Canadian Banks
Quarterly Overview
Second Quarter Ended
April 30, 2008
Kevin R. Choquette, CFA – (416) 863-2874
Natalie Diakun – (416) 863-7076
Robert Marck – (416) 863-7843 Financials – Banks Research
Earnings Resilience Continues – Grinding It Out
Modest Negative Earnings Momentum
Retail Earnings Strong – Wholesale Earnings Tumble
MTM Losses Modest Except CM – Last Quarter of Intense Focus
Loan Loss Provision Increases Absorbable
Profitability Remains High
Retail Net Interest Margins Firming – Currency Drag Dissipating
Earnings Momentum to Turn Positive in Q4
Market Caps Decline Extreme vs. Writedowns
Unprecedented Valuation
Dividend Increases Continue – Expected to Reaccelerate in Q4
Recommend Aggressively Buying Bank Stocks
Major Bull Market in Bank Stocks Began March 17
Equity Research Industry Report June 2008
The Bank of Nova Scotia is the parent company of Scotia Capital Inc.
For Reg AC Certification and important disclosures see Appendix A of this report.

Contents
Banks Second Quarter Overview
Second Quarter Overview 2
RY 1-Sector Outperform – Canadian Banking Earnings Momentum –
U.S. & International Represents 5% of Earnings 4
CWB 1-Sector Outperform – High Growth Prospects – Lower Premium 5
TD 2-Sector Perform – Wholesale Represented 9% of Earnings –
ROE Dilution from CBH Acquisition 5
NA 2-Sector Perform – Reliant on Wholesale 5
CM 2-Sector Perform – Retail Earnings Decline 5
BMO 3-Sector Underperform – Off-Balance Sheet Risk High – Low Profitability 5
LB 3-Sector Underperform – High Securitization Gains – Underlying Earnings Weak 5
Second Quarter Earnings Highlights 6
Charts & Tables
Bank Earnings Growth Profile 9
Second Quarter Earnings and Writedowns 12
Profitability 15
Capital Levels & Risk-Weighted Assets 20
Quarterly Key Performance Measures 23
Net Interest Margin 29
Loan Loss Provisions & Impaired Loans 35
Exposure to High-Risk Assets 47
Revenue Growth 49
Trading Revenue 52
Capital Markets Revenue 56
Market Sensitive Revenue 59
Market Share 61
Valuation – Yield Basis 65
Valuation – P/E Multiples 67
Bank Index Performance 73
Share Price Performance 76
Bank Relative P/E Multiples 84
Bank Relative P/E to Relative ROE 87
Dividend Trends – Frequent and Consistent Increases 90
Pertinent Stock Information 91
2008 Calendar of Events 92

Banks Second Quarter Overview
Earnings Resilience Continues – Grinding It Out
Modest Negative Earnings Momentum
Retail Earnings Strong – Wholesale Earnings Tumble
MTM Losses Modest Except CM – Last Quarter of Intense Focus
Loan Loss Provision Increases Absorbable
Profitability Remains High
Retail Net Interest Margins Firming – Currency Drag Dissipating
Earnings Momentum to Turn Positive in Q4
Market Caps Decline Extreme vs. Writedowns
Unprecedented Valuation
Dividend Increases Continue – Expected to Reaccelerate in Q4
Recommend Aggressively Buying Bank Stocks
Major Bull Market in Bank Stocks Began March 17
S E C O N D Q U A R T E R O V E R V I E W
The Banking Siege is now into its 11th month and still counting, although it continues to show signs of
easing. The bank index has rebounded 16% from the lows reached on March 17, The Bear Stearns Rescue,
which we believe is the beginning of a major bull market in bank stocks.
The Canadian banks, except for CM, have avoided the carnage that has besieged many of the global
banks. Canadian banks cumulative writedowns as at Q2/08, including BMO’s natural gas trading losses,
have totalled $10.9 billion, with CM representing 60% of these writedowns. Thus excluding CM,
Canadian bank cumulative writedowns have represented less than one quarter of earnings or 3% of book
value. TD and RY have stood out from their global peers and Canadian competitors with cumulative
writedowns at 0% and 4% of book value, respectively. We expect this quarter will be the last quarter
of noticeable mark-to-market (MTM) writedowns with recoveries not out of the question over the next
few years.
The earnings performance of Canadian banks has been relatively resilient in a very difficult environment
as they have been grinding it out. On an operating basis after a five-year run of successive 15%+ growth,
we expect earnings to decline a modest 2% in 2008 before growth returns to 11% in 2009. On a quarterly
basis Q2/08 represented the second straight quarter of modest negative earnings growth, with
-2% in Q1 and -5% in Q2, with Q3 expected to be -7% before earnings momentum is expected to turn
positive in Q4 with growth estimated at 6%. Thus the bank group is grinding through three quarters of
modest negative earnings momentum while maintaining strong capital positions and near-record
profitability. Retail banking earnings have remained very strong with wholesale earnings tumbling,
especially in Q2/08.Banks Second Quarter Overview
Earnings Resilience Continues – Grinding It Out
Modest Negative Earnings Momentum
Retail Earnings Strong – Wholesale Earnings Tumble
MTM Losses Modest Except CM – Last Quarter of Intense Focus
Loan Loss Provision Increases Absorbable
Profitability Remains High
Retail Net Interest Margins Firming – Currency Drag Dissipating
Earnings Momentum to Turn Positive in Q4
Market Caps Decline Extreme vs. Writedowns
Unprecedented Valuation
Dividend Increases Continue – Expected to Reaccelerate in Q4
Recommend Aggressively Buying Bank Stocks
Major Bull Market in Bank Stocks Began March 17
S E C O N D Q U A R T E R O V E R V I E W
The Banking Siege is now into its 11th month and still counting, although it continues to show signs of
easing. The bank index has rebounded 16% from the lows reached on March 17, The Bear Stearns Rescue,
which we believe is the beginning of a major bull market in bank stocks.
The Canadian banks, except for CM, have avoided the carnage that has besieged many of the global
banks. Canadian banks cumulative writedowns as at Q2/08, including BMO’s natural gas trading losses,
have totalled $10.9 billion, with CM representing 60% of these writedowns. Thus excluding CM,
Canadian bank cumulative writedowns have represented less than one quarter of earnings or 3% of book
value. TD and RY have stood out from their global peers and Canadian competitors with cumulative
writedowns at 0% and 4% of book value, respectively. We expect this quarter will be the last quarter
of noticeable mark-to-market (MTM) writedowns with recoveries not out of the question over the next
few years.
The earnings performance of Canadian banks has been relatively resilient in a very difficult environment
as they have been grinding it out. On an operating basis after a five-year run of successive 15%+ growth,
we expect earnings to decline a modest 2% in 2008 before growth returns to 11% in 2009. On a quarterly
basis Q2/08 represented the second straight quarter of modest negative earnings growth, with
-2% in Q1 and -5% in Q2, with Q3 expected to be -7% before earnings momentum is expected to turn
positive in Q4 with growth estimated at 6%. Thus the bank group is grinding through three quarters of
modest negative earnings momentum while maintaining strong capital positions and near-record
profitability. Retail banking earnings have remained very strong with wholesale earnings tumbling,
especially in Q2/08.

The banks earnings performance is actually quite admirable given the 15% year-over-year appreciation of
the Canadian dollar, which impacts approximately one-third of bank earnings and the 10 to 15 basis points
(bp) year-over-year decline in the retail net interest margins, as well as the difficult wealth management
and wholesale banking operating environment.
The solid underlying earnings for the bank group have resulted in at least one Canadian bank increasing its
common dividend in every single quarter since the credit crisis began. Although the increases have been
modest, it bodes well. The dividend payout ratio is 46% on 2008 operating earnings and 42% on 2009
earnings estimates. We expect Q4/08 positive earnings momentum to be a catalyst for broad-based
dividend increases for the bank group.
Canadian bank market capitalization declines have been extreme compared with writedowns and
relatively low exposure to high-risk assets. Canadian bank market capitalization has declined $40 billion
(excluding CM) on writedowns of $6.7 billion after-tax, for a market capitalization decline ratio (MCDR)
of 15.9x. MCDR is market capitalization decline as a multiple of after-tax writedown. We believe the
MCDR at 15.9x is high versus the modest 8.4x MCDR for a group of global banks, especially when
Canadian banks have much lower residual risk in their balance sheets. The MCDR is also high compared
to levels of 1.8x to 2.3x during the LDC and CRE crisis of the 1980s and 1990s.
The Banking Siege has presented one of the best buying opportunities in decades to participate in the
major bull market in bank stocks. Canadian bank stocks have been impacted, not surprisingly, by the
negative sentiment towards the financial services sector. Investors have a heightened awareness of
systemic risk and are pricing for it.
We believe sentiment, although negative, is beginning to shift, as global players are taking major
writedowns and shoring up capital positions. We believe Canada has a structural advantage versus U.S.
banks and other global players. The solid fundamentals in our residential mortgage market set Canada
apart from many countries. The dominance of Canadian banking franchises in a number of business lines
and the extremely low penetration from monolines presents a competitive advantage.
Higher loan losses, we believe, through an economic downturn are absorbable. We expect loan loss
provisions to peak in the 65 bp or $7 billion range in 2010/2011 versus our 2008 and 2009 forecasts
of $4.6 billion and $5.3 billion, respectively. The earnings drag is expected to be 8% over a two- or
three-year period, which we believe is readily absorbable. The retail net interest margin is arguably a
more important earnings variable as a 10 bp shift in the retail margin impacts earnings 3%.
Interestingly, the retail net interest margin has declined from 3.65% in 2001 to the recent level of 2.88%
for a significant 77 bp decline. Thus bank earnings would have been over 20% higher today all things
being equal, which of course they are not. The margin decline was driven by loan and deposit mix
shifts, competition, deposit cost floors, and spikes in wholesale funding costs. Of the positives from
Q2/08 earnings was the firming up of the retail net interest margin, which actually increased 2 bp
sequentially although it was down 12 bp year over year. We expect a firmer to perhaps expanding
margin to be a catalyst for positive earnings surprises in 2009.
Bank valuations in our view are already discounting a recession. Bank P/E multiples are at extremely
attractive levels at 11.2x, 11.2x, and 10.0x, trailing 2008 and 2009 operating earnings estimates,
respectively. The bank P/E multiples appear to have bottomed at 9.4x trailing, on March 17 ( Bear Sterns
Rescue), slightly above the 9.0x level during the Asia crisis in 1998 and below the 10.9x bottom during the
Telco/Cable/Power crisis in 2001. We believe the trend line for bank P/E multiples continues to be 16x,
and the current stress testing (credit crisis and recession) is in fact needed to push the multiple through
previous highs. The 16x target multiple is based on a 5% 10-year government bond yield. If bond yields
were to increase to 6% based on inflation concerns, the target multiple would be in the 14x range, 25%
higher than current valuation.

Canadian bank P/E multiples relative to U.S. banks have improved to a 7% premium versus a discount of 5%
to 10% since the credit crisis began. We continue to believe Canadian banks should trade at a 10% to 15%
premium based on lower balance sheet risk, high profitability, and a less volatile and risky banking system.
The bank P/E multiples relative to the TSX are 63%, in line with the historical mean but below our 80% to
90% target, which is based on periods of similar bank fundamentals.
Bank dividend yields relative to bonds remain at unheard-of levels (until the current credit crisis) at
109% or 4.6 standard deviations above the mean. The peak was 7.0 standard deviations above the mean
on March 17, when fear and panic were at their highest. The market was beginning to discount a total
global financial collapse. We continue to believe dividends are safe and broad-based dividend growth will
begin in Q4/08.
Bank dividend yield versus the overall equity market is an astounding 2.3x versus a historical mean of
1.4x and not far off the spike to 2.8x from the Nortel/High-Tech bubble in 2000. Bank dividend yields are
also at record levels versus Pipes & Utilities and Income Trusts.
We continue to recommend aggressively buying bank stocks at these levels. As fear subsides, we expect
share prices to move up sharply. We expect the negative drag from flow of funds to reverse. Flow of
funds has not been helpful for bank share price performance as $12.7 billion has gone into money market
funds in the first five months of 2008, with domestic equities recording net redemptions of $3.4 billion and
domestic balance inflows anaemic at $207 million. In addition, the resource sectors have been red hot
attracting funds, which is not expected to last forever. The short interest in Canadian banks that peaked in
late 2007 and early 2008 continues to decline, removing some downward share price pressure.
In terms of stock selection we continue to favour RY and TD, which we consider to be the
high-quality banks with the strongest operating platforms, and which consistently and continually
reinvest in their businesses. These banks have the highest profitability, strongest balance sheets, and
growth prospects. These three banks substantially outperform over the long term.
They have also performed exceptionally well through the recent crisis operationally and share-price wise.
BNS, TD, and RY share prices are down 6%, 11%, and 18%, respectively, from their all-time highs. CM,
BMO, and NA share prices have declined 40%, 37%, and 19%, respectively, from their all-time highs.
We continue to recommend maximum allowable weightings in bank stocks based on overall fundamentals
and valuation. Even the weakest bank looks compelling from an investment perspective. We have only
BUYS and STRONG BUYS in the bank group with no SELLS or HOLDS on an absolute return basis.
High-quality balance sheets, strong funding and liquidity, high profitability, compelling valuation, and the
major structural advantages from our banking system and economy support our very bullish stance
towards bank stocks.
We maintain our 1-Sector Outperforms on RY and CWB, 2-Sector Performs on TD, NA, and CM, with 3-
Sector Underperforms on BMO and LB. We are restricted on BNS.
Our order of preference is: RY, CWB, TD, NA, CM, BMO, and LB.
R Y 1 - S E C T O R O U T P E R F O R M – C A N A D IAN BANKING EARNINGS MOMENTUM
U . S . & I N T E R N A T I O N A L R E P R E S E N T S 5 % O F E A R N I N G S
RY reported solid domestic banking results up 15% year over year. Insurance earnings doubled from a
year earlier while banking-related earnings increased a respectable 7%. U.S. & International earnings were
disappointing this quarter, declining 30% due to increased loan loss provisions related to the bank’s
Builder Finance portfolio. Although U.S. & International earnings were disappointing, the segment only

represented 5% of the bank’s total earnings. We believe that RY will continue to achieve above-average
profitability based on the strength of its retail and wealth management platform, and that increases in LLPs
will be absorbable.
C W B 1 - S E C T O R O U T P E R F O R M – H I GH G R O W T H P R O S P E C T S – L O W E R P R E M I U M
CWB continues to have a high growth profile, generating loan and deposit growth of 20%+ in the high
growth economies of Alberta and British Columbia. Despite the high growth profile, CWB’s P/E premium
has narrowed versus the bank group. In fact, CWB’s relative valuation is the most attractive it has been in
five years.
T D 2 - S E C T O R P E R F O R M – W H O L E S A L E REPRESENTED 9% OF EARNINGS
R O E D I L U T I O N F R O M C B H A C Q U I S I T I O N
TD is well positioned with its strong domestic retail banking platform, nominal exposure to high-risk
assets, and low reliance on wholesale earnings. The Commerce Bancorp acquisition is dilutive to return on
equity with some integration risk, although we expect the company to manage through the integration and
difficult U.S. operating environment. We maintain a 2-Sector Perform on the shares of TD as we expect
higher earnings growth from RY. TD also has a significantly lower Tier 1 ratio pro forma fiscal year-end
2008.
N A 2 - S E C T O R P E R F O R M – R E L I A N T O N W H O L E S A L E
NA remains heavily reliant on wholesale earnings. In Q2/08 wholesale earnings represented 34% of total
earnings, the highest of the bank group. Growth in retail and wealth management has been modest. Asset
quality remains relatively strong with very low impaired loan formations.
C M 2 - S E C T O R P E R F O R M – R E T A I L E A R N I N G S D E C L I N E
We believe the second quarter represented the last quarter of meaningful writedowns on U.S. sub-prime
CDOs. However, after the dust settles we are concerned about the earnings power of CIBC World Markets
and to a lesser extent CIBC Retail Markets. CM’s restructured wholesale platform has contributed a
modest 10%-15% over the last two quarters versus 20%+ prior to Q1/08. CM’s retail banking earnings
were disappointing this quarter despite a higher retail net interest margin and slightly lower loan losses.
B M O 3 - S E C T O R U N D E R P E R F O R M – O F F - B A L A N C E S H E E T R I S K H I G H
L O W P R O F I T A B I L I T Y
We maintain a 3-Sector Underperform on BMO based on the bank’s lower earnings growth outlook, lower
profitability, higher off-balance sheet risk, and relatively weak operating platforms. BMO’s loan loss
provisions have recently spiked to 36 bp of loans and are expected to remain at these elevated levels.
Impaired loan formations also spiked. We believe a 15%-20% discount to the bank group is warranted.
L B 3 - S E C T O R U N D E R P E R F O R M – H I G H S E C U R I T I Z A T I O N G A I N S
U N D E R L Y I N G E A R N I N G S W E A K
We maintain a 3-Sector Underperform on LB based on the bank’s lower profitability, moderate loan
growth outlook, and relatively high P/E multiple versus the bank group. Year-to-date, LB has had very
large securitization gains representing 22% of earnings. We believe earnings growth from securitization
gains is not sustainable at these levels and that earnings momentum is slowing after a number of years
of recovery.

Second Quarter Earnings Highlights
Canadian banks recorded a modest decline in operating earnings of 5% in the second quarter. Reported
earnings, excluding CM, declined 16% from a year earlier. Operating return on equity was relatively
strong in Q2/08 at 19.8%. Reported ROE (excluding CM) was also strong at 17.0%. Year-to-date
operating ROE for the Canadian banks is 21% (reported excluding CM is 18.4%) versus U.S. peers with
ROE in the 9% range.
B N S I N C R E A S E S D I V I D E N D
BNS was the only bank to increase its dividend in the second quarter. The bank increased its dividend
4.3% to $1.96 per share from $1.88 per share. BNS’s surprise dividend increase follows an increase of 4%
from TD in the previous quarter. At least one Canadian bank has increased its dividend in each of the last
three quarters. System-wide dividend increases are expected to resume in Q4/08 with the expected
reacceleration of earnings growth in Q4/08.
RETAIL AND WEALTH MANAGEMENT
Domestic retail and wealth management earnings for the bank group improved 6% from a year earlier but
declined 4% sequentially due to fewer days in the quarter. BNS and RY led the bank group with earnings
growth of 15% and 9%, respectively. CM’s retail and wealth management earnings were disappointing,
remaining flat from a year earlier and declining 20% sequentially. TD, BMO, and NA had modest growth
in the range of 1%-3%.
R E T A I L N I M I N C R E A S E S S E Q U E N T I A L L Y
This quarter represented the first up-tick in the banks’ retail net interest margins (NIM) (exhibit 32,
columns 4 and 5). The retail NIM improved 2 bp sequentially due to a 14 bp increase in retail NIM at BNS
and CM, and modest 2 bp increases at BMO and NA. The retail NIM continued to decline year over year
by 12 bp; however, we believe that the year-over-year comparisons will become more favourable
beginning in Q4/08.
W E A L T H M A N A G E M E N T E A R N I N G S D E C L I N E Y O Y
Wealth management earnings declined 4% from a year earlier due to low retail brokerage activity and
weak capital markets. BMO led the bank group in wealth management earnings growth with earnings
increasing 10% from a year earlier. NA’s earnings increased a modest 2%. TD (domestic) and RY
wealth management earnings declined 14% and 7%, respectively, from near-record results a year earlier.
TD Ameritrade’s contribution growth slowed to 6%.
Mutual fund assets for the bank group increased a moderate 6% to $270 billion. RY led the banks with
AUM growth of 14%, followed by BNS at 10% and TD at 5%. BMO’s and CM’s AUM were relatively
flat year over year, while NA’s AUM declined 4% from a year earlier.
I N T E R N A T I O N A L D I V I S I O N S M I X E D
International earnings were mixed across the bank group. BNS had strong earnings growth of 12% in its
International segment, despite relatively weak results from Mexico mainly due to Mexico becoming fully
taxable. RY’s U.S. & International earnings were disappointing, declining by 30% due to higher loan
losses from the bank’s U.S. Builder Finance portfolio. BMO and TD had modest growth from their U.S.
businesses. We expect more favourable results from the banks’ International segments beginning in Q4/08
as year-over-year comparisons for the Canadian dollar begin to improve.