National keeps up Big 6 earnings run

Boosts CET1 over key 10.5% ratio level

National Bank of Canada’s latest quarterly earnings beat market expectations, driven by strength in retail banking and wealth management.

The Montreal-based bank reported adjusted net income of $502 million, up 18 per cent from a year earlier.

Analysts had expected adjusted net income of roughly $431 million, according to Bloomberg.

“The Bank’s excellent performance was driven by strong revenue growth in both the Wealth Management and Financial Markets segments and by efficiency initiatives undertaken in the Personal and Commercial segment,” Louis Vachon, chief executive of National Bank, said in a statement.

National Bank is the latest Canadian lender to report strong earnings for the quarter ended Jan. 31.

Canada’s sixth-largest lender by market capitalization reported adjusted earnings per share excluding specified items of $1.35, up 15 per cent from $1.17 in the same quarter of 2016. Analysts had expected adjusted earnings per share of $1.26.

The bank also announced a dividend of $0.56 per share, unchanged from the previous quarter, payable on May 1.

Before adjusting for oneoff items such as a $236-million gain related to the bank’s writeoff of its interest in Maple Financial Group, National Bank had net income of $497 million for the fiscal first quarter, up 90 per cent from a year earlier.

“National came in well ahead of expectations and, more importantly, raised its regulatory capital ratio to a level that should ease most concerns,” said John Aiken with Barclays in Toronto. “While trading did help results, its provisions were essentially in line, meaning that the beat came from core operations, including strength in its retail banking and wealth management operations, underpinned by strong cost controls.”

The bank’s Common Equity Tier 1 (CET1) capital ratio rose to 10.6 per cent compared to 10.1 per cent in the previous quarter.

“Getting over the 10.5 per cent mark will bring palpable relief to the market, which remains an overhang for National,” said Aiken. “At this level we believe that it removes any lingering nearterm concern about needing another equity raise. Modest deterioration in consumer credit was offset by improvements in commercial, largely its energy exposures.”

National Bank’s personal and commercial segment saw net income of $213 million, up 18 per cent from $180 million a year earlier.

Provisions for credit losses, or money set aside for bad loans, for this segment was $52 million, $10 million less than in the first quarter of 2016.

The bank’s wealth management unit — which has been strong for its banking peers so far this earnings season — saw net income rise 31 per cent to $101-million. Its financial markets’ division, excluding specified items, earned $183-million, up 23 per cent from the corresponding period a year before.

International activities, however, remained flat. A new business segment called U.S. Specialty Finance and International saw profit of $38 million, down from $40 million a year earlier.

This is the first quarter that National Bank has reported earnings for this segment, which it created due to growth in its international activities. It consolidates its specialty finance subsidiary Credigy Ltd., which operates exclusively outside Canada; the operations of the subsidiary Advanced Bank of Asia Ltd. (ABA Bank) in Cambodia; and investments in certain emerging markets.

“Overall, this was a solid quarter,” said Robert Sedran at CIBC Capital Markets. “Sure, trading revenue was the single biggest variance, but we knew trading was going to be strong even if precision is tough on that line. As important were the stronger credit quality and CET1 ratio.”