Interior view of the lobby of National Bank on Toronto’s King Street in 2014.Fernando Morales/The Globe and Mail
National Bank of Canada delivered a slight increase in its first-quarter earnings after a surprising jump in trading-related activity that analysts cautioned could be fleeting.
The bank reported that net income rose to $415-million in the first quarter, up 2 per cent from last year.
The increase nudged up earnings to $1.16 a share, up a penny from last year and ahead of analysts' expectations for earnings of $1.12 a share.
The results reflected "sustained growth across its three main business segments and the quality of its credit portfolio," said Louis Vachon, National Bank's president and chief executive, in a statement.
"Given the drop in oil prices and interest rates in recent months, we're continuing to prudently manage our operations while staying apprised of opportunities," he said.
The shares rose 2.1 per cent in midday trading on Wednesday, as part of a broader rally in bank stocks after Royal Bank of Canada also beat expectations with its quarterly earnings.
However, John Aiken, an analyst at Barclays Capital, noted that National Bank's better-than-expected results were largely the result of surging trading earnings.
Net income from the bank's financial markets division jumped 23 per cent, to $178-million.
"Financial Markets was the whole story in terms of growth, with trading up strongly (+70 per cent)," Mr. Aiken said in a note.
Although the trading activity was a pleasant surprise, analysts pointed out that the results generated from trading tend to be volatile from quarter to quarter.
"While we accept a higher level of trading revenue from this bank and do not assume it is taking on undue risk to get it, volatility is still higher on this line than on most others," said Robert Sedran, an analyst at CIBC World Markets, in a note.
"In other words, it's not balance sheet risk that fusses us, but earnings volatility. For example, had the bank merely matched its previous record trading quarter, earnings this quarter would have been below forecast, which challenges the outlook for the shares and estimates."
David Berman