historically we've been a lending first organization with not as much wrapped around the credit.
Jake and the team have done a great job over the last few years transitioning that business and there's a great opportunity to continue that transition. And we'll come to the US, I suspect, in terms of our GBM franchise there. But there's another example of being able to move from a single product lending relationship to a more holistic client primary relationship.
Meny Grauman
So that's client primacy. You also talk a lot about capital allocation. So I want to talk about that in terms of capital allocation to the highest risk adjusted returns on a full cycle basis. So again there, if you can kind of audit the organization and highlight sort of examples where the bank has not adhered to those principles as they should.
Scott Thompson
Yeah, I mean, I think the obvious example is the international franchise. And, right now we have, I think, $20 billion of the $60 billion in capital in our international business. And from our return on risk-weighted assets or risk adjusted RRE basis, the returns there are not convinced with the risk. And so the challenge and the opportunity for us is how do we use that great franchise that we have? And we do have a great franchise in a lot of these countries to be a differentiator.
What at the same time, not have it a drag on the profitability for shareholders. And so, again, back to the strategic free fresh, a lot of data-driven analysis around all of the markets we're in. And I think we're going to end up as you're going to see a moderation of capital into the international business and an acceleration of capital into more of our, our core businesses. We'll have more to say on that at the investor day. But ultimately, that's the type of capital allocation discipline that we're talking about.
Meny Grauman
One area that I want to zoom in on is Canadian mortgages where balances are down two quarters in a row. And the question is, how do you sell something like that to your frontline producers? How do you convince the organization that you kind of have to take a step back or shrink a little bit in order to achieve the goals that you're highlighting?
Scott Thompson
Yeah, I mean, the mortgages business is an interesting one. So, if you reverse, two years ago, we were primarily focused on volume growth. And as a team we're saying, let's change the head to profitable growth in primary relationships. And so, we're being really thoughtful about origination. We're being really thoughtful of ensuring that our channels focus on multi-product.
And that in combination with a slowing market, has resulted in a little bit slower growth on that side. You know the same can be said probably about the commercial business as we've got a great opportunity in our commercial We're number five in Canada.
We're going to continue to grow that but we're really going to focus on the customers that provide more than just the loan right and so as you go out and communicate that with our frontline sales people you need to be really clear on you know, what are you trying to achieve?
Continue the communication communication communication and make sure your incentives are aligned and that's a process that takes time again back to the cultural piece that's the hardest part of this but ultimately that's where we're going to see the results and so a lot of work is being done on the communication side and a lot of work is being done on the incentive side.
Meny Grauman
And of course, you know the third pillar that that you talk a lot about in terms of operational efficiency. You've talked about excellence and operational efficiency as a key goal and the question is Scott, you know, what does that really mean on a practical level? Is it just expense management or are you getting at something?
Scott Thompson
Yeah, I mean when I was at fitting we coined it better faster and at a lower cost right and that's there's a lot in those three words better faster and a lower cost. So if you think about better what is better means better customer experience It's better advice to drive a better outcome for your clients when you think about faster.
It's prioritization. It's end-to-end digitization. And being really clear on what you're trying to accomplish and cost at a lower cost It's this relentless discipline around cost management. And you know, you're starting to see some of that come through right in the in the quarter we had pretty decent expense growth relative to revenue growth. I mean, I think and I know we think about years here wouldn't think about operating leverage but in the quarter we actually saw positive operating leverage and we're going to see continued discipline on the cost front and I think there's a lot of opportunity in this regard by the way as I think about our international business as an example.
We'd really run that business in a decentralized fashion country by country by country if you take a more regional view There's a real opportunity to be more thoughtful about cost and capital You know when I was thinking about back to my nine-year journey at fitting alt we on we went on this operational excellence journey and you think about where we went from and where we got to we went from a mid-20s SG and as a percentage of sales to a mid-teens Percentage of sales now that was a nine-year journey.
But all of that dropped to the bottom line and all that's now reflected in the earnings capacity of that business And so there is a great opportunity here to make sure this better faster and at a lower cost mantra kind of lives within the organization.
Meny Grauman
And you know I think that's a very relevant point, you know coming out of this last earning season, obviously expense management is top of mind for investors especially in a slowing revenue environment overall a challenge to macro outlook the question keeps coming up.
So I'll ask it, you know from a higher level, but the question of restructuring charges. So philosophically are you open to taking restructuring charges under the right circumstances? Is that within your -- sort of management view of something that that is a tool at your disposal?
Scott Thompson
Yeah, I mean I think the question is there continued cost opportunity in the business and I believe there is I think again there was a great focus from the team over the last couple quarters to reverse the expense growth which I was pleased with as we continue to move forward. There's going to be areas where we focus on areas where we don't focus on. And again this operational excellence mantra will continue to drive the ability to you know be more efficient both from a capital and cost perspective and so this is going to be a continuing theme, you know during my tenure and I think you know shareholders will benefit from that.
Meny Grauman
I want to talk about international banking obviously a key part of the bank you touched on it in terms of when you were talking about the capital allocation pillar, Scotiabank has just recently disclosed the ROEs of the countries in the international banking segment and the question is when investors look at those are we trajectories, you know what are they supposed to get from that information, especially in the context of what you were just talking about before in terms of the focus a renewed focus on capital allocation to highest return areas?
Scott Thompson
So the first thing is that you know I'm trying to build a new compact with our stakeholders not just shareholders But all stakeholders around trust and credibility and so making sure we're transparent with where things are working well and where things aren't working well is a is a massive priority for me And so you know why are highlighting that? Because we're highlighting we have a challenge. And then we have to get after that challenge.
So, now is a team, what are we going to do about it? So Columbia is the obvious one that is, front and center given, the net net net net net net net performance in the R-O-E performance. And the team is working hard on trying to fix that business, right? And, for us as a management team, do we have a conviction that we can actually fix that business? Or should we think about, divesting that business?
And, and a lot of that depends a little bit on not only the conviction of being able to do it, but also the external market. And the objective here is to maximize the return to shareholder. And so we'll make judgments around all of those issues as we move forward in some of these markets.
Meny Grauman
So maybe that's a good place to jump off just with the next question, which is divestitures. I don't want to, you don't have to reveal your plans here.Although, if you want to, you're welcome too. But is divestiture something that at least is on the table? Again, is it a tool in the toolbox from your perspective?
Scott Thompson
I mean, nothing's off the table. So divestitures are not off the table, but I want to come back to this, one, the international business can be a differentiator for us. And so we need to focus on areas where we have connectivity across the platform and using that international business, which is a great franchise to provide differentiations versus the other Canadian FIs. That would be one.
Point two, we also have work to do. And there's a great opportunity to fix some of these businesses. And Columbia would be a perfect example. when you actually look into Columbia and you see, 70% cost, productivity ratio of 70%. I mean, that's an obvious opportunity to go in and fix that. And are you better to do that?
And then evaluate whether to sell, particularly given the macro environment, or is it better to kind of move on? And that's a question that we'll look at, geography and business by business. But, divestitures would not be off the table in my mind.
Meny Grauman
You mentioned connectivity, so I think that's maybe a good place to go to. We could talk about sort of north-south connectivity. But first, I want to just talk about within the international banking segment within the Pacific Alliance countries. A lot of times investors come, and their key question is, what's the connectivity within those groupings of markets that we operate in? So, from your perspective, is there connectivity there? Where is the connectivity there?
Scott Thompson
Yeah, so first, I believe you need to create connectivity. I mean, as you think about your overall business,
you have to have connectivity across the platform to create the right value proposition. So, I guess I'll be point one, point two, where do I see the most connectivity? I see the most connectivity with Mexico. And you think about the trade flows between Canada and the U.S. and Mexico, and that whole NAFTA region, and those are really significant.
And when you look at, I think it's $600 billion per year between Canada and the U.S. and $600 billion per year between Mexico and the U.S. So, really significant trade flows. When you think about where we're actually successfully creating connectivity, look at the GBM business, and that GBM business right now, in the U.S.
is 8% of the overall earnings of the bank. People don't appreciate how big that business is right now.
And that is great connectivity. Other areas of connectivity we should create is that wealth. We've got a great international wealth franchise. It's growing at 25% in the last quarter, creating that connectivity across the platform would be extremely important.
So, Mexico is the obvious place for connectivity. Is there connectivity between Peru, Chile, and Colombia? There's actually some, around those specific alliance companies. We actually do a lot of business with multilatino companies, and there's an opportunity with multinational companies. But definitely not as much as the Mexico, U.S., Canada corridor.
Meny Grauman
And from your perspective, as CEO, when you talk about connectivity, where do you feel, how do you feel you can drive connectivity as a CEO of Scotra Bank, in terms of what kind of, what kind of levers do you have in order to drive that?
Scott Thompson
Yeah. And this is, in this, back to the culture piece a little bit, enterprise-wide thinking to make sure you're not thinking in silos. We're actually thinking through and enterprise-wide lands. It's all give you a perfect example cash management. I think because of what our decentralized model, we had Canadian team thinking about cash management, a US team thinking about cash management, a Mexican team thinking about cash management, actually in every single country in the regions thinking about cash management.
My view would be if you're trying to create connectivity, you should have a cash management strategy. across the business that you're involved in. And that's, something that actually is going to cost you less in the long run because you're not doing it 10 times. You're doing it one time, right? And so that's an example of kind of enterprise-wide priorities, and then in sending those types of priorities to drive the right outcome.
Meny Grauman
Talk to about international banking. I want to get to the U.S. But before that, I think it's important that we talk more about Canada. We touched on the mortgage business. But one thing that I've noticed is, you're talking more about Tangerine. And that's something that has caught my ear. And so the question is, what do you like about the business? And a follow-up question really is, where do you see that business going? What potential do you see in that business?
Scott Thompson
I mean, so I think people are probably pretty clear because I keep mentioned it. I really like Tangerine. And as I think about, a great customer experience. As I think about mobile, leaning, digital leaning. As I think about deposit focus. As I think about a great cross cell between wealth and deposits. And I look at the connectivity or the overlaps, or the connectivity, the overlap between our Canadian P&C customers and our Tangerine customers, which is really limited.
The question for the management team is, how do we accelerate that business? And that's going to be a key priority for me. I think we've had that business for a long time. We bought it for my NG, ten years ago.
In the last couple years, actually the results have been really positive. Jillian Riley, who's the CEO there,
have done a great job in terms of driving that business.
We have the opportunity now, and you probably saw the leadership changes to bring in, someone to oversee that business. So Jillian will continue to be the CEO, but bringing in someone from ING with 30 years of retail experience to actually help us accelerate that. Is a great opportunity. And I do see this as, a business, particularly given the limited overlap with our P&C business. That can actually be pretty aggressive in the Canadian market. And that's going to be a positive to our shareholders and stakeholders.
Meny Grauman
That was really my next question. So maybe we can build on that in terms of how do you see Tangerine sort of operating alongside the full service P&C business. And so is there any tension there? Or how do you see that?
Scott Thompson
I listen, I think there's going to be great learnings for our Tangerine business. We can bring back into our Canadian P&C business. And I definitely don't want to create a, a back office that's looking at what we've done the team has done a great job making sure that we have, one cost base.
But is that Tangerine business going to be more aggressive in the market in terms of trying to focus on primary customers, focus on wealth, growing their business. The answer is yes, that is going to happen. And it's going to be across, the whole Canadian marketplace.
Meny Grauman
And you touched on management change within Tangerine. You announced a few management changes recently. So I think that maybe is a good opportunity to just ask about that. And what investors are supposed to sort of read into those changes. And if you could just comment on those changes.
Scott Thompson
Yeah, it's in any transition. There's an opportunity for a refresh. And I think it hasn't been just at the management level. It's also been at the, at the board level. So you saw two new board members come in. Center Stewart from HSBC and Michael Medline from Empire. I think as a board, we recognize that we had an opportunity to have a little bit more financial services expertise, and a little bit more, see sweet expertise.
So those two additions are meaningful. As you look at the changes that we've had to, to my team. We've added,Francisco, others to get the, who comes to us from a US banking environment, states read in the city, running our international business. We've added Jackie a large, who comes to run our global wealth business.
We've added a new head of HR,Jenny poulos. And then the Eris Bogdanara. So I just talked about, we've also made some internal promotions as well, to recognize the fact that we've got a great team. We do have a great team that is going to be capable of doing a lot of great things. But we will also benefit from seasoned experienced professionals who've seen things done outside of this market, both in Europe and the US. They will help them both mentor the next generation of leaders and provide immediate support to the team to drive what we're trying to do from the strategic refresh.
Meny Grauman
One who stick with Canada again and maybe a little bit of a macro question as well. Commercial loan growth is something that you've talked about in terms of prioritizing. Scotia Bank has really been driving peer leading commercial loan growth for a while now. Q3, it was up 15% to your over years, so that's very strong and their success there. But I guess when you look at that kind of growth, the question is, where's that coming from?
Is it a sign that maybe the economy is just not as weak as, maybe investors think it is. We know that there's the pressure of higher rates. It doesn't seem to be translating into a slower commercial loan growth, at least not for Scotia Bank. So the question is, when you see that kind of growth and the team is delivering that kind of growth, how do you view that from a risk perspective and maybe from a macro perspective? How does it all make sense?
Scott Thompson
Yeah, so let's split your your question into two parts both long term and short term and long term I like commercial right. I mean as you think about commercial from a NIM perspective from a return on risk -weighted assets perspective from an ability to bring the whole organization to a customer or client commercial is a great business and when you look at where we're positioned in international. We haven't been a commercial bank, you know, we've been a corporate bank and a retail bank.
We have a great opportunity to expand our commercial focus Internationally and that actually I believe will be lower risk and higher our Return on risk-weighted assets than where we are today and then was I look at our Canadian business which gets back to your question You know, we're number five, right? So we're number five in this business and Dan and the team have done a great job over the last few years growing that business and you've seen a pretty significant growth rate, but it's off a lower base and I still continue to believe that we have an opportunity in that regard and a core competency of this bank is credit adjudication You know a core competency of this bank is credit risk management.
And so that plays well with you know, how we're thinking about the commercial business Particularly in an environment like we're in today which comes back to the short term and when I look at the team And I see you know the amount of deals that we're passing on the kind of the pipeline the deals that we're closing the Thoroughness and discipline with which Stephen Bagnarall and the team are looking through From a growth perspective, but balancing this growth returns and really focusing on primary customers.
I feel good about it right now Want to talk about we mentioned we're gonna get back to the US obviously the biggest banking market in the world Historically, you know, Scotiabank has been very clear note to PNC business in the US but There was a view that we needed to do something or Scotiabank needed to do something in wealth in order to give some capability to service Latin American customers.
Meny Grauman
So just wanted to get your high level thoughts on the US market. Has anything changed in terms of sort of a wish list, or where you could potentially see an opportunity for Scotia Bank in the United States?
Scott Thompson
Yeah. So when you think about this connectivity that I talked about, we have a great platform in Canada. We have a great platform in Mexico. We have a growing platform in the US. And, as I mentioned, 8% of the banks earnings, and I'll come from the US, that corporate, that GBM business. Jake and the team have done a lot of great things on that business in terms of building out capabilities.
And we're moving from the lending to a better balance between lending and non-lending activities. And yesterday, and it's coincident that I'm up here today. But yesterday, we were joint book-runner as an example on five deals in the US, $10 billion of deals. We were 26% of the market in the US yesterday from a DCM perspective. So we've moved up the lead tables. We're now, I think, 16 from a DCM perspective. We are, I think, 8th from a power and utility perspective.
And so we're early in this journey, but Jake and the team have done a great job building out that capabilities. And I want to continue to grow that. As I think about other opportunities for us, you've highlighted wealth. We have this great international wealth opportunity. And we have this good Canadian opportunity that we've organically grown. We need to create the connectivity on the wealth side. And so we'll continue to think about that.
And then over time we'll evaluate commercial and I think that's a longer-term proposition. But when you think about the connectivity between Mexico, commercial, Canadian, commercial, and US commercial, that's something that we should evaluate over time. And you've touched on Mexico a few times during this talk, but maybe to zoom in on Mexico and really focus on what you like about it.
Meny Grauman
You talked about the connectivity, but in terms of maybe if you can start from some of the macro trends that are impacting Mexico, and then kind of dig in from there.
Scott Thompson
Yeah, so let me start with our positioning, right? I mean, we've got scale, we've got 8% share, we're the fifth largest bank. it's a big business with a great opportunity to continue to organically grow. We've got a great leadership team there. We've actually upgraded the technology, so we have a good technological core. And you can see it through the returns.
And a lot of returns, I think, last quarter, 25% return on equity in that business. And so that's a great starting point, and then you layer on the mega trend of what's happening in Mexico, and what's happening across the Americas. This near-sharing piece, which we're going to publish something from a research perspective shortly. It is real. The amount of capital for this coin into the north of Mexico and the connectivity between Mexico and the US is really significant.
And so that, whenever you can combine a great scale opportunity with a mega trend, I think that's something that you should really focus on. I want to talk about capital and talk about, it was a very strong quarter for Scotia Bank when it comes to the CT1 ratio.
Meny Grauman
But I want to get a better understanding of how you're thinking about capital now, in terms of philosophy of capital, how defensive do you feel you have to be, what kind of capital ratio are you comfortable carrying, what kind of spread to the minimum regulatory capital requirement do you feel is appropriate in this kind of environment?
Scott Thompson
Yes, so when I started, I think it was January 8 when I was in front of all of you at the RBC conference, it's the, I think our capital seat to study one ratio at that point, Roger was 113, 113 and I said our commitment by the end of the year was to get to 12. And so here we are at 12.75 and so I'm feeling good about how we're positioned. As we look forward, there's some uncertainty on the rise and no, right?
And we don't know what Peter's going to do in December. Hopefully I know he's the guest speaker tomorrow. Hopefully we'll learn a little bit from that, but we don't know what Peter's going to do from that regard. And we've also got the reversal of some of the transition benefits we had earlier in the year from a basal perspective and the floor kicking in and the review of our trading book, which will be a material drag on the capital at the first part of the next year.
And so the objective here which I've been pretty consistent is continue to keep a modest buffer to the regulatory minimum and keep enough capital to execute on the growth plans that we have in place coming out of the strategic refresh. And so there's nothing more complicated than that.
Meny Grauman
And you did a risk transfer agreement last quarter and the question is why?
Scott Thompson
Yeah, so Raj and I have a lot of conversations about this. Once these uncertainties are behind us, the number one objective will get off this drip. Right, I mean the drip we recognize is not a great use of shareholder capital. And we have it in place because of the uncertainties that we just referenced. When you look at a better use of capital than the drip, it's the risk transfer. But it's not much better, right?
The best objective for the best of way is to manage your risk weighted asset growth organically. So you don't have to use a risk transfer or a drip. And so we're really cognizant of it. But right now it's a tool in the toolkit that we're using to manage through these uncertainties. As we get through those uncertainties, the objective would be to definitely shut off the drip going forward.
Meny Grauman
Maybe that's a good segue just in terms of investors. Understand your capital deployment priorities. In environment where your capital position is is looking very good. I think those questions start to come up from investors. So just to give some insight in terms of how you're thinking about as you look ahead. How would you rank your capital deployment sort of wish list right now?
Scott Thompson
Yeah, I mean, capital discipline is going to be a mantra that you're going to hear from me. time and time and time again. And we're going to have continued conversations around that. Right now we're managing through these uncertainties that I talked about on the back end of that. We'll have growth opportunities that organic growth opportunities that we'll want to execute on. I don't see the flexibility or the need right now to do a share. I don't know we've done that historically right now that wouldn't be in the cards. As I think, longer term is that a tool in the toolkit for sure, but not in the near term. And so for me right now the key priority is going to be organic managing that capital getting through these uncertainties and then managing organic growth.
Meny Grauman
And then I see time is running out, but we probably have time for one more question. It's 2023, so an AI question seems to be part for the course and I'm curious, so there's a lot of hype about AI. I know, Scotia Bank is investing in AI. The question I think is most relevant for investors is how excited should investors be about AI? Is this something that is potentially going to move the needle in terms of expenses and help make that job easier? Could it potentially drive revenues from a bottom line perspective, where is this taking us from your perspective?
Scott Thompson
Yeah, definitely the topic of the day, so we have a lot of conversations about this internally. And I was pleased to see that the bank has been working on this for this isn't new to the bank and actually the capabilities within the bank are significant. And so the key for us is finding the use cases where we can implement AI to actually drive business results. And for me right now, the obvious one is on the cost and efficiency side.
And, we'll share a couple of use cases with you at an investor day, but you can imagine, credit education. That's a, a great opportunity there, a contact centers in terms of how we think about contact centers. And in both improving the customer experience, but also driving at a lower cost. Those are the type of things that will be the first protocol. Longer term, I do think there's a customer experience here in terms of driving insights to the customer to help drive that primary customer relationship. But ultimately right now, I think it's mostly on the cost and efficiency side.
Meny Grauman
Okay, with that, Scott, I want to really thank you so much for being here. And again, kicking off what promises to be two great days of discussions with the leading CEOs of financial services companies in Canada. So thanks so much.
Scott Thompson
Thanks.
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Bank of Nova Scotia (BNS) 24th Annual Global Banking and Markets Financials Summit Transcript