National Bank of Canada joined an upswing in fiscal first-quarter profit for Canada's large banks, with stronger results helped by higher trading revenue and lower losses on soured loans.
The Montreal-based bank, which is Canada's sixth-largest by assets, cashed in on busy capital markets and squeezed out encouraging results from each of its businesses while bolstering its capital cushion.
Yet National Bank, which is largely focused on Canada, faces a stiff challenge to keep boosting returns amid slower economic expansion at home. It must rein in spending to grow. And after absorbing two large restructuring charges totalling $216-million over the last two years, Louis Vachon, the bank's chief executive officer, promised to continue relentlessly cutting costs through the balance of 2017.
Executives re-affirmed a previous promise that the restructuring would reap $135-million in savings this fiscal year.
"Each of our businesses is growing, and our entire organization is focused on efficiency and cost management," Mr. Vachon said on a conference call.
National Bank's capital levels also came into focus as its common equity Tier 1 (CET1) ratio of 10.6 per cent, which is watched as a proxy for a bank's health, rose from 10.1 per cent in the previous quarter. The ratio surpassed National's target of 10.5 per cent "one quarter sooner than we expected," Gabriel Dechaine, an analyst at National Bank Financial Inc., said in a research note.
But Mr. Vachon said he wants to raise the CET1 ratio above 10.75 per cent before he restarts a share-buyback program, especially in light of uncertainty about new rules that are expected from the Basel Committee on Banking Supervision.
"We read the papers just like the way you do," Mr. Vachon told analysts on Wednesday. "The probabilities of something harsh happening has probably declined over the last six months. That being said, I think there's not a huge amount of science in this."
The bank held its quarterly dividend steady at 56 cents a share, as expected. Provisions for credit losses, or money set aside to cover bad loans, decreased 5 per cent to $60-million year over year. The improvement was due to lower losses on personal and commercial loans, but after watching its losses from bad energy-sector loans soar last year, the bank notably "took no additional provisions against its oil and gas sectoral allowance this quarter," Mr. Dechaine said.
National Bank's profit rose to $497-million, or $1.34 a share, for the quarter that ended on Jan. 31, compared with $261-million or 67 cents a share a year earlier. The huge discrepancy was due to a writeoff the bank took in the first quarter of 2016.
Adjusted to exclude certain items such as the writeoff, profit was up 18 per cent to $502-million or $1.35 a share, well ahead of the $1.26 that analysts surveyed by Bloomberg had expected.
"This was a solid quarter," said Robert Sedran, an analyst at CIBC World Markets Inc.
In personal and commercial banking, which is National Bank's largest division, net profit rose 18 per cent from the prior year, to $213-million, thanks to strong loan and deposit growth. But the driving forces behind National Bank's strong results were in its wealth-management division, where fee revenue helped push profit up 31 per cent to $101-million, and in the capital-markets arm.
All the big Canadian banks that have so far reported first-quarter earnings surfed a wave of volatility in markets, enjoying higher trading volumes as a result. National Bank was no exception, with profit of $183-million in its financial markets division, up dramatically from $4-million a year ago. Adjusted to account for the writeoff, which weighed on last year's results, profit in the segment was 23-per-cent higher.
That was due primarily to better trading revenue, which climbed 18 per cent. Revenue from equity and fixed-income securities was especially strong. And though no one has a crystal ball to predict what direction capital markets will take through the year's balance, National Bank is optimistic.
"Listen, the pipeline is quite good. And it's always a consequence of what will happen in the economy and what will happen south [of the] border," said Denis Girouard, executive vice-president of financial markets. "Does it mean that it will materialize? We don't know. But so far, what we can say, you know, the environment is pretty stable, pretty good."