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TWST: Let’s start by examining the issues that have shaped the environment for the Canadian banking industry in the last 12 months. Which in your view have had the biggest impact on the performance of the stocks?

Mr. Broad: Last year was an extraordinary year for the banks as a group for several reasons. Three issues put pressure on the stocks coming into 2000 and three issues uncorked the bottle in 2000. First the pressures. Demutualization of the Canadian life insurance companies in 1999 and early 2000 temporarily depressed share prices leading into 2000 as investors drew some liquidity away from the Canadian banks in order to invest in this “new” financial sector in the Canadian market. At the same time, technology stocks were the flavor of the day taking precedence over “old world” dividend paying bank stocks. Finally, interest rates had been rising for most of 1999, putting further pressure on bank stocks. So I think these issues caused bank valuations to be, certainly at the beginning of the calendar year, a little depressed. Once the flight to insurance company stocks reached some equilibrium, and technology began to lose some of its lustre, it gave the opportunity for the banks to grab hold of investors again. Beyond the market rotation, three items led to a revitalized bank group. First, rising interest rates were giving way as the yield on the 10-year Government of Canada bond dropped by 100 basis points in 2000. Second, in June of last year the financial services reform bill, Bill C-38, was reintroduced in the House of Commons. Certainly the key ramification of Bill C-38, or the one that gets most people excited, is the opportunities for Canadian banks to find merger partners and/or to engage in unique business combinations/joint ventures. Finally, last year was an excellent environment for generating outstanding capital markets revenue through most of 2000.

TWST: How well positioned are the Canadian banks as global competitors these days? You talked to us a bit about Royal Bank (NYSE:RY), but how do you see it when you look at the big picture?

Mr. Broad: On a global basis, the Canadian banks only operate in niches. You can go through each of the businesses and find global capabilities. The Bank of Nova Scotia (TSE:BNS.TO), for instance, has participated in the syndicated loan market in the US, which I would consider a global market where companies come to borrow. The Bank of Nova Scotia has proven itself to be quite adept at positioning themselves in that market. They also operate throughout Latin America, but I hesitate to call that a global position. They do have an international base that covers some 50-odd countries, but they have chosen specific geographic regions where they want to get involved. Latin America is a prime example. They’re expanding on a retail basis, transplanting their branch/retail banking know-how to other parts of the world. We see this expansion as the primary growth prospect for The Bank of Nova Scotia. They should be able to generate better returns than they have been on the $1 billion of capital they’ve invested in Latin America specifically over the last couple of years. So that’s one bank that does have some global presence.