A National Bank building in Montreal. CEO Laurent Ferreira said war in the Middle East and looming trade talks are adding to economic uncertainty.Paul Chiasson/The Canadian Press
National Bank of Canada NA-T booked higher second-quarter profit and raised its dividend as reserves against loan losses eased, but the bank’s CEO cautioned that trade uncertainty and a lacklustre employment market are holding back business investment in Canada.
Chief executive officer Laurent Ferreira said war in the Middle East and looming free-trade talks with the United States and Mexico are also adding to greater uncertainty about the direction of travel for inflation and interest rates. That is causing businesses to hesitate and impacting economic growth, he said.
“It feels like we are a bit in a lull in our country in terms of business investment,” he said.
The bank tweaked its analysis of Canada’s economic outlook in the fiscal second quarter, which ended April 30, to account for higher unemployment, as well as weaker prospects for stock markets and housing prices.
But Mr. Ferreira said he is “definitely encouraged by the shift in our government towards a focus on the economy, so to us that bodes really well going forward.”
Montreal-based National Bank was the third major Canadian bank to report profits that beat analysts’ estimates, following Bank of Nova Scotia and Bank of Montreal which each reported earnings for the fiscal second quarter earlier on Wednesday.
Lower loan loss reserves and strong performance from capital markets and retail banking boosted National Bank’s earnings.
The bank reported profit of $1.23-billion, or $3.06 a share, compared with $896-million, or $2.17 a share, in the same quarter last year.
After adjusting to exclude certain items, National Bank said it earned $3.23 a share. That beat analysts’ consensus expectation for profit of $3.14 a share, according to Bloomberg data.
Earnings in the second fiscal quarter last year were affected by National Bank’s acquisition of Canadian Western Bank (CWB), which added to its loan loss reserves.
The Montreal-based bank is expecting to reap about $300-million in annual savings on costs and funding once it has merged CWB’s operations with its own. As of April 30, the bank said it has achieved $215-million so far, and is on track to reach $270-million by the end of the fiscal year.
National Bank raised its quarterly dividend by eight cents to $1.32 per share. That was a larger increase than the five cents some analysts had expected.
Some bank analysts viewed the bank’s results favourably, but the bank’s share price took a step back after recently trading at a premium. National Bank shares were down 3.4 per cent to $205.09 by midday on Wednesday.
Provisions for credit losses, the money the bank sets aside to cover loans that may default, was $233-million, down from $545-million a year earlier.
A lower provision of $38-million on performing loans, which are still being paid back, largely accounted for the decrease. In the fiscal second quarter last year, the bank took an initial provision of $315-million, mostly because of the CWB acquisition.
National Bank’s fiscal second-quarter provision included $6-million of loan loss provisions for a portfolio of syndicated loans that National Bank acquired from Laurentian Bank of Canada.
National Bank’s capital markets division had a good quarter, as analysts anticipated, with profit of $488-million falling just shy of the unit’s record $501-million of profit in the same quarter last year. Trading revenues dipped from last year’s highs, but the bank had its best-ever revenue from corporate and investment banking.
Personal and commercial banking profit was $355-million, up from $132-million a year earlier. Lower loan loss provisions accounted for most of the difference. But the bank’s commercial loans increased by 5 per cent year over year, and personal mortgages were up 12 per cent.
Higher fee-based revenue helped the bank’s wealth management arm increase profit by 18 per cent to $274-million, from $232-million in the second quarter last year.
And the bank’s international and specialty finance division reported $186-million of profit, up 10 per cent as its Cambodian subsidiary ABA Bank added loans and deposits as it increased its client base by 35 per cent year over year.
National Bank’s return on equity was 15.9 per cent. And its key measure of capital reserves – the common equity Tier 1 ratio – was 13.5 per cent, down from 13.7 per cent in the prior quarter as the bank bought back 8.8 million shares so far this fiscal year.