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On Friday, National Bank of Canada (NTIOF) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Commercial Banking is Booming
Peter Routledge – National Bank Financial: Just wanted to get a sense of your sustainability – the sustainability of the performance in P&C Commercial Banking and just a couple of issues maybe you can touch on; one, PCL seemed quite low and is that sort of reasonable to think that you can maintain that. Two, expenses have been in the ($360 million to $370 million) range now for three quarters, will we see some seasonality next quarter and what’s the outlook on efficiency for 2013? And then finally if you can just update us on your thoughts on the mortgage brokerage market you had some interesting comments last quarter and just want to see where you are on your thinking on that?
Louis Vachon – President and CEO: Let’s start with the first part on the PCL. Bill, what’s your review on this front?
William Bonnell – EVP, Risk Management: The performance in Commercial has been very, very good. This quarter in particular benefited from some recovery, which we don’t expect to be at the same level every quarter, but if you look at the formations, if the portfolio is looking and performing very, very strong. So, we didn’t anything that made us change our estimate for the 25 to 30 bps for the next two quarters.
Peter Routledge – National Bank Financial: The second part in terms of seasonality of the expense base Ghislain or Jean, any particular views on this. I think we are certainly working very hard and Ghislain mentioned that in his comments, anything to add on that?
Ghislain Parent – CFO and EVP, Finance and Treasury: Well, let’s forecast the expenses Peter, but we know that Q4 usually is a high cost quarter. But as we mentioned and I also mentioned that in my notes that we are working very hard on the expense front. So, we will try to minimize the expenses in Q4.
Peter Routledge – National Bank Financial: Next year mid-50 is sort of a good operating assumption for efficiency?
Ghislain Parent – CFO and EVP, Finance and Treasury: Well, once again difficult to forecast, but we’ll try our best. I think assuming that there is no major decline in revenues caused by macroeconomic factors that we don’t control, I think it’s a reasonable number to work on. On last part of your question regarding mortgage brokers and the mortgage market generally, I’ll ask Diane Giard to give you an update as to what we’ve done and where we are in the mortgage market. Diane?
Diane Giard – EVP, Personal and Commercial Banking: So, if you look Peter at our year-over-year growth or quarter-over-quarter growth, I am happy and pleased to report that the three channels that we operate in have been growing. The growth has been actually more substantial on the MDM side. We’ve been adding capacity and it’s starting to pay off. So, if you look at the allocation of our mortgage business being done currently you see that in fact there was an uptick in the MDM world, so we’re still committed to working with the three channels.
Peter Routledge – National Bank Financial: I mean spreads are a little tighter that you’re still comfortable with the spreads or no?
Diane Giard – EVP, Personal and Commercial Banking: We’ll still continue to manage both growth and we still want to make sure that we continue to compete strong. But in terms of margin we’re also addressing this through mortgage product mix and also in terms of just allocation between those channels. So, we continually look at it and on a proactive basis manage this.
Robert Sedran – CIBC: Just trying to better understand the net interest income and the other segment, I gather it’s all the treasury activity, but it’s been sizeable losses for the last couple of quarters. I’m wondering if you can shut some light on what the strategies are and whether any corrective action has been taken to try to reduce that number to closer to the zero-ish range which is where it’s been over the last a little while.
Jean Dagenais – SVP, Finance, Taxation and IR: There is treasury in there, but there is also the adjustment for the tax equivalent basis that is a reversal, the accrual is done in financial market and it’s reversing the other. So, it’s not abnormal that you see a negative it doesn’t reflect necessarily a performance. But you’re right that the treasury revenue were a slightly lower well in Q3 compared to Q2 which explained the variation between the two, but the objective is not necessary to add zero balance on that line.
Robert Sedran – CIBC: So, Jean if I was to try to allocate that number into a segment it more properly belongs in financial markets and it would belong in personal and commercial banking is that fair?
Jean Dagenais – SVP, Finance, Taxation and IR: Which number would you like to allocate?
Robert Sedran – CIBC: The NII loss that is in the…
Jean Dagenais – SVP, Finance, Taxation and IR: Like I said it’s the reversal of the tax equivalent basis. If you put it on tax equivalent basis you have to add 48 million to that, so you’ll be positive ’13.
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