The entrance to National Bank on the corner of York St. and Adelaide St. West in Toronto's Financial district.Charla Jones/The Globe and Mail
National Bank of Canada announced job cuts and a new share offering, in a surprise move that acknowledged volatile markets and shifting consumer preferences for the way they conduct regular banking.
The bank said the share offering would raise $300-million, providing a cushion to regulatory requirements that mandate how much capital a bank must hold.
"We do not like diluting our shareholders. But in the circumstances, we feel that it is absolutely the right thing to do," chief executive officer Louis Vachon said during a conference call with analysts on Thursday.
The decision to cut jobs – affecting a few hundred employees, according to a release – is likely one that will resonate widely: Banks have been focused on building their technology departments, as fewer transactions are conducted in traditional branches.
"Given how rapidly consumer preferences are changing, you cannot retrain people that have expertise in administration and make them IT experts," Mr. Vachon said.
The bank said it would take a restructuring charge of $85-million in the fourth quarter, or 19 cents a share.
Mr. Vachon said that volatile markets were also to blame for the decision to raise money, since lower notional values for bond-holdings, for example, eroded the bank's common equity tier 1 ratio – a measure of financial strength – to 9.5 per cent, or the minimum required by domestic regulators. The share offering will provide a buffer by boosting the ratio to an estimated 9.8 per cent by the end of October.
"Our hope was that we would [build that buffer] by using excess capital generated by our profits, but market volatility is now forcing us to make the decision of issuing shares," Mr. Vachon said.
The bank also said that its $165-million investment in Maple Financial Group Inc. was "at risk of substantial loss" following allegations from German authorities of tax irregularities among the firm's current and former members. It added that a writedown would also affect its capital ratio.
On Wednesday, The Globe and Mail reported that Bank of Nova Scotia had raised its cost-cutting goal within its domestic operations, adding to concerns that Canadian banks are looking at expenses amid slow economic growth and technology-driven changes.
David Berman