National Bank of Canada wrapped up earnings season for the country’s big banks with a 2-per-cent rise in second-quarter profit as weak trading conditions in financial markets offset good results from retail banking.
The Montreal-based bank bucked a trend of sluggish domestic profit growth among its peers, posting a 9-per-cent increase in earnings from personal and commercial banking, which reached $234-million, boosted by a strong Quebec economy.
The country’s largest banks reported mixed results in the second fiscal quarter, as slow growth in personal lending and mortgage loans was offset by more rapid increases in commercial lending, as well as robust profits from international operations. Provisions for credit losses, or the money banks set aside to cover soured loans, also spiked across the sector as several major banks tempered their economic forecasts, but credit losses are still low by historical standards.
National Bank reduced its own provisions for loan losses by 8 per cent to $84-million, as expected writeoffs from the bank’s U.S. subsidiary Credigy Ltd. declined. That more than offset modest increases in provisions on loans in the commercial-lending and financial-markets divisions.
The weak spot that stood out in National Bank’s second quarter was the performance of its financial markets arm, where profit fell 16 per cent to $160-million as trading revenues sagged relative to a strong second quarter last year. Trading in equity securities was particularly soft, falling 23 per cent year over year, while fixed income, commodities and foreign exchange trading also decreased.
“There’s nothing structural really. It was just a question of market conditions," chief executive officer Louis Vachon said in an interview. “We remain optimistic for the second half of the year.”
For the three months ended April 30, National Bank reported a profit of $558-million or $1.51 a share compared with $547-million or $1.44 a year ago.
The bank’s earnings per share fell 1 cent shy of analysts’ consensus estimate of $1.52, according to data from Refinitiv.
National Bank also raised its quarterly dividend by 3 cents to 68 cents a share and announced plans to buy back as many as six million shares.
The bank’s capital reserves are robust, with a common equity Tier 1 ratio – a key measure of a bank’s ability to deploy capital – of 11.5 per cent, unchanged from the previous three months. National Bank expects that ratio will continue to creep higher, and will get a bump from a recent agreement to sell $128-million in shares in asset manager Fiera Capital Corp., through a deal with Natixis Investment Managers.
National Bank still has a partnership agreement with Fiera that runs through 2022, and continues to own about 7 per cent of the company’s shares, but may reduce that position over time. “The timing and the size of the transaction was driven by the buyer of the assets, namely Natixis, who approached us,” Mr. Vachon said. “We just reacted to an approach by a buyer.”
Wealth management profit rose 5 per cent to $118-million, driven by interest income and revenue from fees. And profit from the U.S. specialty finance and international division jumped 14 per cent, as revenue growth in the ABA Bank subsidiary in Cambodia outpaced revenue declines at Credigy.
“The bank is performing well in its home market and in the market farthest from home in Cambodia. Other businesses had a more mixed quarter,” Robert Sedran, an analyst at CIBC World Markets Inc., said in a research note.