National Bank quickly takes writedown on Germany's embattled Maple Bank

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When German regulators on Sunday essentially shut down Maple Bank GmbH, the German subsidiary of Maple Financial Group of Canada, following ongoing investigations into its trading activities, National Bank of Canada's quick response showed that the move was no surprise.

The bank, which owns a 24.9-per-cent stake in the parent company, immediately announced it was taking a $165-million reserve against the full value of its investment, which will appear in the bank's first-quarter results at the end of the month.

The pain should be modest as well. For one thing, the lost earnings from Maple Financial amount to less than 1 per cent of the bank's profits – an immaterial hit, according to CIBC World Markets analyst Robert Sedran. ("With no lasting earnings impact, there should be no lasting valuation impact either," Mr. Sedran said in a note.)

For another, although National Bank said the $165-million writedown will reduce its common equity Tier 1 (CET1) ratio – a measure of capital levels watched closely by Canadian bank regulators – by 13 basis points, the bank had been anticipating this sort of reduction for months.

Indeed, concern about Frankfurt-based Maple Bank, which specializes in equity and fixed-income trading and structured products, was one of the driving factors behind National Bank's decision in October to raise $300-million through a share issue.

That move boosted its capital levels above the minimum threshold of 9.5 per cent in order to give the bank some breathing room if the news at Maple Bank turned worse. The bank ended its 2015 fiscal year with a CET1 ratio of 9.9 per cent.

"Now, as you know, issuing shares is not something we have a habit of doing," Louis Vachon, National Bank's chief executive officer, said during a conference call with analysts in October.

"We do not like diluting our shareholders, but in the circumstances we feel it is absolutely the right thing to do."

The problems at Maple Bank began in September, 2015, when German authorities investigated the firm over trading activities by certain employees between 2006 and 2010 that were alleged to violate German tax laws.

In a statement on Sunday, National Bank said: "None of National Bank of Canada and its employees were involved in these trading activities, nor to our knowledge is National Bank of Canada or any of our employees the subject of these investigations."

National Bank also said that it had told German authorities that if it is determined that portions of dividends received by Maple Financial Group – a privately held company – were attributable to tax fraud by Maple Bank, arrangements will be made to repay those amounts.

"If any payments are required, they are not expected to be material to National Bank," the bank said in its statement.