National Bank of Canada NA-T -4.74%decrease reported higher first-quarter profit that beat analysts’ expectations as capital markets and wealth management activity surged amid market volatility, offsetting a jump in provisions for loan defaults.
Major Canadian bank earnings have received a boost this quarter from strong performance in trading activity as equity markets whipsawed in the aftermath of the U.S. presidential election in November. National Bank’s net income rose 8 per cent to $997-million, or $2.78 per share, in the three months that ended Jan. 31.
Adjusted to exclude certain items, including which costs related to the acquisition of Canadian Western Bank, the bank said it earned $2.93 per share. That edged out the $2.66 per share analysts estimated, according to Refinitiv.
“In a context of heightened macroeconomic and geopolitical uncertainty and an evolving credit cycle, we remain committed to maintaining our usual discipline regarding credit, capital and costs,” National Bank chief executive officer Laurent Ferreira said in a statement.
National Bank set aside higher provisions for credit losses – the funds banks reserve to cover loans that may default.
The bank reserved $254-million in provisions, higher than analysts anticipated and more than double the amount the bank allocated in the same quarter last year. This included $196-million against loans that the bank believes may not be repaid – a 33-per-cent increase from the previous year quarter.
The boost was driven by deteriorating loans in commercial and retail banking.
Analysts had anticipated that banks would start increasing provisions to mitigate the impacts of a potential trade war with the United States. When Bank of Montreal and Bank of Nova reported results Tuesday, both banks pointed to the threat of tariffs and escalating tensions with the United States, which is also causing clients to delay borrowing and investing plans.
National Bank is the third major Canadian bank to report earnings for the fiscal first quarter. Scotiabank and BMO posted profit that beat analyst estimates. Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will close out the week for major bank earnings on Thursday.
In early February – after the first quarter closed – Canada’s sixth-largest lender closed its deal to take over the Canadian Western Bank, allowing National Bank to significantly expand its footprint in Alberta and British Columbia.
Prior to the deal, 80 per cent of National Bank’s personal and commercial business was in Quebec, with 20 per cent outside of the province. By acquiring CWB, 40 per cent of its business comes from outside Quebec.
The bank kept its quarterly dividend unchanged at $1.14 per share.
Total revenue jumped 17 per cent in the quarter to $3.18-billion. Expenses rose 14 per cent to $1.65-billion, driven by a 22-per-cent jump in variable compensation, higher salaries and benefits and technology investments.
Profit from Canadian personal and commercial banking was $290-million, down 14 per cent as provisions surged.
The wealth management division generated $242-million of profit, up 23 per cent as fee-based revenue increased amid market volatility.
Profit from the capital markets division rose 35 per cent to $417-million on higher revenue in global markets.
Leave a Reply
You must be logged in to post a comment.