Good morning, and welcome to Scotiabank’s 2021 First Quarter Results Presentation. My name is Philip Smith, Scotiabank’s Senior Vice President of Investor Relations. Presenting to you this morning are Brian Porter, Scotiabank’s President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Daniel Moore, our Chief Risk Officer. Following our comments, we will be glad to take your questions. Also present to take questions today are the following Scotiabank executives: Dan Rees, from Canadian Banking; Nacho Deschamps, from International Banking; Jake Lawrence and James Neate, from Global Banking and Markets; and Glen Gowland from Global Wealth Management. Before we start and on behalf of those speaking today, I will refer you to Slide 2 of our presentation which contains Scotiabank’s caution regarding forward-looking statements. With that, I will now turn the call over to Brian Porter.

Thank you, Phil, good morning, everyone. I’d like to start today’s call by stating that I am very pleased with the bank’s performance this quarter, with strong contributions from all four business lines, solid growth and fee income, continued growth in digital banking, and disciplined expense management. We have delivered significantly better financial performance for our shareholders. Our results reflect the significant investments we have made over the past several years in key areas, such as Global Wealth Management, enhancing the bank’s digital capabilities and improving our competitive position in core markets. We are well positioned to continue this positive earnings momentum in the future, and we have even greater flexibility for capital deployment to build on these results. I will now turn the call over to Raj to discuss our results in more detail. And I will return after Daniel’s remarks with some closing thoughts.

Thank you, Brian, and good morning, everyone. Before I begin, I’d like to note that all my comments are on an adjusted basis for the bank and our business lines. My comments refer to quarter-over-quarter changes in many places, which we believe is the most relevant basis for comparison at the present time given the economic impact of pandemic. I’ll begin with a review of the old bank performance for the quarter on Slide 5. The bank carries the positive momentum from the strong finish in 2020 into Q1 and delivered strong results this quarter. The bank reported earnings of $2.4 billion and diluted EPS of $1.88 for the quarter, an increase in EPS of 30% from the last quarter and 3% year-over-year with strong contributions from all four business lines. Return on equity for the quarter also improved significantly to 14.4% from 11.3% in Q4. Revenue was up 8% from last quarter and pretax pre-provision earnings increased 11%. Net interest income improved 1%, excluding the impact of divestitures and 2% compared to the last quarter. The core banking margin improved five basis points over Q4 to 2.27%, marking the second consecutive quarter of NIM expansion. Noninterest income increased a strong 15% over Q4, driven by higher wealth management fees, banking and trading revenues. The PCL ratio declined significantly to 49 basis points for the quarter. This represents a decline of 24 basis points quarter-over-quarter and two basis points year-over-year. Daniel will discuss PCLs in more detail shortly. We continue to manage expenses prudently. On a year-over-year basis, expenses declined 1%, excluding the impact of divestitures. This decrease was driven by lower personal costs, benefits from foreign currency translation and business development costs with offsets such as higher performance-based compensation and our payment to reorganize the SCENE loyalty program this…

Thank you, Raj and good morning, everyone. I will begin my remarks on Slide 13. To sum up the quarter in one sentence. We ended Q1 with stable credit quality, strong credit performance and improving credit trends. Our customer systems programs are complete. On the credit performance of customers exiting these programs remains very strong. At the end of Q1, the bank reported total allowances of $7.8 billion, in line with Q4. Our ACL build is complete, and we are well reserved for estimated net write-offs, which are expected to begin in Q2. Our total provisions for credit loss are PCL declined to $764 million, which is down 32% quarter-over-quarter and in line with last year. The total PCL ratio fell by 24 basis points in Q1 that’s two basis points below Q1 of last year. The empiric PCL ratio fell by five basis points quarter-on-quarter to 49 basis points and we continue to expect the total PCL ratio to decline through 2021. This is consistent with our guidance we provided last quarter. Moving to Slide 14. I want to briefly discuss our performing and impaired PCLs. Beginning with our entire PCLs, we reported $762 million in Q1. That’s down from $835 million last quarter. The improvement came from lower commercial provisions across Canadian Banking, international banking and GBM, with some increase in international retail. This reflects stable overall delinquencies in line with our expectations. Our performing PCLs were $2 million in Q1, down from $296 million in Q4. This decline was across all business lines due to good asset quality and more favorable macroeconomic outlook. Turning to asset quality. Our portfolio remains strong, as you can see on Slide 15. Our GIL ratio of 84 basis points was up only 3 basis points from last quarter and 7 basis points year-over-year. The primary reason was higher formations in international retail, as we expected. Formations in GBM improved from last quarter and last year, driven by lower formations in energy, real estate and construction. On the bottom of Slide 15, you can see the all bank net off ratio. It increased slightly to 43 basis points, but remains 11 basis points lower than a year ago. The slight increase over Q4 was primarily driven by international retail. This was partially offset by improvement in the Canadian and international commercial Banking. We expect migration of loans from performing to a period in Q2 and Q3 of this year. In line with the expected write-offs. And of course, we took for that. So, let me conclude with a few takeaways. First of all, our asset quality remains high. And our credit trends are better than expected. Secondly, our allowances are more than sufficient to cover estimated future write-offs. Thirdly, improving macroeconomic trends support our positive equipment outlook for the remainder of the year. And finally, the total PCL ratio will improve gradually through 2021. I will now turn the call over to Brian for closing remarks.

Thank you, Daniel. On our last quarterly earnings call, I highlighted the resilience of the bank during times of economic uncertainty. The resilience is rooted in our highly diversified business model, high-quality assets and a strong risk management culture. I am particularly proud of our ROE exceeding the medium-term target of 14% and our common equity Tier 1 ratio increasing to 12.2%. This provides greater flexibility for capital deployment. As I have mentioned previously, we multiple avenues for organic growth across all our business lines, and we look forward to increased flexibility in the future, including share buybacks. The power of diversification in driving these results cannot be overstated. As a leading bank in the Americas, we are highly diversified with four major business lines across six core markets. Our diversification and competitive strength provides stability during times of economic stress and is now showing us earnings power during economic recovery. Importantly, all four business lines contributed to our results this quarter. Global Wealth management and Global Banking and markets demonstrated very strong year-over-year growth while Canadian Banking and international Banking showed marked improvement over the previous quarter and are demonstrating positive momentum to return to normal earnings levels as business conditions improve. I believe this provides a clear indication of the direction of our earnings in an improving economic environment. In addition to resilience, we have also demonstrated flexibility with strong expense management. While low interest rates and lower levels of economic activity have proven challenging to revenue growth, we have adjusted quickly by reducing expenses by 2% over the past year while still making critical investments in technology and regulatory initiatives. The result is a positive operating leverage of 3% and an industry-leading productivity ratio, of 51.8%. The bank also continues to make significant progress in digital banking.…

We will now be pleased to take your questions. Please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call. Operator, can we have the first question on the phone, please?

Certainly. The first question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead.

Good morning. I guess if you could just spend some time on the International Banking segment, Raj and maybe Nacho. Give us a sense of – I think, Raj, I heard you say that you still feel good about getting to the $500 million net income by – at some point, I guess, side by the end of 2021. But give us a sense of, if you don’t mind breaking down your expectations around customer activity recovering? And do we see the fees going back all the way to where we were a year ago, I guess $640 million? And then also on the credit outlook, is there anything about international bank credit metrics that could lead to a little bit more of a lag credit recovery in ID versus the rest of the bank? Thank you.

Good morning, Ebrahim. This is Nacho. Thank you for your question. Before answering specifically the drivers to get to the $500 million by Q4, let me tell you that I’m very pleased with our Q1 results and giving greater confidence to achieve a $500 million or more by the end of the year. Q-over-Q, our revenues were up 1%. PTPP was up 3%, and PCLs went down 30%, and this was even stronger in the Pacific Alliance countries, where PTPP was up 6% Q-over-Q and earnings were only 11% below pre-COVID levels showing high resiliency. And yes, we are seeing better business momentum, both in our commercial and retail segments. And I see a combination of different drivers to bridge the gap from where we are today, it’s $398 million to get to $500 million by Q4. First, I expect our loan book to resume growth I sequentially starting in Q2 and to grow around 6% from Q1 to the end of the year. Second, as commercial activity, particularly retail in the second half of the year accelerates. We still have $80 million gap in fees and commissions compared to pre-COVID levels that I expect that were gradually will increase. then I will also highlight the record expenses. Expenses have been positive to our results. Last quarter, we reduced $20 million our expenses, and we will continue to go down sequentially. And finally, at constant FX, our PCLs are still $50 million above pre-COVID levels and due to business mix and asset quality, we expect PCLs to continue to go down. So I have increased confidence, also supported by the strong economic recovery that is underway in the Pacific Alliance countries.

And Ebrahim, I probably just had one comment to Nacho’s wholesome response. If the net interest margin has started improving and as retail growth starts coming back, their NIM should improve as well, which should ash to the net interest income momentum from Q1.

And if I could just follow up, it was a wholesome response. So thank you. Is there anything – and sorry, we are not as intimately sort of familiar with day-to-day in that – your Pacific Alliance markets? But anything around the vaccine front that concerns you or anything negative on the political front nature that we should be looking out for?

No, not really. Actually, let’s put things in context first, Ebrahim. The number of new cases are trending down in the four Pacific Alliance countries and per 100,000 population, the infection rates are similar to the U.S. and Canada. And at these levels, hospitals and the health systems are manageable. Second, while there have been some COVID restriction measures in most countries, similar to the rest of the world, there has been no impact in the economic recovery, which has been strong, and GDP is expected to grow in average 6% in 2021. The governments have been actively securing back vaccines. For instance, Peru, Chile and Mexico have purchased enough doses to cover 100% of their populations and Colombia, 50%. And the four Pacific Alliance countries have already started vaccination. Actually, let me highlight Chile it is one of the leading countries worldwide doing better even than Canada, with above 15% of the population already vaccinated, so in summary, while managing the economic recovery of the region is underway.

Got it. Thanks for taking my questions.

Okay. Operator, can we have the next question please?

The next question is from John Aiken from Barclays. Please go ahead.

Good morning. Daniel, you highlighted international retail a couple of times in your prepared commentary. And while I’m fully aware that there is mix and some offsets through the diversification. We did see a step-up in impaired loans in terms of Mexico, Peru and Colombia. I was hoping that you might be able to dive in and give us a little more detail in terms of what was happening in those particular countries and whether or not it’s symptomatic across these three or if there are differences in terms of what’s been developing?

No. Thanks, John. This was completely anticipated as we looked at how this was going to evolve going forward. And really what we’re seeing here is the impact of the expiry deferral programs, which happened in many of our markets in the fall, and those are trending through now to late-stage delinquency. You’d also see that effect, by the way, on the nine days past due chart on Page 34. There’s a bit of a denominator effect there as the demand for unsecured credit has come down. But really, what we’re seeing is what we call the pig in the python. And so it’s early stage of equities make away to late stage. And of course, that manages itself somewhat in our positions as well, so fully anticipated, John and part of our allowances.

Okay. Thank you, Daniel.

Operator, can we have the next question please?

Thank you. The next question is from the Doug Young from Desjardins Bank. Please go ahead.

Hi, good morning. Just on the regulatory capital ratio, it looked like improved book quality impact or positively impact the CET1 ratio, but 18 basis points. Hoping you can just maybe elaborate with what you’re seeing from a migration perspective. And from a capital or CET1 – organic CET1 generation over the next year, can you kind of remind us what you think you can generate for the CET1 ratio? Thank you.

Sure, Doug. Happy to do that, it’s Raj. So as far as this quarter goes, the RWA declined by about $10 billion. So it declined from $417 billion to $407 billion. But excluding FX has declined about 6 basis – sorry, $6 billion, primarily related to book quality improvements like you pointed out, it’s a minimal migration impact. Business banking migration was up about $1.5 billion. Retail was down by $1.5 billion. You can see on Page 17 of the sub regulatory subfactor is. And that’s what’s actually the asset quality that we have. If you look at our business banking, disclosures, 85% of our exposures are in the top three CD bands, and our retail exposures are 94% of the top four CD bands, which is 75 basis points and less. So that’s something that we expect to see reflects the asset quality. Daniel just referred to it in his prepared remarks as well. But specifically, when you’re talking about RWAs flow, we update our regulatory capital metrics that TD release in Q1 of each year. And this quarter, there’s an improvement in the credit risk book quality, primarily in uninsured retail mortgages, which you will see once again, the sub pack on Page 36, 38, if you look at. Our PDs improved from 63 basis points to 53 basis points from lower delinquencies, historical default data, all that stuff that happens annually, frankly in and there is also improvement in LGD, again, in the same category, which is retail mortgages, because our projected loss experience data is expected to get better. All of it to say that portfolio quality is very good. Migration has been fairly muted. There will be some migration we expect will come in Q2 and Q3 through the capital numbers, as I’ve indicated before. But all to say that strong return capital generation will continue. This quarter was 27 basis points. We think that will continue at these levels. Earnings are going to be really strong. And we’re very confident in what our capital ratio would remain around these levels, which we report the 12.2, which is really a good outcome as earnings improve, asset quality remains stable or getting better, and our asset growth is going to come in the future quarters in 2021 that should help us generate better earnings going forward as well.

Great. Thank you very much.

Okay. Operator, can we have the next question please?

The next question is from Lemar Persaud from BMO Capital Markets. Please go ahead.

BMO, no. Cormark Securities. But...

Is it? I’m sorry.

That’s okay. I just have a quick clarification question for Dan. Dan, I think you mentioned you expect PCLs to decline as we move through 2021. Is that relative to 2020 or relative to Q1 2021?

Yes. So, thank you for the question, Lemar. Good to hear from you. Let me just say that as I look at the PCL and the allowance we have credit losses right now, we’re very happy with where we are. In fact, we’re more confident that we have been while confident than ever about the adequacy of our reserves and the potential for future allowance releases going forward. So to be clear, in line with the outlook provided in Q4, previously, we expect our PCL ratio to be moderately lower in 2021 than in 2019, and that’s really down to three things: changes in our footprint, asset quality and the macroeconomic backdrop. As you recall, we had changed our geographic footprint, we’ve exited some of the lower-rated higher credit risk markets. But again, that we’ve also had, within our core markets that shift to higher asset quality, shift to secure across our footprint, which has driven the allowance to be much more than sufficient. And finally, we’ve got a strong macroeconomic backdrop, as Nacho indicated, strong outlook for Canada, 5.2% growth, strong outlook for Pacific Alliance and 6% growth. So that all leads to a strong tailwinds for us. So we’re more than absolutely provided. And again, we expect that PCL ratio to be moderately lower in 2021 than 2019.

Great, thank you.

Okay. Operator, can we have the next question please?

The next question is from Mike Rizvanovic from Credit Suisse. Please go ahead.

Hi, good morning. I wanted to go back to Nacho on the Peru business and I’m guess that most of the weakness that we’ve seen lately has been related to the microfinance business. And so I’m just wondering, is that a business that is part of your recovery story? Is there a lot of torque do an economic recovery? Or is that something that maybe gets deemphasized going forward, just given its volatility?

I would say, first, in general, that the way I look to Peru is that there is a delay in the recovery compared to the other countries for several reasons, to the other Pacific Alliance countries for several reasons. I would say, first, the recession was stronger in Peru. The balance sheet structure in the market is weighted more towards unsecured. And that includes the business you were referring to. And COVID lockdowns were stricter and longer. And therefore, we have increased our PCL significantly in line with the system to build allowances for potential credit losses. But as Daniel just said, we expect PCLs to go down significantly starting in Q2. And in addition, the PTPP of Peru has been down 7% is going to have an important rebound in the second half of the year, because GDP growth expectations are 9% for the year. Actually, the Central Bank has more than 10% forecast for GDP growth in Peru. So in summary, this is a delay relative to the other countries. And actually, the recovery is well underway from an economic perspective. In December, for example, GDP was already slightly above year-over-year. And infrastructure construction projects are driving a 20% increase year-over-year in cement sales, 80% of the employment has been recovered already. So we expect a strong rebound in the second part of 2021.

So, there’s no change in the strategy with respect to the microfinance business improve?

No change in the strategy. This is a – this business is more vulnerable. It had a bigger impact from COVID. But it is – it has been historically a very profitable business, and it will take a little bit more time but will return to strong profitability.

Okay, that’s really helpful. And then just one real quick numbers clarification. So your NCI as a percentage of earnings in international, I think it was running at about 10% pre-COVID levels. And it’s been about 20% the last two quarters. Is that the new run rate you should use to model international, approximately 20% to NCI?

Hi, Mike. It’s Raj. I think the NCI is a difficult one to give you an absolute guesstimate, because it depends on our Chile earnings and Colombia earnings, which are the big contributor to NCI in that business. The way you could think about it is we’ve done expanded disclosures in our geographic highlights table in the MD&A this quarter. You can look at it, you can see that Chile’s earnings have recovered. So, we lose about 22%, 23% of NCI, and Colombia is almost 50/50. Colombia had a great quarter, $39 million of earnings, which is one of the higher quarters we have had in Colombia. So that drove the increase of the NCI. But that’s a number that’s hard to predict. It depends on these two countries, particularly. And going forward with normal earnings, you could use those percentages, I think it will be anywhere between 10% and 20% to use your numbers.

Okay, that’s extremely helpful.

You’re welcome.

Okay. Operator, can we have the next question please?

Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.

Good morning. Daniel, if we could go back to you for a moment. Listening to the guidance you’ve offered around credit for 2021 and what BMO offered earlier and what some of these U.S. banks have said as well. It sounds to me like the government support has essentially socialized all the losses that we would have otherwise expected. Is that your interpretation as well? Does the losses have been that we – essentially, we bridged commercial and retail borrowers to the vaccine? Or is it more your view that the losses will emerge in 2022?

Yes. I think a number of effects at play, Mario, but I think the bottom line is that our customer assistance programs did their job. They worked. On the bank side, they’re complete. As you said, we’ve reached our customers’ cash all over the crisis. And we’ve had in our portfolio, a very high-return to current status as a result of that. So that’s reflected in our strong credit quality. For Canada, we have no accounts in deferral. In business banking, 99% of the accounts out were in deferral return to current on the retail, 97% return to current; in international banking, 88% accounts return to current. So, these programs have worked. We’re seeing our customers get back on their feet. Customers’ balance sheets are stronger than ever. We’ve seen an increase in our deposit balances, reduction in unsecured borrowings. And that’s all playing through our credit metrics. So, we’re very pleased with how this is played through and gives us regions that optimistic outlook going forward.

So, you wouldn’t then point me to higher losses in 2020 as a result?

No.

Okay. Thank you.

Okay. Operator, can we have the next question please?

The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Thanks. Good morning. I want to go back to not show on the international and about walking us to the $500 million earnings number with a few elements behind that was very helpful. I wanted to know, do you have a number in mind for pretax pre-provision profit, though, because getting back to $500 million PCLs being lower is going to help a lot. If I look at PPP you’re running at $1.5 billion quarter pre-COVID close to $1.2 billion a quarter. I know there’s some divestitures, but what kind of number should I have in mind and timing thereof for that line item?

Hey, Gabe. This is Raj. Let me see if I can help you with that, and then Nacho will obviously complement, if I miss something. I think the way to think about it is sequential gain. If you think about Q1, we talked about our commercial growth starting in Q2 and retail following quickly thereafter, both of which should add to the revenue line on pretax provision. I commented on our NIM going to expand from here, at least remain stable and then start expanding as retail comes in. So that that should improve revenues. We still have between $80 million to $100 million of noninterest revenue that’s going to come back, primarily from the Caribbean as well as on the retail activity in the Latin American footprint. So that should help you get to some revenue number and how ever you want to sequence it for the remainder of the year. Expenses, like we mentioned, expenses are always going to be a key factor to IDs in result. We don’t want to manage expenses there. It’s down $20 million quarter-over-quarter. It was down quite a bit in Q4 compared to Q3 and you’ll see the sequential decline in expenses going forward. So, all of which to say that the pretax pre-provision is going to continually improve when you compare sequentially Q1 to Q2 and Q2 to Q3 and so on. The PCLs will also decline, like Nacho said and Daniel confirmed from the elevated levels, frankly, to even in Q1 compared to our pre-COVID levels. Hopefully, that gives you an idea. And three countries are already back to their normal earnings levels as Nacho indicated in his previous comments. And if pro follows, that’s going to be a huge lift in the quarter that it happens to pretax pre-provision earnings.

Okay. I mean, is Nacho guiding or I can do a quick follow-up?

No. I think that’s the answer. Maybe, the only highlight to Raj’s comment is the Pacific Alliance countries that it’s coming faster. And in terms of PTPP, we are already 3% above year-over-year. So I expect the Pacific Alliance countries to continue delivering strong PTPP performance gradually.

Okay. Great. And just from a quick margin standpoint in that segment. Because commercial is it away on the loan growth recovery, we shouldn’t see too much NIM expansion, because there was going to be lower spread in that region, right?

Yes. I think Gabe, if you think about – sorry. I don’t know if that sets you up.

Me? Thanks. I’m done.

Oh, sorry. If you look at Q1 NIM expansion in IB, lower cost – higher cost funding we paid down during the quarter. We’ll continue to manage our liquidity prudently not just in IB, but for the rest of the bank, so that should help the margin. Commercial margins should certainly help in maintaining it at the current levels, perhaps expanding, depending on how the commercial rates play out in Q2. And certainly, when the retail growth comes back, that margins will start expanding pretty quickly.

Thanks for all the clarifications.

You’re welcome.

Operator, can you take next question please.

Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets.

Hey, thank you. I actually wanted to maybe ask a question of Jake and James. Obviously, a very good quarter, Jake, and James. The run rate ahead of what would have been implied out of 2020s quarterly results? I know capital markets tend to obviously be volatile. But all the work that has been done over the years, are you at a new run rate that could have a five handle quarterly earnings? Or do you still think it would be in that low to mid 400s?

Well, Sohrab, thanks for the question. James and I have been getting dusty over recent quarters waiting for one. So as you noted, we have been working hard to reposition the GBM business, and we’re coming off a record year 2020, and Q1 was a very strong start to the year. We’re now at a point where we have the second largest wholesale business among Canadian banks when we include in our LATAM business. And it’s obviously, as you noted, has been an exceptional environment for GBM to capture revenue. And we believe we captured our fair share. So looking ahead, we do feel the GBM platform is a stronger one. We’ve made progress towards our natural share in Canada. We’ve elevated our franchise, and we’ve exhibited the strength of our credit culture, and we continue to strengthen our balance sheet with good deposit growth. So looking out, we’ve got great M&A pipeline. The asset growth is starting to rebuild. The growth in our spot loans with better exiting the quarter than where the average showed. The ECM business continues to perform strong. And then you add in the international story. LATAM was up 30% quarter-over-quarter. And our U.S. balance sheet, which is at $150 billion almost, is positioned well to grow with the economic recovery in the U.S. So certainly, we think the structural advancements we’ve made in the business have improved the run rate of the business. And what we see this quarter is a reasonable outlook for how we perform, subject to, obviously, market conditions, as you noticed. So we’ll look to continue to win for our shareholders, not only on an absolute basis but also on a relative basis.

Okay. That’s helpful. And if I can just quickly sneak one in for Brian. I mean, Brian, you talked about, obviously, the ROE being back at or slightly above the medium-term target. But you’re doing that actually, I mean, last time you were at these levels, you had about 100 basis points lower CET1 ratio. So I guess I guess, are we – are you going to adjust that maybe medium-term target higher once there are is there more flexibility around capital deployment, whether it’s through share buybacks or otherwise, or do you think that still is the right number even if capital levels drift back to more normal levels?

Well, thank you for the question, Sohrab. You’ve heard me say, and a number of our shareholders have, we think we’re a 15% plus ROE bank. And we’re well on our way to be there. And that’s a function of all the repositioning we’ve done. Jake just commented about the structural repositioning of our GBM business, which is leads to higher profitability. The global wealth management business is performing exceedingly well. Number two, in terms of revenue growth, number one, in terms of net income growth and obviously providing great performance for our clients. So – and we think we’ve got lots of torque in our business. There’s been lots of questions this morning about our international banking business. That’s coming back. Loan growth is coming back. I see it in the spot balances. And margins are going to be stable here. It’s not improving. PCLs are trending down, you’ve heard from Daniel. So we like how we’re positioned here and a 15% quarter. It will be in our eyesight here or in our line of sight here. So we feel very good about our business, both on the revenue side. We manage expenses exceedingly well, and we’ve manage exceedingly well. So again, we think our numbers have a lot of torque in them, and we’re looking forward to the balance of 2021.

Okay. Operator can we have the next question please.

Next question is from Lemar Persaud from Cormark Securities. Please go ahead.

Thanks for taking my question. I’m just going to continue along the lines of Sohrab’s questioning here. So speaking with Jake and James, it’s been a while since we’ve seen the productivity ratio in GBM dip into the 40% range consistently. And despite the strong revenue growth, I guess, expenses were down again year-over-year again this quarter. Can you talk about some of the reasons for the decline in expenses? And secondly, does the mid-40% productivity ratio feels sustainable if we see some softening in revenue growth. I guess what I’m really trying to get at is understanding the elasticity of expenses. If revenues do moderate from here. Thank you.

Hey, Lamar, thanks for the question. Yes, it’s a really good outcome. Productivity ratio, as you pointed out, is a factor of revenue and expenses, and both have gone the right way for GBM, and we expect it to continue. A 6% decline year-over-year on expenses is something we’re proud of. We work on it very closely, not just with GBM, but with all our business lines and across the bank. So you’re seeing the results of a lot of daily effort, I would add. Prioritization and our philosophy of having expense growth in mind and taking a SKU from revenue growth. So that’s what you’re seeing play out. GBM’s quarter-over-quarter expenses will be flat to slightly elevated if you look forward because they’ve got a lot of regulatory spend. Ivor is one project that I would call out. I think it’s global. There’s a lot of money to be spent over there. But we’ll be managing our expenses very prudently. It will be in line with, like performance within the business, and I think you will see that continue as we look forward. I hate to give absolute guidance on productivity ratios and so on, but it’s nice to be in the 40s. We think we will be no higher than 50 as we look forward in most quarters. Jake, anything to add?

Yes, Lamar, all I’d add in is, when we look at the business, we do think about absolute expenses where that growth is. The year-over-year number does have a bit of seasonality in it as well. Higher expenses in Q1 every year, just around some performance comp. So we look at that, we look at operating leverage as well. And as Raj noted, we’ve got some investment to do. Not only regulatory. We’re adding bankers into our international markets. There’s a chance to feed the revenue pipeline. We’re seeing some competitors in markets choose to be less active as they focus on their footprints back in Europe and back in Asia. So we’re adding people in our footprint throughout the Americas that’s going to drive better outcomes from our Canadian business all the way down to our LATAM business. So again, to Raj’s point, it’s tough to give you an exact number on productivity. We do focus on that along with our operating leverage in absolute expenses. And when we have the revenue environment we have had, we’re able to make those investments in the platform.

Great. Thank you.

Okay. Operator can we have the next question please.

The next question is from Paul Holden from CIBC. Please go ahead.

Thanks, good morning. Just want to continue with that same topic, the productivity ratio. You’ve talked about it for a number of the business segments, but maybe you can put it all together for us at the all bank level and particularly in the context of the digital uptake trends you’ve shown in your slide deck. And I guess the bigger picture question is, with the digital uptake and the pull forward of that through COVID, is the lower bound on where you can take the productivity ratio significantly lower than you would have imagined pre-COVID. And maybe you can give us some sense on how much further you could go there again on the all bank level?

Sure, Paul, thank you. And it’s Raj. Expense management, we think, is a cornerstone of our operations. We have done it time and time again, we have done it quarter-after-quarter and we doing it year-after-year. I indicate prior calls, we will always manage expense growth prudently, and we’ll prioritize our sales across the bank and then take a skew from revenue to. So that’s the principle. And we’ll continue to follow that. So the 51.8% this quarter is kind of an expected result from our perspective and a few years back, we had given guidance saying, I really like to be around the 50% productivity ratio level across the bank. And we continue to have that as a target, and we’ll keep working towards that. The outlook for 2021 expenses, when I spoke in November, it’s pretty clear that the expense is going to be flat compared to 2020 in 2021. And that’s going to require a lot of work and effort across our teams because we want to continue to invest in supporting business growth, technology of course is a big component of the spend we’ve had in last few years, and we’ll continue to do that. And of course, regulatory initiatives. But the savings will come from efficiencies. Natural stock before about the digital investments we have made, the level of efficiency we’re able to pick up both in Canadian Banking as well as in the IPP&C. That will continue. When revenue is good, like we have in wealth management as well as in GBM, it certainly feeds the productivity ratio quite nicely. I should point out here wealth management’s productivity ratio. The industry-leading has been for a very long time, and it’s now below 60%. So we’re very proud of the efforts we make in managing our costs prudently. And of course, the revenue lift certainly helps in keeping the productivity ratio up so that, you should see it continue, Paul. It’s difficult to give a path to 50%, but it’s certainly our target to get to 50%, and we’ll continue working towards that.

Okay. Very clear on that. Thank you.

Okay. Operator can we have the next question please.

The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Hi, there. Just a follow-up on the credit question, I guess, and the Just a follow-up on the – well, a credit question, I guess. And the PCL guidance is pretty clear at this point or indication I just want to know if you have a sense annual of where the impaired loan ratio could trend? Could this thing top over 100 basis points or stay below that. You’re talking about Q2, Q3, it sounds like those will be the peak formation reported?

Yes. I think the important thing that we’re focused on here, Gabriel, is that we’ve built more institutional allowances for the anticipated increase in net write-offs. That’s going to happen, as you said, through Q2 and likely peaking in Q3. And that’s why the start or deliberate and detain approach to any releases that we might have this quarter. But here’s what I can say, against that backdrop of being confident that we were all provisioned for those write-offs. We are seeing the portfolio, as I said, performed very well, and in fact, inside of our expectations. And so all of that leads us to believe that we’re likely going to start seeing releases from our performing allowances in Q2 to offset any increase that might happen in the – or likely will happen in the nonperforming allowances in the same quarters, and you’ll see that continue going forward. So the way we think about this overall, is that these allowances are on the balance sheet, there for a reason. We view Q1 as nothing to time to take the boards off the windows, but this is a balance sheet item, and where we’re focused on from here is on top line revenue growth.

Okay. I’m not going to belabor the point here and your impaired loans, I think you were the only bank with them declining last year. I’m not going to sweat a little bit of an uptick this quarter. I’m just wondering if Q2, Q3 there are these peak write-off and impairment quarters up, what does the peak look like? Our definitions of peak have been wrong to date.

I think the important thing here is that in Q2, Q3 will be up. They will – the total increase will be fairly less than 100, let’s say. But the important thing here is that because of the efficiency for allowances, the total PCL will be less than our 2019 numbers.

All right. Well Thanks, Dan and everybody else.

Operator can we have the next question please.

Your next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

I thought I get one more in on another follow. We don’t usually hear much from Glenn. The wealth business obviously had a bit of, I think, a onetime benefit in there. But we now have a couple of years’ worth of back record since the acquisitions under our belt. Can you just paint a picture of how the acquisitions have gone relative to expectations? And secondarily, give us a sense of what we should be expecting as far as capital accretion out of your business in the next, call it, four to eight quarters?

Thank you, Sohrab, it’s Glenn. So on the acquisition piece, I think, first and foremost, as you mentioned, we’re coming into three years on those. They’re very, very well integrated, and that’s gone exceedingly well, frankly, whether if you look at from a revenue standpoint, client retention standpoint, staff retention standpoint, all equal or better than what we expected. And those business are really fully integrated into our wealth management franchise now. And so you can see the growth in those coming in the overall numbers. I think specifically, if I look at Jarislowsky Fraser, continuing to win institutional mandates and frankly, a tough institutional market in Canada, but continuing to grow both on the institutional side as well as in the private wealth side, which is great, and their assets are at a record level. I look at MD. Again, we’re seeing client retention better than before we acquired them. We’re seeing staff retention better than before we acquired. Strong net sales and record asset levels. So that’s – from any standpoint, that’s nothing short of a home run. So – but I think more importantly is the breadth, to your point, of success across the businesses, whether it’s the investment results, strong net flows within the mutual fund franchise, frankly net positive across the businesses and strong revenue growth. So we believe, we are very, very well positioned for future because even outside of performance fees or some of the lumpiness be underlying results are really, really strong. So I would say momentum for us is going to be good going forward.

Thank you. This will conclude the question-and-answer session. Back to your hosts.

Thank you, everyone, for participating in our call today. On behalf of the entire management team, I want to thank everyone for participating in our call. We look forward to speaking with you again at our Q2 2021 call in June. This concludes our first quarter results call. Have a great day.