FINANCIAL PERFORMANCE

In 1998, Corporate Banking reported its sixth consecutive year of improved results. Earnings rose to a record $431 million, up 21% or $74 million over 1997. Corporate Banking provided 31% of the Bank’s total earnings. These strong results were from good performances in all areas – in asset growth, revenues, credit losses and non-interest expenses.

The increase in average earning assets was substantial, at $6 billion or 20%. This was in part the result of the lower value of the Canadian dollar against the U.S. dollar, the currency in which much of Corporate Banking’s business is conducted. Of greater significance was the very strong demand for credit, which more than outweighed the reduction in assets arising from the active syndication of loans to other banks and investors.

Revenues were strong in 1998, rising 26% over last year’s record level.

Financial results, Corporate Banking

The provision for credit losses across Corporate Banking was very low in 1998. However, it increased over the prior year, because in 1997 there were net recoveries and reversals of previous provisions. In 1998, U.S. and Canadian Real Estate continued to experience net recoveries, as the problems experienced by the real estate markets in the early 1990s are resolved.

Within Corporate Banking, the largest portion of the business line’s gain in earnings came in the U.S. The syndicated loans market in the U.S. was very active, and the Bank benefited from its decade-long status as a leader in the origination and distribution of syndicated loans in that market. U.S. Corporate’s average assets rose 33%, as the Bank moved higher in the ranks of syndicated lenders.

Net earnings from Real Estate were slightly lower than in 1997, chiefly because 1998’s net recoveries in provision for credit losses were lower than in the prior year.

INVESTMENT BANKING is made up of Global Treasury and Scotia Capital Markets. Global Treasury manages the Bank’s investments, its medium-term funding and its capitalization. Scotia Capital Markets offers a broad range of services to customers in Canada, provides international clients access to Canadian products, and is active glob-ally in certain niche markets – including precious and base metals where it is a leader.

FINANCIAL PERFORMANCE

Despite the unsettled market conditions during the latter part of 1998, Investment Banking had a good year in 1998, contributing $218 million to the Bank’s results. This compared with $401 million in 1997, when there were substantially higher gains on investment securities and market conditions were more favourable. In 1998, Investment Banking contributed 16% of the Bank’s total results.

Global Treasury provided earnings of $143 million. These were below the previous year, because gains on the sale of investment securities were lower than their very high level in 1997.

Financial results, Investment Banking

During 1998, action was taken to build the Bank’s capabilities in investment management, with the merger of Cassels Blaikie Investment Management Limited with Scotia Investment Management Limited. The resulting firm, Scotia Cassels Investment Counsel, has assets under management of $15 billion, $6 billion from Scotia Mutual Funds, $7 billion from private investors, and $2 billion from institutions.

In Scotia Capital Markets, the weaker securities markets in the latter part of 1998 combined with integration costs for ScotiaMocatta resulted in lower earnings for the year. While results fell in the fourth quarter as a result of the severe turbulence in global capital markets, the Bank’s risk control and trading functions performed well. As a result, Scotia Capital Markets did not incur any major losses during this period.

Within the Global Trading division, the derivatives group achieved stronger results in 1998, as did foreign exchange. Results in institutional equity sales and trading suffered from volatile trading conditions during the latter part of the year, but were still profitable for the full year.

The newly acquired Mocatta Bullion and Base Metals was integrated during 1998 with the Bank’s existing precious metals operation. The new group, ScotiaMocatta, turned in a very strong performance.

Corporate Finance’s earnings were reduced by the much slower pace of new issues in the latter part of 1998. Despite weaker customer activity in the second half of 1998, Private Client Financial Services, ScotiaMcLeod’s full-service retail brokerage arm, maintained about the same level of revenues in 1998 compared with the prior year.

BUSINESS PLANS:	Corporate Banking and Scotia Capital Markets

The major strategic issue for Corporate Banking and Scotia Capital Markets over the next year is their integration into a single organizational unit focussed on clients.

In Canada, Corporate Banking and Scotia Capital Markets serve a common corporate and institutional client base but, historically, have functioned as separate divisions with separate operations, systems and sales forces. Working together, they can be more effective in providing the seamless coverage that middle-market and large corporate clients are increasingly looking for, and ensure that clients have access to the full range of the Bank’s capabilities.

In the U.S. and Europe, Corporate Banking has a major customer franchise and sales force, which will be of great benefit to Scotia Capital Markets as it expands in these markets.

Top-tier standing in U.S. loan syndications

source: Loan Pricing Corp

BUSINESS PLANS: Corporate Banking

The Bank will maintain its excellent management of credit risk, through careful adjudication of proposals, broad portfolio diversification, and application of risk modelling techniques.

Corporate Banking’s expansion will continue to be based on building its corporate finance and syndications capabilities in North America, Europe and Asia. For instance, the Bank has successfully co-ordinated all of its relationships with the transportation sector worldwide. This provides a model for deepening the industry expertise that the Bank brings to other areas, such as mining, energy, automotive, media, and real estate. Corporate Banking will also add more specialty product groups, such as the U.S. structured leasing group established in 1998.

BUSINESS PLANS: Scotia Capital Markets

Scotia Capital Markets will continue to reinforce its ability to meet client needs across a wide range of products and services. Strengthening the equity research group, for example, provides value to both issuing and investing clients, and is a major area of focus.

Developing equity and credit derivatives capabilities is also part of the Bank’s effort to give clients more solutions to help improve their financial performance.

The ongoing expansion of Private Client Financial Services, ScotiaMcLeod’s retail brokerage, will also remain a priority.

OUTLOOK

After a year of strong business growth, Corporate Banking is expecting a lower level of growth in 1999. Investment Banking does not expect a repeat of the unprecedented market turmoil of 1998 but does expect that market activity, and therefore business growth, will be more moderate than in recent years.