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National Bank unveils stock split as one-time charges sting

The entrance for 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 continues to churn out solid profits from its core operations, but must iron out wrinkles created by one-time items.

All three of the bank's business lines – personal and commercial banking, wealth management and financial markets – performed better during the fourth quarter than in the same period of 2012, but one-time charges such as severance pay and employee retention bonuses bit into the bottom line.

Canada's sixth-largest lender made $337-million last quarter, down from $343-million a year prior. Excluding one-time items, National Bank made $370-million, or $2.09 per share, up from $343-million in the fourth quarter of 2012 and in line with analyst estimates.

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The bank also hiked its dividend by 6 per cent to 92 cents per share quarterly, a move that was widely expected, and announced plans for a two-for-one stock split, meaning every shareholder will receive an additional common share for each share they already hold.

The stock split will halve the dollar value of National Bank's shares, which had been nearing $100. Before earnings season started Tuesday, Big Six bank stocks had been on a wild run for nearly six months, and National Bank's was one of the top performers, gaining 25 per cent since late June.

The fourth quarter profit capped off an encouraging year. It can be difficult to compare National Bank's total 2013 revenues and profits to those from the year prior because of numerous one-time gains, such as the sale of its Natcan business, and several one-time expenses, such as severance pay, but all three of the bank's core divisions made gains this year.

Most notably, wealth management earnings jumped 26 per cent for the full year and financial markets profits climbed 17 per cent.

In personal and commercial banking, National is dealing with the same issues as its Big Six bank peers. Fourth-quarter net income climbed 15 per cent higher to $177-million on the back of encouraging loan growth, but the bank is making less per loan.

Chief financial officer Ghislain Parent said on a conference call Wednesday that he believes this unit can eke out more growth in 2014. National Bank is highly levered to the Quebec economy, and the province's economic growth is finally expected to pick up some steam next year.

Wealth management continued to please investors, with fourth-quarter profit up 67 per cent from the year prior. Much like Bank of Montreal, which also reported strong wealth-management profits on Tuesday, National's equivalent unit benefited from rising markets, helping to boost its fees that are calculated as a percentage of the value of assets under management.

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Financial markets' earnings of $331-million beat the profit from the same period in 2012. However, this unit's earnings are tough to predict. Fixed-income trading revenues took a hit last quarter, while equity trading revenues rose. In corporate and investment banking, equity underwriting fees took a hit while banking services revenues climbed higher.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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