CEO Insider

Scotiabank CEO Rick Waugh on how his company grew so fast

A Canadian Business exclusive

Scotiabank CEO Rick Waugh (Daniel Ehrenworth)

Scotiabank CEO Rick Waugh (Daniel Ehrenworth)

Rick Waugh was on a safari in Botswana with his family a few years ago when he had a closer encounter with the local fauna than he expected. Their camp, located near an elephant trail, was made up of tents raised high on stilts. Realizing he’d forgotten something in another tent one day, the Bank of Nova Scotia president and CEO jogged down the ramp to the ground, catching sight of a herd of the animals in the distance. He only made it partway across the camp when one, a pregnant cow—perceiving him to be a threat—threw back her head, trumpeted and charged.

At 65, Waugh is fit. He works out every morning and regularly swims laps in his indoor pool. Yet even at his top speed, he knew he’d never make it to the next ramp before the thundering beast stomped him into the dirt. “I was literally seconds away from certain death,” he says. So he stopped and turned toward her. The elephant came to halt. With 20 feet of grassland between them, the banker and the three-ton pachyderm faced off. A ranger yelled to Waugh to clap his hands and run if she charged again. She did. But the clap startled the beast and Waugh scrambled up the ramp.

If he hadn’t stopped to face the elephant that day, Waugh is certain he wouldn’t have lived to tell the story. But he did, and as he recalls the tale years later in the piano room of his sprawling Forest Hill home in Toronto, he rises to his feet. He acts out the scene, arms outstretched to show the scale of his pursuer.

Waugh had no guarantee that the elephant would pause when he did. He could have ended up trampled. So what compelled Waugh to stop? To this day he’s not sure. Maybe it was growing up in Manitoba and being told you can never outrun a bear. Regardless, the episode highlighted Waugh’s cool head in the face of crisis—the same instinct that helped carry Scotiabank through the worst of the financial crisis almost entirely unscathed and transformed the bank for years to come. “Scotiabank is the bank that every other bank wishes they could be five years from now,” says Brad Smith with Stonecap Securities.

On Nov. 1, after a decade at the helm, Waugh will step down as CEO, handing the job to current president Brian Porter. He leaves the bank vastly larger than when he inherited it from his predecessor, Peter Godsoe. The number of employees has jumped by 90%, thanks to expansion in Latin American and Asia, as well as major Canadian acquisitions like money manager DundeeWealth and savings bank ING Direct. The number of branches around the world now stands at more than 3,000, an increase of 80%. Meanwhile Scotia’s net income of $6.5 billion is up 161% from when Waugh took over. For shareholders, this has all translated into big wins. Dividends included, Scotiabank shares have returned an annualized 13% over that time, even accounting for the 2008 market crash.

Waugh’s first in-depth interview as CEO was with Canadian Business; 10 years later he sat down with the magazine again in October, first in Washington, and then at his home, to reflect on his career. Waugh also delved into his philosophy for approaching risk, how to embrace it when it offers rewards and evade it when it threatens to trample you underfoot. Risk is a prism through which Waugh has always viewed his job, which is a good thing when you’re banking in dangerous times.


If the so-called Winnipeg mafia—those power brokers who hail from the keystone province—ever handed out loyalty cards, Rick Waugh would warrant super-elite status. His stories almost always circle back to the prairie city. He’s a diehard Bombers fan. When the Jets returned home in 2011, he was there for the opening game. An aerial painting of Winnipeg fills an entire wall in his living room.

Born in the ’Peg, Waugh had a working-class upbringing; his father, a firefighter, supported their extended family by taking extra jobs as a house painter and stonemason, while his mother raised the family. He lived at home to save money while pursuing a commerce degree at the University of Manitoba. Among the jobs on offer when he graduated was bank teller at the Bank of Nova Scotia’s Windsor Park branch—starting salary, $7,400 a year—marking the start of a 43-year run at the bank. “He’s one of the last CEOs who started out as a teller,” says John Aiken, an analyst at Barclays Capital. “That’s not likely to ever happen again.”

Waugh learned a lesson about how a bank assesses risk just days after he started work—unfortunately, he was the risk. With his eye on a demo model dark green Triumph GT6 car, Waugh, then in his early 20s, approached the branch manager about a loan. He got turned down. Waugh had to go to a Royal Bank of Canada branch for the financing. (He later refinanced with Scotia after proving his creditworthiness.)

Within months he caught the attention of his superiors in Toronto, who requested he transfer to that city. Having rarely ever left the province, he was loath to move, but as he recalls now, going outside his “comfort zone” then was the best move he ever made. So began Waugh’s rapid rise through the ranks. By 30 he was managing the largest branch in Toronto; by 40 he was Scotia’s most senior executive in the United States, running its corporate lending business on Wall Street. In his living room in Toronto he still has the jukebox he bought while living in the U.S. After returning to Toronto he worked his way through the corporate lending division before heading the bank’s international operations, which today encompasses 55 countries. Waugh’s final leap took him to the CEO’s office. He credits his Cook’s tour through the bank for part of his success. “I always say one of the reasons I was chosen was I knew who to go to in our organization to get things done,” he says.

When Canadian Business first profiled Waugh, one fund manager, speaking anonymously, suggested Waugh’s inclusive leadership style might clash with the bank’s tradition of strongman CEOs. “Somebody has to be the boss,” the money manager said. “I don’t believe he has the kind of force of presence that [his predecessors] had.” Terms like “autocratic” and “one-man army” were used to describe Godsoe and his predecessor, Cedric Ritchie, (Waugh to this day still refers to him as Mr. Ritchie), over the three decades they ran the bank. But John Mayberry, a former executive at steel maker ArcelorMittal Dofasco and chairman of Scotiabank’s board, says Waugh was just what the bank needed in a time of rapid expansion, during which the company made 45 acquisitions. “If you look at the tremendous growth under Rick’s leadership, it’s pretty difficult for one guy to have his handle on every wheel,” he says. “He had to have a more inclusive style to survive.”

To this day Waugh is disturbed by the cultish obsession with CEOs. “When you build it up to celebrity status, you get hubris,” he says. “I’ve had a philosophy, never take yourself too seriously, then you can’t fall too far.” Proof that he follows his own advice? The man has a giant moose statute named “Scotty,” complete with tartan, standing next to his pool—a holdover from Toronto’s Moose in the City charity event in 2001.

He also demonstrates a gift for dry wit. At public speaking events in recent years, he’s often opened by thanking organizers for inviting a Canadian banker to speak—“In most places right now in the world if you’re a banker you don’t even go out at nights.”

(Andrew Vaughan/CP)

(Andrew Vaughan/CP)

In Waugh’s decades-long tour through Scotiabank, there was one part of the business he skipped over completely—the wealth management division, which oversaw Scotia’s mutual funds and financial advisers. That’s likely because it was so tiny. By the time Waugh became CEO, Scotia had eked out just a 3% share of the wealth-management market in Canada, the smallest of the Big Five banks. It was a problem he vowed to address when he took over.

There were other shortcomings. With its lower domestic profile, it was a middle-runner in mortgages and deposits. And while analysts hailed it as Canada’s most international bank, they also worried that it relied too heavily on one country, Mexico, for much of its foreign earnings.

And then there was the merger question. A marriage or two among the Big Five was seen by many analysts and investors as inevitable in the early 2000s. Waugh was determined that if they happened, Scotia would be ready for courtship. “I did spend a lot of time on that, socializing, spending a lot of time with political leaders,” he says. “It would have been difficult. But if it was possible, we wanted to be at the table.” Ultimately, the then Liberal government shelved plans to let the banks merge in 2005, and when the crisis hit, the idea died for good.

In the meantime Waugh and his team began to renovate its wealth management business behind the scenes. “We didn’t have the product sweep, the advisory capabilities or the right training,” says Barbara Mason, executive vice-president of global wealth management at the bank. “We were 10 years behind Royal and TD getting into the mutual fund business.” To boost its domestic presence, Scotia also embarked on a frantic branding campaign starting around 2005. In the realm of hockey alone Scotia sponsors 4,500 kids teams across Canada and is the official bank of the NHL, the Canadian Women’s Hockey League and five of Canada’s six NHL teams. On the cultural side there’s the Scotiabank Nuit Blanche arts festival in Toronto, the Scotiabank Giller book prize, a photo festival, a Caribbean festival, marathons and movie theatres. That last branding deal, with Cineplex Entertainment, also involved launching the Scene loyalty card, that today has five million users. John Doig, Scotia’s chief marketing officer, recalls first pitching the idea to Waugh. “Rick looked at us and he said, ‘Movies…the last movie I saw was Tootsie. But I guess I’m not your target,’” Doig says.

By 2007 dark clouds were forming over the U.S. That year Waugh joined the board of the Institute of International Finance, an association representing hundreds of banks from around the world. Through it, he saw how lax some other banks were with the quality of the loans and assets on their books. At an IIF meeting of bank CEOs in 2008, it sank in what was going to happen as the U.S. housing market collapsed. “It was an uneasy meeting,” he says. “I remember phoning Bob Brooks, the treasurer, saying ‘Bob, I don’t know what’s going on, but stay liquid.’” Part of that meant cutting Scotia’s ties to Lehman Bros., the investment bank that had placed huge bets on sub-prime mortgage securities, including loans and market exposure to Lehman’s stock. Waugh and Mayberry would be in China, where the bank had just set up a joint venture with Bank of Beijing, when Waugh’s BlackBerry buzzed with a message: Lehman had failed.

Waugh rushed back to Canada but felt convinced the bank was on a solid footing, a message he transmitted to staff. “There was no doubt in my mind, if the water goes out of the bathtub, we’re going to be the last bank that goes down the drain, and that just wasn’t going to happen,” he says.

A lot of people will say they didn’t buy into the doom and gloom of the financial crisis. However there’s talking the talk—and then there’s walking to the phone and calling your broker to bet huge on a recovery. Which is exactly what Waugh did in 2009 when he personally bought roughly 128,000 Scotiabank shares on the open market for $33 a piece. (Put away your calculator; that’s $4.2 million.) The trade more than doubled his direct stake in the bank, and as his retirement approaches, those shares have almost doubled in price to $62. Ultimately the bank would lose about $100 million on its lingering exposure to Lehman, but Scotia still earned $3.1 billion that year.

In the fallout, governments and regulators have struggled with how to prevent a repeat of the crisis. As vice-chairman of the IIF, Waugh has urged caution. In mid-October the organization held its annual meeting at Washington’s Ronald Reagan Building and International Trade Center. The gathering drew some of the biggest names in finance. The CEOs of JPMorgan, Deutsche bank and PIMCO, the world’s largest bond fund manager, made appearances alongside central bankers from the U.S., Japan, Russia and Malaysia. While it would be Waugh’s last meeting, in his role as vice-chair he’d helped draft new recommendations for the financial services industry on everything from risk management to rating agencies. But sitting down for an interview at the event, Waugh warned some of the blunt tools preferred by regulators would do more harm than good.

There is a push afoot to force banks to hold higher levels of capital against their loans and other assets, in the belief that more capital makes a bank less likely to fail. Waugh punches several holes in this theory. For one, Lehman was a well-capitalized bank. Yet because its assets—all those sub-prime loans—were so dubious, no other lender would come to its aid. The reality is, he says, the best thing a bank can do to avoid problems is manage its risks properly. “I call it having the right risk culture. I know it sounds corny, but it’s how you stay out of problems,” says Waugh, who last year was named an officer of the Order of Canada for helping to strengthen the banking industry. “Your risk management team has to be as important as your marketers.”

The crisis would soon give Waugh a chance to test his aptitude for risk, with an opportunity that could have won Scotia a place at the top of U.S. banking—or cost it dearly.


scotiabank-quoteIn April 2008 Waugh, along with two other Scotia executives, flew to Ohio for a bit of undercover work. The collapse of the sub-prime mortgage market had crippled National City Corp., one of America’s 10 largest banks, with 1,400 branches spread out across the U.S. Midwest. The U.S. bank had approached Scotia about selling itself, and so, masquerading as real estate consultants, the Canadians visited the bank’s branches across several states. There was a lot to be said for doing the deal. Unlike Bank of Montreal and TD Bank, Scotia has no retail banking presence in the U.S. As analysts caught wind of the potential takeover, they could scarcely contain their excitement. “For a little more than one year’s earnings, BNS could acquire National City and obtain a larger presence in the U.S. regional banking arena than their Canadian peers,” gushed one. But experts tapped by Scotia to value National’s mortgage assets couldn’t agree on their real value. That alone was enough for Waugh to pass.

To this day, Waugh is relieved Scotia didn’t bend to the temptation. Not only are millions of U.S. homeowners still underwater on their mortgages, the deal would have required significant capital. (Scotia was the only bank among the Big Five that did not have to issue equity to raise capital during the crisis.) Absorbing the giant U.S. bank would also have distracted management from completing the dozens of other smaller acquisitions that would reshape the bank.

While the tough job of organically growing Scotia’s wealth management business had been underway for several years, the bank suddenly found itself with options to fast-track that growth. In 2007 Scotia came to the rescue of Canada’s DundeeWealth, which had gotten into trouble when the asset-backed commercial paper market collapsed. Scotia acquired an 18% stake in Canada’s fastest-growing fund company, then swallowed the rest in 2010 for $2.3 billion. In 2008 the bank also bought a 37% interest in CI Funds, though it will be up to new CEO Brian Porter to ultimately decide whether to sell the stake or try to buy the rest. That same year Scotia also bought E*Trade Canada for $444 million. At the same time, Scotia expanded its global reach even further with at least 20 acquisitions in Latin America and Asia. Among the deals were banks in Colombia, Peru and Thailand. The attraction is simple, says Dieter Jentsch, Scotia’s group head of international banking. In emerging markets demographics skew younger and incomes are rising faster than in developed nations. And because so many people are “under-banked”—meaning they don’t have regular accounts, credit cards or mortgages—there’s plenty of room to grow.

The slew of deals have helped make Scotia the most diverse of all the banks in Canada, and arguably the world. It pockets roughly one-quarter of its earnings from each of its four distinct divisions—domestic banking, international banking, corporate banking and finally its global wealth management operations—while half its bottom line comes from outside Canada. “Rick Waugh’s understated nature is going to hurt his legacy, because what he and his team accomplished was an exceptional transformation of the bank,” says Aiken, the Barclay’s analyst.

Still, Waugh feels he’s leaving before many of the changes Scotia has made had a chance to fully pay off. “My biggest disappointment, especially in the last five years, is we never had a normal economy,” he says. “We accomplished a lot, but rather than having the wind at our backs, it’s been in our faces. Because we had this date [his retirement] in mind, I was hoping that by 2013 world growth would be growing, and we’d knock the lights out.” That will be the next guy’s job.


When Brian Porter takes over on Nov. 1, he will be just the fourth Bank of Nova Scotia chief executive since 1979. “Our strategy is one of continuity,” he says. He sees further opportunities for growth in Canada, particularly in wealth management and credit cards, but also plans to build the bank’s international footprint. “We have lots of opportunities in these countries where we can get better growth than we can in developed countries,” he says.

Similar to Waugh, Porter has worked in multiple roles throughout the bank, though never as a teller. He was the chief risk officer through the financial crisis. (The incoming CEO at TD Bank, Bharat Masrani, was also once that bank’s chief risk officer. “It’s the new prerequisite for bank CEOs,” says National Bank Financial analyst Peter Routledge.) Since 2010 he’s run the bank’s international operations, boarding countless flights to visit its far flung branches and offices. That’s by design. Part of the criteria for selecting a new Scotiabank CEO is to see how candidates stand up to travel weariness, says Mayberry. “Looking at who’s got the stamina for the job is pretty crucial.”

Waugh says the constant travel and punishing hours of the past two decades were not easy on his wife of 38 years, Lynne, or their three sons, now in their late 20s and early 30s. “My wife is tired of being a single mother,” he says. On the day of his interview with Canadian Business in Toronto, Waugh’s daughter-in-law was preparing to deliver his first grandchild, a little girl—the first female born to the Waugh line in 97 years.

As a man on the cusp of retirement Waugh gives few hints he plans to kick back and relax. One area of focus will be his family’s foundation, established two years ago, to which he has contributed $21 million. Meanwhile Waugh is setting up a private investment company with a focus on making direct investments in small and medium-sized companies. “We need more Canadian companies that go public,” he says, noting Canada’s markets have become far too concentrated in resource companies and banks. “We need to regeneralize.”

Which is sort of funny, Waugh admits. While he spent his entire career telling others to diversify their investments as a way to minimize risk, he kept most of his portfolio in Scotiabank shares. Taking his bank bonuses in Scotia equity, rather than cash, he’s built up a sizable personal stake in the company worth $34.5 million in shares and deferred share units, plus options worth another estimated $48 million. That will change as he diversifies for the next chapter in his life. It’s the prudent thing to do.