Q3 2020 National Bank of Canada Earnings Call
Participants. Please could you just inside the company will begin I'm going to be once again these computer pinsight <unk>. Thank you see patients.
[music].
Please standby your confidence in somebody to begin good afternoon, ladies and gentlemen, welcome to National Bank of Canada third quarter results Conference call I would now like to kinda meaningful new something doesn't LG Vice President Investor Relations. Please go ahead mr. what else you.
Thank you operator, good afternoon, everyone and welcome to National Banks third quarter 2020 presentation.
Turning to you this afternoon or do we buy Shaw, President and CEO, Bill Bonello, Chief Risk Officer, and you said, Baja Chief Financial Officer.
Following our presentation, we will open the call for questions.
Also joining us for the two any session our system on a shocking to see leadership co heads of PNC banking Mustang young head of wealth management.
<unk> and then use your <unk> go ahead of financial markets and John batch name Senior VP finance.
Before we begin I refer you to side two of our presentation, providing national bank caution regarding forward looking statements with that let me know turned to call it over to we've actually.
Sit in done thank you everyone for joining us.
Earlier today, we reported very good results for the third quarter into context, what continued to be a challenging environment.
Businesses performed well with pretax pre provision earnings up 5% from last year and the bank delivered a return on equity of 17%.
As we continued to navigate this uncertain environment our results demonstrate <unk>.
The resilience of our business model and the benefits of our diversified earnings stream.
In terms of outlook.
Economic and market indicators are sending mixed signals.
After an extraordinary plunged into first half the year Canadian anchor back economies have become climbing back with a phase recount reopening.
And the process get back given the strong rebound anticipated in the second half of the year. Our economist are now forecasting an 8% got traction.
And the GDP of the GDP in 2020, followed by 5.5% recovery and 2021.
In terms of provisioning, we were very proactive last quarter and significantly significantly increased our pcls.
Like thing primarily to reflect the deterioration in the macroeconomic cost conditions caused by Corbin 19.
In the third quarter, we continue to prudently built reserves, although on a much lower pace.
Our total allowances for credit losses increased more than 1.3 billion.
We recognize that the future Pasadena recovery.
And the impacts on our clients remain uncertain.
At this point in time with information available and considering our positioning and the performance of our portfolios.
We believe that we're adequately provisioned.
Bill will provide further details and this in his remarks.
At the end of the third quarter. The bank had strong capital levels, what do you see tier one ratio up 11.4.
In line with a previous quarter.
There's a capital deployment, our longstanding strategy remains unchanged, we will invest in our businesses where returns are accretive otherwise returning capital to our shareholders if permissible.
Consistent with all studies expectations, our share buyback program remains on hold.
Turning now to quarterly performance of our business segments.
In PMC pretax pre provision earnings are down 8% year over year as a result of the lower interest rate environment and softer client activity in the context of called at.
Partly offset by solid growth in retail mortgages and deposits.
Since the crisis began we have been supporting our clients with deferred measures across a breadth of products since Q2.
Oh your retail loans on the deferrals is down 60%.
In addition, the vast majority of clients are resuming payments are scheduled <unk>.
The exit deferral programs.
Wealth management pretax pre provision earnings were up 4% year over year into third quarter.
Transaction volumes remain elevated at National Bank Independent network and National Bank direct brokerage, most importantly assets under administration and under management returned to their pre covert levels, which should help affiliate.
Live yet some of the pressure on net interest income from the current rate environment.
Once again, we are pleased with the strategic and technology choices. We have made in the past and we may we remain committed to our client client facing strategy as we navigate these uncertain times.
Financial markets delivered solid growth, what pretax pre provision earnings up 17% on a year over year basis.
Our performance was driven by double digit revenue growth and both global markets and corporate and investment banking as well as an industry leading efficiency ratio.
Our results this quarter highlighted the agility of our financial markets franchise, which is key to delivering strong and consistent returns.
This is particularly important in the context of low interest rate environment, providing the bank, where they diversify earning stream.
Okay Ford our priority remains to support our clients and challenging on certain markets, while maintaining a prudent risk profile.
Our international segment continues to perform well.
Creditors results were solid this quarter, reflecting higher revenue and lower PCL as a result of a lower coven 19 NPAC versus prior quarter.
Investment volumes remained strong in Q3 with average assets up 29% compared to last year.
We are very comfortable with credit Suisse book.
Which remains diversified and well positioned to withstand the impact of covert 19.
As mentioned that you too in the current contacts we expect credigy its earnings to be flat this year.
Looking forward, we are confident in credit visibility to generate disciplined growth in the medium term.
And maybe a bank we sell momentum picking up starting in mid June.
During the third quarter Aviate delivered solid results with net income up 35% year over year, driven by strong growth in loans and deposits.
Over the last few months, maybe it was able to grow at a faster pace than the market with clients attracted by the <unk> industry, leading digital solutions and strong brand, which has become key differentiating factors.
As a result.
Recently surpassed 1 million client threshold in Cambodia and continues to have strong momentum.
Overall, we're very satisfied where our international activities, which are positioned to perform well throughout the crisis and beyond.
And the current context, we're pleased with the overall strategic positioning, which we view as defensive namely.
Our Super Regional Bank model operating primarily in Canada are overweight position in Quebec, which has strong economic fundamentals and is showing solid momentum since reopening of the economy.
Although our exposure to unsecured debt.
Our above average exposure in fee based businesses like financial markets in wealth management, which is translating into strong earnings power, providing us with additional flexibility our unique strategy outside of Canada.
And the evolution of our culture into a collaborative and adaptable organization.
Gee competitive advantage, especially in the current environment.
In conclusion, I am satisfied with our third quarter results and with how we have navigated a crisis to date, while significant uncertainty remains regarding the duration Andy impacts of the crisis. There are clear signs that the economy is rebounding.
I would like to take this opportunity to sincerely. Thank all of our people and National Bank for their continued dedication and unwavering commitment to our clients without I will now turn to call over to bid.
See Louis and good afternoon, everyone.
During the third quarter, we maintained our proactive and prudent approach to provisioning in the context of an uncertain macroeconomic environment.
The progressive reopening of the economy was apparent capital markets rebounded and were easily accessible by issuers commodity prices increased materially materially and market volatility declined.
However, the path to recovery is likely to be long and remains uncertain.
You'll see this clearly in our economists updated forecast presented in the graphs on slide 31.
Our baseline expectations are for unemployment to slowly recover but remain well above pre crisis levels throughout the forecast period and risks are skewed to the downside for both employment and GDP.
In the table on the right you'll find our baseline forecast for several macroeconomic indicators presented on a full calendar year basis.
You can note that are quarter over quarter updates for those economic and market indicators were mixed.
Turning to slide seven.
Total provisions for credit losses in Q3 were $143 million or 35 basis points, 70% lower than last quarter and up almost 70% from last year.
Performing pcls totaled $62 million.
This quarter. The main drivers of our performing Pcls were an update to arrive for us nine scenarios and factors.
An increase to wait assigned to the pessimistic scenario.
Credit growth and migration.
And an increase in the management overlay to take into account elevated uncertainties as well as what we think there's just a temporary improvement in retail credit metrics experienced this quarter.
Result was 15 basis points of performing pcls spread across the retail non retail and the international portfolios.
Impaired pcls totaled $88 million, only 17% higher than last year.
Positive impacts of support programs were evident here, particularly in the retail portfolios, which saw a significant decrease in impaired pcls.
Looking ahead, we expect impaired losses to trend upwards into next year and want to remind you that these can be lumpy from quarter to quarter in the non retail portfolios.
On slide eight to progression in or allowances for credit losses is presented.
Total allowances increased to 1.3 billion in the quarter, a 70% increase from their pre coded level.
Performing allowances increased by $58 million to more than 1 billion, an increase of 76% since Q1.
And nonperforming allowances increased to 342 million, which represents a strong 43% coverage of gross impaired loans.
Given we remain cautious about the path of the recovery, we believed it appropriate to continue proactively building performing allowances.
The information, we have today and based on the geographic product and sector mixing our loan books, we're very confident that we have a prudent level of allowances.
On slide nine we've updated some key ratios, we track that demonstrate the adequacy ever provisioning.
Performing allowance coverage remained very strong at 2.8 times to last 12 months impaired Pcls and total allowances now cover 4.7 times, our last 12 month net charge offs.
Turning to slide 10.
Gross impaired loans increased moderately to $794 million were 49 basis points.
NIPT formations declined in corporate lending Anda credigy, while commercial lending had net repayments in the quarter.
On slide 11, we provide updated insights on our exposure to those sectors most directly impacted by corporate 19.
Our exposure to consumer discretionary sectors is modest and declined on a quarter over quarter basis.
An update on our customers loans under deferral are shown on slide 12.
The number of new retail deferral requests during the third quarter declined by almost 90% versus Q2.
Value of retail loans still under deferral declined by 60% during the quarter as more customers resumed regular payment schedules.
In the remaining 3.6 billion of wrestle nearly half are insured in the LTV of the uninsured portion is 60%.
Just $35 million of credit card and personal loans combined remained under deferral at the end of July.
Non retail deferral balances were stable is the vast majority of these were for a six month term.
I think these positive metrics demonstrate the effectiveness of the programs put in place to support clients early signs of our clients increased confidence and prudent consumer behavior. However, we're monitoring payment patterns closely.
For expired resolute deferrals, we have seen 98% already restart regular payments.
And we've noticed that the performance unexpired deferrals in Quebec appears to be stronger than in other provinces.
It is too soon to draw from conclusions, though as we are still in the very early days and the transition will have better insights on this at the end of next quarter.
On slide 13 details of our rental portfolio was provided.
The weight in Quebec was stable at 55% uninsured mortgages accounted for 38% of the portfolio.
Sure it mortgages and he looks in the GCA and Gvhd represented 10% and 2% respectively with an average LTV of 51%.
In the appendices, you'll find further details on their loan portfolios and our market risk.
In closing.
Well the economic recovery is underway and we've seen signs of the positive impact to support programs much uncertainty remains along the path of recovery.
Looking forward, while we believe that peak of total Pcls is behind US, we expect impaired pcls to trend upwards through next year, well are performing PCL should be driven primarily by changes in our micro scenarios portfolio growth and migration.
We remain confident that having maintained or defensive posture in business and geographic mix and having prudently built allowances to help offset future credit losses were very well positioned to continue supporting our clients through these challenging times on that I will turn the call overdues as well.
Thank you again and good afternoon, everyone. My remarks today will focus on capital beginning on page 15.
We ended the third quarter with a strong cetone ratio of 11 point, 43% four basis points from last quarter.
The improvement mainly came from strong internal capital generation, which added 45 basis points, excluding provisions for credit losses. This highlights the value of our of our diversified and consistent earnings stream. Even during these times in which we are prudently building strong credit reserves.
Our resilient earnings Hello has to continue growing or franchise and serving our clients when they need us the most.
As a licensed ideal earlier, we continue to present, the bill tolerances and the third quarter, representing 11 basis points of CD one.
Risk weighted assets grow for use RCD, one ratio by 25 basis points.
Turning to page 16 on risk weighted assets.
During the third quarter, we stayed the course on business development, while remaining prudent risk weighted assets growth related credits risk includes both on and off balance sheet items, while on balance sheet loan growth was mother it as many you'll save clients repaid cushioning redraws they made in Q2.
On their own commitments and counterparty credit risk group.
During the quarter were proactive on both a tough down and a bottom up approach to where we retain our wholesale doors, which generated eight leaps of negative migration.
That was partially offset by improving <unk> ratings in retails lines, due mainly to loaded delinquencies and lower utilization.
We were very pleased again this quarter with our organic capital generation and continued opportunities to invest capital across all of our businesses.
We have demonstrated the resilience and diversification of our earnings stream, which allow us to generate capital as an industry, leading our we have 17% while proactively building strong Christmas reserves.
Serving risk weighted assets.
Now turning to page 17 as anticipated our liquidity coverage ratio remained strong at 161% with sustained growth in deposit across the bank.
Our total kept our ratio stood at a strong 15.1% at the end of the quarter.
We are confident with the information known at this time, that's even under deteriorating economy conditions.
We can maintain capsule levels well in excess of regulatory minimum requirements.
For illustrative purposes in our stress test scenarios.
One notch downgrade on the old book would negatively impact our cetone ratio.
By approximately 100 basis points.
In conclusion, while much uncertainty remains the bank has a strong balance sheet, a defensive credit positioning and solid liquidity and capital ratios.
All of our businesses are performing well and we remain disciplined on expense management, providing us with a resilient, earning stream on that alternative called back to do furniture for an acuity.
Thank you.
Two questions from the telephone lines.
Yes, good question.
Speakerphone please.
Before making incentive.
The question.
The star one license keypad.
Thank you Mr. Kim from your question. Please press the pound fine.
Based on one at this time.
Yes.
Participants logistical question, we thank you for your opens.
Since question is from Steve.
From a capital. Please go ahead.
Thanks, very much a couple for me just a quick one bill for you to start you work your way through most virtually all of the credit card deferrals you had on.
You indicated that 90% of the reservoir referrals have restarted regular payments can you talk a bit about how it's gone with cars.
In terms of how that's trended in terms of restarting payments or any color you can provide they're coming here a little further had been so maybe others.
Sure. Thanks for the question, Steve and I'll start and Lucy may have some some additions.
We didnt give color on credit cards, because the similar to the result, if it was very positive the performance that we've seen but given the billing cycle.
The sample size is small and were little shy, we'd like another couple of months before we we draw some conclusions on it but I can say it was similar to the resolution and quite a quite positive with the same characteristics of kind of geographical differences between provinces.
Lucy Josephine.
I would say that so basically on the credit cards.
We see.
Maybe there's some more than half of the clients that were on LIFO headwinds. It was fairly muted Tonight nation also in the vast majority of then pass mean payment during the appropriate.
Okay. Thanks for that and then secondly.
I want us to question on on trading revenues, they didnt show quite as much upside.
As what we saw from some of the other banks that have reported this quarter. So.
In particular equities was a even a bit below recent run rates. So maybe it'd be helpful. Just to have a little color a on sort of the equity trading line and be maybe refresh us circuit to give us a bit of context of say why why Q2 was a bigger quarter.
For for for you guys that national on the capital markets I'd versus Q3.
Any sort of color would be would be helpful.
Yes, Steve. This is also a answer your question.
Let's start with equity so Q3.
Had a significant drop and volatility levels, specifically July August versus Q2.
Our activity also on the equity side is concentrated on each you have treating each of treating there was a significant boost in treating volumes in Q2.
Dod subsided in Q3.
You also saw tightening of spreads bid offer spreads I think and most equity products throughout Q3 or more specifically towards the answer I think.
You made the point I think it's important to look at Q2 transition to Q3.
In the context of the crisis.
Look we're really satisfied I think the overall performance of our equity segment, having navigated through very large movements in volatility volatility levels throughout Q2 in Q3.
Spikes in markets, obviously, a record lows and new high is now.
So I think overall, we're very comfortable there.
We also saw a shift in Q3 in terms of market opportunity from equity finance towards more fixed income so you're seeing that in our results I think that's a.
Good example of the agility and our trading team.
So our trading revenues are our revenues on the equity finance side of that.
Gone down significantly throughout the quarter, but we saw the the the upside in our fixed income. So we saw spreads go down demand go down on the equity side, but we definitely saw pickup on on the fixed income side.
There's also a difference if you look at our capital markets model versus our peers. We are Canadian our platform is Canadian and were concentrated.
And we're focused on getting clients and so we're not active in the U.S. and you know I think you've seen a very large upswing in us credit throughout Q3, so we didn't participate into.
I don't know if that gives you a bit more color on on on our results.
That's great color. Thanks, a lot of.
Thank you.
Following question is from Meny Grauman.
So bank. Please go ahead.
Hi, Good afternoon, just following up on the couple of market side in appendix 11, the trading bar trend.
Got more in a negative I'm just wondering what the explanation is for that and if you can provide some insight into Q4, and whether you're contemplating making changes to to get to where you want to be in Q4.
Very many so you're seeing that are.
Our levels are higher or higher yes, okay.
So we didn't change our strategy I think you've heard us in the past.
We are typically defensive we'd like to being long ball in general.
And so we didn't change stuck that strategy I think the big change here is.
No.
We went through a stress period and that's presses in our numbers.
So we didn't reduce or change really our strategy or or our risk profile, it's really having gone through a stressed period and that's stays with us for a period of time.
Okay, and then just if I look at the appendix 13, and the economic forecasts.
One number stands out to me is just the change in the home price index forecast for 2021 and I'm just wondering.
What's driving that.
NIM bigger negative I mean, you're going from basically forecasting flat to negative 8%.
Q4 over Q4, and 21 and I'm wondering the implications of that forecast for your mortgage business and you're just your overall view of credits.
In the mortgage business in particular.
I'll start off and then I'll, let loose you talk about the mortgage business for them. Thanks for the question many but.
The change really was pushing it wasn't a significant change in the in the total it from quarter to quarter. It was really pushing it out.
Later, what we what are kind of expect will be a decline in house prices. So if you look at the Q2. It was more front loaded and Twentytwenty and then some again in 2021 based on the experience that we actually see in the in the market and updating a four for real numbers in the.
Quarter. It certainly has been more positive.
The home price index and the third quarter, then we estimated it wouldn't be a blockbuster.
Three months ago, So it's really more of a push forward though.
And Lucy on the mortgages, yes, so on that mortgages, what we'd see right now is we need to resolve them the confinement.
Sequences pulling back up I think 22 anyone like Bill said, but I think they're still going to remain lots of.
Differences across the country and swing in different regions and also in two different banks willing.
We probably have nee and NEP from an impact on single joining me more by the bank on those but that's still estimation.
Thanks Ryan.
Thank you.
Following question is from the Gabriel Leung from National Bank Financial. Please go ahead a good afternoon. My next question from My first question is for a for Bill you can you comment im assuming the slide there the the pcls impaired the pcls reflect the government and the benefits of the government.
Programs.
So what I understand from out of that.
Some loans that would've gone impaired.
Didn't because there was some government program that prevented that outcome.
That's correct and is there anyway to quantify that because a lot of people wonder what happens after.
Some of these things.
And.
Hi, Gabrielle thanks for the question. So I'd say, it's more than 10, just government programs. It's also the a you know the deferral programs that to banks have put in place and you're right I pointed I think specifically on the retail side.
In Q3, we saw retail impaired losses.
About $14 million lower than last quarter.
That's a that's because the metrics and retail you had the.
The the roll forwards into delinquencies wasn't happening for those that were we're under a deferral program had lower utilization.
A lot of the indicators into the you know the models that attribute scores for the retail clients.
Showing great benefits and.
So it ended up that we took a lower impaired losses, and I think that's pretty consistent across the sector and credit cards and others.
Given that we think that it is it's temporary right. We used to our I have for US nine in are forward looking management overlay to offset that so you saw a build in India for.
717 million in personal 18, including well so.
So I am I don't know whether that a answers your question, but was there a second one coming it does and I do have a second and it's it's for you and or Lucy I guess, you haven't put on its own on the deferrals.
And some of the trends in the numbers.
Within your book, but also relative to peers within your book Big drop in the number of.
Value of mortgages deferring payments that much bigger than what we're seeing from the other banks is that a geographic thing how are you managing it.
And then.
Versus the non retail portfolio, a big drop in retail not so big and was flat and non retail.
I just want to know what's the what's going on there are these six month deferral programs, we're going to have a rubber meets the road in October to kind of thing or.
Something else going on.
Yes, Gary I'll start and the non retail then I'll pass to Lucy and mode. We're sure insights on the retail surrounded on the non retail you had it exactly right to the vast vast majority of the deferrals, where we're for six months. So it's really in Q4 that we'll see a those are rolling out of deferrals.
The small number that have come off out of deferrals. So far the performance has been positive, but again I'll caution it's early days.
You see on the retail yes, so they really see the the reflects stuff the pro stand we took.
So back in mind Shine say a couple of days into this shutdown we had to meet quick decisions on how to proceed with deferrals. Knowing also net this would be a meat uncertainty looking forward selling the unsecured credit we offer three months.
And it's important to note that we have step offering deferrals on unsecured treated as of June thirtyth.
And on mortgages and.
Can you what we did these we offered up to six months, but.
We approach to it.
Two worked proactively with our customers part first three month period, and then proceed with another three months at their request based on these things because there will need for hardship.
There were a couple of reasons why we did that no first we wanted to be proactive and work with our customer quicker than in six months to better understand their situation in fine proactive solution, but we also understood that there was a cost it for them to defer their payments and we wanted to limit that impact as much as possible.
And obviously it gave us some insights on the restraints before six months.
All right. That's a that's very thorough answer on its own anyway. Thank you.
Thank you.
Following question Doug.
Capital markets. Please go ahead.
Hi, good afternoon.
Well the impaired PCL ratio 20 basis points, obviously quite low and.
As you indicated you do expect that to trend higher as we move to Q4 and into next year.
I guess is there any way to size. This like I know you've given guidance on pcls in the past and I guess I get that were in more uncertain times, but is there any way to kind of.
And your models to give us a sense of what that impaired PCL could look like as we go through fiscal 2001.
Thanks for the question, Doug I'm going to give you a two part answer and you may not like like it affects the first part is.
I'm not comfortable to give you a basis point guidance on it.
The main reason is uncertainty is very very high in over only six months into this global pandemic.
I've been through a lot of different downturns in a in the past to my career, but never a global pandemic. So I think it's better to be prudent and ER and have a few more months before we think about giving guidance.
But to the second part because I'm happy to share the how I think about what our total pcls, we'll be looking forward and and the first point is I think like in any downturn, the migration to and parents and paired losses doesn't happen all at once and one or two quarters that happens over time.
And I think in this specific downturn the nature of the pandemic in the nature of the programs that were put in place that it may be longer for that up and then and in some of the other financial downturns I've seen before.
The second is the firm belief that what's going to drive the total aggregate of our realized losses through this cycle are really going to be the decisions. We took over the last two or three years on our our business mix on not stretching for growth.
During the late stage of the cycle. So I think the in in the end on a convention that before it's going to be what's the aggregate impaired losses that we take.
And finally, the way to think about a two isn't an IRS nine world you know if we have built adequate performing allowances at some point looking forward that those allowances are going to bleed back into the two income to offset the impact of the impaired losses.
So with that context, and what the you know how I think about it I'm comfortable to say that now I believe we saw the peak and total pcls in Q2.
I think the Q3's 20 basis points of impaired Pcls is low and it's going to trend up.
And I'm really think that the level of are performing allowances got 2.8 times coverage of of last 12 months impaired and 4.7 times net charge offs.
And I think that it's a prudent level given our mix and the cautious decisions. We took over the last few years.
And just fell on the allowance side, you talked about management overlay ensure there was some in Q2 Q3 keys size like what that was I know you didnt want to factor in too much of the benefits of retail because.
It's too soon and there's going to be some deterioration, but is there any way to size like how much that that overlay factored in I think in the past I think I'm comfortable giving you direction, but I don't think we've talked about size. So it's you know the are performing pcls were a lot lower this quarter than last quarter.
And I gave you the <unk> really the key drivers of it in my text and and about as important dimension that given the uncertainties and the like we stuck to it but the temporary impacts on the retail in Paris, we thought it prudent to address that through our forward looking management overlay.
But no I wouldn't want to size it for you.
Okay, and then just second question, the and the CET one ratio a bit different than what we saw from others. You did have a negative impact.
From RW way.
This quarter and just trying to just trying to get a sense, maybe you can impact what really drove that.
And then same idea so how do you see that some of your peers have kind of talked a bit of how they think the CET one ratio could unfold over the next.
Two to three quarters, and obviously with negative migration coming through like how do you foresee.
Not occurring migration flowing through and impacting the CET one ratio over the next year.
Maybe I can start on the on the migration and then and then best it off for the other but.
In terms of ER in terms of migration as you know in the retail book, it's very much input into the model driven as opposed to commercial in corporate where its filed by file a assessment for our commercial and corporate.
We have both the top down and the bottom up and typically we focus on getting the re ratings done quickly for the higher risk files. So.
Oil and gas is this sector that oil and gas and the retail sector.
Or the sectors that have seen the highest.
Downgrades are migration from our reviews.
For oil and gas a this spring review was pretty well done by the ended the quarter for some of the other sectors in commercial that takes a little little longer. So we were were more proactive on the top down for.
On the top down approach of reducing or decreasing the risk rating on.
Those files, which had not yet been reviewed individually and we did for retail and for commercial real estate the retail segment.
And then on the commercial the file by file approach again, we focus on a risk based approach and also on the larger files and so far for commercial reviews were 45% done in value and that'll continue on over the next next couple of quarters. So that's it for migration.
And.
And one last comment a migration is there are many sectors, which we didnt see much negative migration, so some sectors or food and pharmacy, and our gold mining portfolios and such we saw very little migration in many other sectors than those touched a directly Mike Hogan.
Huh.
Well as Bill mentioned.
We expect some negative migration in the next quarters, but thats going to come you know gradually.
You know the quarters and and.
It was the manageable manageable within our Cetone ratio.
And to add to that smoothly so.
So generally in terms of position.
As a 61 way you should expect over the next few quarters.
You should expect that ratio to creep up.
Overtime.
Given our.
I think we've been generating good organic.
Capital generation.
And at the same time, though I think the square risk risk weighted asset came this quarter the increase came from.
A capital markets on off balance sheet items.
And generally I think weekend were comfortable given where we are in terms of performance.
We can you know slowly creep up in terms of Citi won and still use additional risk weighted assets.
To ER to grow the business and.
Frankly generate revenue growth for 21 and 22.
So I think Thats, what you should expect going forward.
Great. Thank you very much.
Thank you.
Just following question is from.
Well go ahead.
Okay. Okay. Please go ahead.
Okay. Thank you newly I'd, just maybe I can.
14, when you finished your remarks, you city was satisfied.
With the quarters.
Yes, that's what would have made you.
Static.
[laughter].
[laughter] definite part time job as a psychologist.
[noise] I think itself.
Thanks, Mike.
I'll give you a I'll give you the [laughter] the more the more substantive answer I think.
It is a obviously, what we called it a very good quarter.
It's tough to be a static in an environment, where you have a pandemic that effects.
An important segment to the population than a very negative way.
So a win win so six months into a global pandemic.
Yes to prepare the club.
That makes levels.
So.
We run the wording that we used to describe how things get better.
Sorry, sorry, I missed the last part of your the last part of your question.
I apologize I just wanted to find out so how how can seeing better from here in regard to Sept Awards, we used to characterize quarter.
Points of improvement that where can that obviously is the sanitary conditions.
Which is still impacting a segment of our population and the segment of our economy, particularly.
The district discretionary economy, and urban centers is still suffering a quite a bit from the some the side effects of the pandemic.
So I think all the time is.
How is how is that evolving.
And how is.
The pandemic from a sanitary and.
Economic.
Standpoint, improving so there's room for improvement.
Just on the on the on that basis.
And I'm not a medical expert I don't know what the timing is in terms of finding a cure a vaccine for this but theres still on that so Rob I think there will continue to be a you know would reverse.
The.
Negative headwind under credit funds at the very least and.
Hopefully one day on the interest rate front, so that is one.
Like clear path for me of improvement the other one is.
You know I think we the last thing we want to do in the context of.
Pandemic.
That weve never seen in the context of the globalize and digitize economy, I think you want to remain humble and on your toes in that environment. So the last thing we want to signal is a human breast so arrogance in this kind of environment.
That being said I think if you know.
Organization quite well National Bank is a combination of regional and sectorial initiatives. So theres no as I said highly specialized.
Or highly knowledgeable on a regional basis.
And we feel that a that high level, a specialty should help us going forward.
And growing even in quite complex environment than very uncertain environment.
That that a that positioning has served us well and in the past.
And it should continue to serve us well.
And no in different a different possible environments.
Does that answer your question, yes, that's very helpful. Maybe just to kind of.
Hi types into one to one one direction if the direction Arrow given everything you said about uniqueness and yet.
You know that Didnt matrix, good business and the composition of the activities and what have you.
Our release heading higher staying flat heading north.
I think we'll we'll we'll do the right thing over the long term I, you know where I think we're satisfied.
With the strategic choices, we have made I think and our risk positioning.
But.
The.
Our objective over time is to a is to have you know a balance a balanced score.
For our stakeholders will be shareholders our clients our employees. So we're.
We're not managing the bank on one number.
We're managing the bank on a number of Capesize and ways of measuring ourselves, which includes the three main stakeholders.
That I just mentioned if they do end up producing is higher we all in all the better but it is not a I can assure you were not managing the bank on one number.
I appreciate that thank you.
Thank you.
Following question is from Nigel.
Some Veritas investment research. Please go ahead.
Thank you good afternoon I have two quick clarification questions for you. The first is on.
The non retail loans and deferral, you mentioned that what's in your presentation that.
Less than 10% is non investment grade unsecured and I was wondering given the sense of what the total exposure to mix.
Non investment grade credit is and maybe some more color on.
The sector mix up those non retail loans in deferral.
Hi, Nigel I'll start off and stuff I know, so something to add to it so ill jump in.
What I can tell you about the then on retail in terms of sectors to the sectors in our portfolio that I've got the highest percentage that are in deferral. It's a retail trade is a is the first and that shouldn't be a surprise.
When we when we dig a little deeper into retail, which is a pretty broad sector.
The the auto dealerships or auto dealership clients are the highest pair.
And well we wouldn't have thought it.
At the beginning of the pandemic what we've seen recently is the business is actually rebounded very very strongly for our clients in a in that sector as to where they think they're July sales were just about back.
Up to or or maybe even a little more than a than Europe year numbers. So so the a surprise the other the other.
Sector that second sector was manufacturing and we have seen with the reopening of the economy. Some positive news positive signals, there and conversations with clients are ER positive.
I will caution you on all of these numbers we're still early.
And and I don't want to draw too many conclusions, but what we've seen so far has been has been good stuff and you if anything to add.
No as to the percentage of of investment grade versus non investment grade as as you as you know the the reality is that Nigel that the commercial market is large need not investment grades. So I don't have the number off hand, but the vast majority of any commercial markets business is typically.
Non investment grade.
Typically NYSE was at high levels, you know our corporate book, it's no more than almost three quarters, probably investment grade and the commercial book is by more than 90% secured 90 90, 92% secured it's a kind of two buckets and of course, the deferrals are primarily in the corporate <unk> commercial sector.
Thanks for the question.
That's that's really helpful commentary I just have a quick follow up a second question here just on risk weighted assets for retail.
Am I understanding is that.
Typically these assumptions that feed into this weighted assets or through the cycle estimates and not so much point in time, that's going to so could you provide us some.
Colors and insight into how sensitive youre your inputs off for retail R.W. ways.
ER delinquency trends in real time, or what we see on delinquencies once you pass a deferral here.
So that's all I'll I'll start, but I think that maybe a question that that we can go into we could spend a lot of time on.
We could do something off line, but but clearly a you're right. The models for for retail for R.W.A. There there are different than the I first nine models and that they are more through the cycle.
However, the drivers of them in terms of the equivalent of a burger or risk rating are impacted by things like utilization.
I'm delinquencies and such so there is some sensitivity there.
And maybe we can follow up offline.
Okay. That's really helpful. Thank you.
Thank you.
Following question is from ball Holden.
Yes.
Good.
Hi, there.
Sure.
<unk>.
The residential mortgage.
They roll off.
A question kind of in the context.
Economic assumptions, which.
Prices are going to be trending down.
Next year really trying to get a sense of like how aggressive are gonna be trying to get.
Curve and manage through these sooner than later.
Thanks, Felicia can you tell him too.
Yeah, Paul we were having problems hearing you I think I captured this benefit if leasing I don't answer it maybe we'll get you to repeat the question because your voice was was soft but on the.
A couple of points all make on the on the deferrals.
For residential mortgages.
Is the as I think this slide shows the.
The LTV is 60%, so and the and the credit scores are quite high for those that are in deferral as well so we think that.
As we transition out there's a even for those that may be having ongoing temporary difficulties with a income loss or disruption or others. There there will be a good possibilities of working with the clients to find a solution that fits.
As we dig down into the portfolio as well and we look at how many of the population is what we consider vulnerable or higher risk in those would be those with the lower credit score to mid six hundreds and worse and hi, ltvs of 75% and higher.
The numbers is pretty small, it's a it's less than $50 million. So.
The the approach of how to work with the clients as they come up transition will differ depending on their situation, but the vast vast vast majority in that bucket relation we think we'll be able to work with Lucy do you want to talk about strategy, yes, and that overall and when we look at the different the longest its growth and our left in terms of relationship with the bank the average three.
And is 15 years those customers. So obviously, we will definitely work with them on a case by case basis.
And making sure we offer them the different options that we as you know any book in those cases.
Thank you hopefully my voice is more clear now.
So I do have a second question.
A lot of what we focus on on across the bank to sort of the more offensive.
Actions, taking place some of the risks, but I think it is interesting that kind of.
Turn a little bit to growth potential growth opportunities here, how you're thinking about like are there are pockets of opportunities you're seeing that are rising as a result of the dislocations, whether that's better opportunities are growing loans or maybe allocate allocate capital defense.
Related businesses sort of curious on your thoughts there.
Hi, Paul its Louie a welcome to the bank beat by the way.
The I think I give part of the answer.
When I was talking to sorry, but.
Clearly, let's start with.
The more obvious part in terms of growth I think our our international division remains very well positioned.
Cambodia savvy is very good momentum.
Which should carry us into 21 22.
And Credigy also we're quite happy with how they're performing.
And.
So we think we can generate double digit growth with or without division too. So international I think where we're well positioned.
We continue to like a real estate marketing cut back, particularly residential market.
New center team are working very.
Very hard to that particular segment with very good success.
I think our strategy in terms of specialized commercial.
Yes in Quebec and outside of come back with Stefan is doing giving I think as a as room to grow I think generally will have a you know some some tailwinds.
As we move out at this pandemic, both in retail and commercial.
Levels of activity should go up in Canada, and then they recovery so that should help us and healthy industry generally and lastly, I think we're very very satisfied with.
We were position both in wealth management and in capital markets were quite differentiated from our peers and I think we we like.
Our strategic positioning.
You should probably not expect to acquisitions.
In the short term from US I think we're very very very focused on organic growth versus acquisition.
Got it thank you for your time no.
Thank you.
So again, please press star one.
Question.
My question is from Gabriel.
National Bank financial please go ahead.
I got to get the follow up.
Just wanted to circle back with the on.
On the bar and market risk R.W. issue and the.
It sounds to me like that might be something that could reverse volatility levels are back down and if.
They are there.
We continue on that trajectory could we see some of the.
But our R.W. inflation come back in Q4, Q1 next year, all else equal and then on Credigy.
And just wondering if a your outlook for growth there has change I'm sure it's still.
A good one, but what the fed and buying everything out there and and liquidity a sample to sort of at least maybe the distressed opportunities just aren't a aren't as big as maybe they looked like a few months ago.
I'll start with their Credigy, perhaps then I will answer on our the view it.
You're right that a you know the ER the very aggressive quantitative easing.
As help to market recover.
And as help to the securitization market, which.
In some ways is a direct competitor to two credigy that being said I think theres still sufficient dislocation.
And disruption in the credit markets in U.S.
That will still allow us to to generate good growth. That's that's what we hear from from the team and.
So I think we'll oh, well see I think the Oh, there's still a lot of episodes to be written on a on a you know how to the fed we'll manage.
Dependent making U.S. and how the economy, a U.S. economy will recover.
So that's on that then and they are WH I'm sure I think.
Gabriel you you could see it trend down, but we didn't change anything to our strategy, having reduced our activities with clients servicing our clients and so from that standpoint, we don't.
I think that there's going to be any reduction from.
The way we've been operating.
So the issue is we've been through a very volatile period, and so that is going to stay with us for a bit of time.
But a it will it will trend down a at some point today.
Okay. Thank you.
Thank you.
We have no further questions for just fine I would now like to turn the meeting back over to Mr. vessel.
Thank you everyone and we'll talk to you next quarter. Thank you have a good day.
Thank you.
The conference has now ended.
Please disconnect your lines at this time.
Thank you for your participation.
Let 'em up that's it.
This conference is no longer being recorded knowledge is promoted coffeehouse attempt at home.