Laurent Ferreira doesn’t like the world “scale.”
For the past year, almost from the moment he took over as National Bank of Canada’s chief executive officer in late 2021, he has watched his larger rivals get bigger by striking three of the largest deals ever done by Canadian banks. A common theme in each transaction is that banks need greater scale, in Canada and abroad, to stay competitive.
For a brief moment last fall, after HSBC Canada was put up for sale, it seemed possible that National Bank might join the arms race. Instead, after Royal Bank of Canada won the auction with a $13.5-billion bid, the Montreal-based bank Mr. Ferreira leads is likely to stay leaner, by necessity and by design.
The country’s sixth-largest lender will continue to be a superregional bank, anchored in Quebec with national reach. He wants to pick its spots and double down on niches where the bank has expertise. And he wants its bankers to be rigorous about the opportunities they choose to pursue, but entrepreneurial when they spot one.
If he’s successful, National Bank will grow faster than it has and deliver a good rate of return for shareholders – but not in pursuit of “scale” to rival its largest peers.
“Because the problem with that is that I think you try to behave maybe bigger than what you really are and you’re not maybe as disciplined or as focused,” he said in an interview at his Montreal office. “Yeah, I would like to have a million more clients, but you also want to balance that out with risk. Having more scale doesn’t mean that you’re going to end up necessarily performing better.”
National Bank has done well of late – revenue from each of its three main business lines was up between 9 and 15 per cent last fiscal year. But its performance will be tested in the coming years as banks adapt to a much tougher business environment.
A rapid surge in interest rates has pushed up borrowing costs, squeezing demand from customers for new loans. High-interest rates are pushing up banks’ costs, most notably for talent. And a period of ultralow losses on defaulting loans is likely near its end as larger numbers of clients are expected to struggle to keep up with payments – especially those carrying large mortgages taken out at cheap rates during earlier waves of the COVID-19 pandemic.
Mr. Ferreira is realistic that those challenges likely won’t be short-lived. He expects the Bank of Canada may yet raise its benchmark interest rate as high as 4.75 per cent or 5 per cent, from 4.5 per cent currently. And he is concerned that inflation may not fall enough this year for the central bank to start lowering rates in 2023. A bulge of mortgages comes up for renewal in 2024 and 2025 after a surge of buyers entered the market around the start of the pandemic – and if central bank rates are still elevated, “that payment shock ... is pretty steep,” he said.
That, in turn, puts pressure on employers to raise wages as households try to manage rising costs. “And hence you have a spiral that keeps going,” Mr. Ferreira said. “And so the risk that we have right now, and I think we can’t be oblivious to it, is this inflation cycle is not going to be over and we’re not going to resolve it in a 12-month period. This could take three to five years as we keep seeing these events.”
Even against that backdrop, Mr. Ferreira thinks National Bank can step on the gas. He plans to sharpen the bank’s efforts to attract talent, chase a larger share of new immigrants, keep a close eye on costs and upgrade the bank’s back-end systems. He expects the bank will push further into business niches where it can gain a competitive edge, such as the structured products group in its financial markets arm. And he wants to attract more affluent and high-net-worth clients outside Quebec, especially business owners. One of Mr. Ferreira’s early moves was to draw the private banking and commercial banking units closer together so they can serve wealthy clients better.
“We know we can do a lot more, and we can grow faster in Canada,” he said. “And that’s been the theme of our strategy going forward.”
Mr. Ferreira, 52, has been National Bank’s CEO for nearly 15 months, and wrapped up what he calls “a transition year” after his long-serving predecessor Louis Vachon retired in October, 2021. He has focused on continuity rather than radical change, and has tweaked his executive team – promoting Marie Chantal Gingras to chief financial officer and Etienne Dubuc to co-head of financial markets – but is not planning a lot more turnover.
“I moved up, you didn’t see half the management team leave,” Mr. Ferreira said. “I think that’s something that is very important, when we talk about the culture and stability, and that element of fear when there is a change.”
There will be more changes next year when National Bank moves its Montreal headquarters to a new office tower on Saint-Jacques Street West. From his current office, Mr. Ferreira has watched it rise 40 floors, looming over several historic bank buildings built by rivals a century or more ago.
The city’s financial core has been the backdrop to Mr. Ferreira’s entire career: He grew up in Montreal, was schooled there and has called the city home ever since. His French mother and Portuguese-born father each immigrated from France in the 1960s and met at Expo 67. His father worked as an engineer at Rolls-Royce.
Growing up, Mr. Ferreira “was not a very serious teenager,” he said. In the 1970s and 1980s, he was more preoccupied with the music of Black Sabbath and Judas Priest than with his future career path. (Today, he’ll still travel to see Billy Joel at Madison Square Garden in New York, and is a fan of Belgian singer Stromae.) But he was attracted to numbers, and chose to study economics at the Université de Québec à Montréal. In his first week of university, a career-day presentation by a trader who talked about waking at 5:30 a.m. to see what was happening in markets in Russia and Asia convinced Mr. Ferreira that was the job he wanted.
After he finished a master’s degree in finance at HEC Montreal, he interviewed for jobs with four Canadian banks: Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and, of course, National Bank. “And all four said no, you’re not good enough,” he said. But U.S.-based Bankers Trust hired him in its Montreal office, where he met Mr. Vachon.
In 1998, it was Mr. Vachon who persuaded Mr. Ferreira to follow him to National Bank and help build a business in derivatives – a complex type of financial instrument. “I didn’t know what I was getting into,” Mr. Ferreira said. “I came to National Bank, I had no screens, no phones, no bank accounts, nothing.”
Equity derivatives are now big business for the bank, generating about $900-million in revenue last year. When Mr. Ferreira walks the trading floor, he still sees traders using spreadsheets he built.
It was also Mr. Vachon who tapped Mr. Ferreira in 2015 as a potential successor. But his ascent to CEO – from building derivatives to co-leading the financial markets division, then a final apprenticeship as chief operating officer – was low-key. In the past year, Mr. Ferreira has had to adjust to working in a role with a much higher public profile.
He describes himself as “more introverted” and tries to avoid the limelight. Many bankers have noted the contrast in style between him and Mr. Vachon, who became known for the force of his personality and charisma as well as his banking acumen over nearly 15 years in the job – and who boosted National Bank’s profile as well as its returns for shareholders.
“Following on Louis Vachon is not a small task,” said Pierre Boivin, a National Bank director who chairs the board committee that handles CEO succession. “But Laurent has really stepped in wonderfully.”
Years ago, when Mr. Boivin was new to the board, he arranged to be briefed by Mr. Ferreira so he could understand the bank’s derivatives business better. “I remember him leaving and I said to myself, boy, this guy is brilliant,” Mr. Boivin said. “But boy, is he dry.”
Since then, “boy, did I discover a different guy,” Mr. Boivin said, adding that they’ve “seen him evolve in his first year” as CEO. He describes Mr. Ferreira as humble and curious, courageous and calm, making him well suited to lead the bank through a period of upheaval.
“He’s got a lot of dynamism to him that you might not see at first blush,” said Adam Felesky, chief executive officer and co-founder of venture capital investor Portage Ventures, who is a long-time client of Mr. Ferreira’s. “He’s a calculated risk-taker.”
Mr. Ferreira has kept National Bank on a steady course amid surging inflation and interest rates and the increasing likelihood of a recession. Competitors made splashy deals, tapping into fat capital reserves accumulated during the pandemic: BMO is closing a US$16.3-billion transaction to buy California-based Bank of the West next month, TD has a pending US$13.4-billion acquisition of Tennessee-based First Horizon Corp., and RBC agreed to acquire HSBC Canada.
For National Bank, the silver lining to staying on the sidelines – it has a modest international footprint in financial markets and specialty finance in the U.S., and through its Cambodian subsidiary ABA Bank – is that it is still flush with cash at a moment when Canada’s banking regulator is raising capital requirements.
It’s not that Mr. Ferreira and National Bank weren’t interested in buying HSBC Canada. The bank was one of the six early bidders for HSBC’s Canadian arm, a rare asset that could have greatly expanded National Bank’s reach into Western Canada. But it was also early to exit the race as the price tag climbed to $13.5-billion.
“When you’re looking at assets or acquisitions, one important thing for long-term growth, return on equity for your shareholders, is that all the lights are green. And one of them is pricing. And in this case the price didn’t make sense for us,” Mr. Ferreira said.
There has been speculation about whether RBC’s deal with HSBC Canada, should it win approval from regulators and the federal government, could open the door to a merger between Big Six banks. A previous Liberal government blocked two such deals in 1998, and they have been widely viewed as off-limits since then.
But allowing RBC to absorb HSBC Canada would let the country’s biggest bank get bigger, reaching a share of Canadian loans and deposits – around 24 per cent – that would be comparable to the combined market share of National Bank and CIBC.
The regulatory review of RBC’s deal “has the potential to open the door to additional consolidation, even if it is by just a crack,” said John Aiken, an analyst at Barclays Capital Canada, in a note to clients last week.
Mr. Ferreira is not so sure a Big Six merger proposal – which would be the ultimate bid for greater scale in Canadian banking – would clear the political and regulatory hurdles that stand in its way.
“I think it’s a tough one,” he said. “Any merger has to make sense for Canadians. ... So what association brings in more bank competitiveness, provides a more resilient banking sector? I think those have to be top of mind.”