Q3 2021 National Bank of Canada Earnings Call
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[music] all participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.
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All participants.
Thank you for standing by your conference is about to begin good afternoon, ladies and gentlemen, and welcome to National Bank of Canada's third quarter results Conference call I'd now like to turn the meeting over to MS. Linda Boulanger Senior Vice President of Investor Relations. Please go ahead Ms Lindsay.
Thank you operator, good afternoon, everyone and welcome to our third quarter.
A presentation.
Presenting this afternoon or do we restaurant president and CEO.
Bruno Chief Risk Officer, and just sent by Hall, Chief Financial Officer.
Also joining us for the Q&A session are long on Saturday Huh, Chief operating officer, they finish I'll hand, your sleep lounge shape.
Go ahead, the specie banking.
I stand granule head of wealth management, then is you halal head of financial markets and Jean Dagenais Senior VP finance.
We begin I refer you to slide two of our presentation, providing national bank's caution regarding forward looking statements with that let me.
Turn the call over to do irrational.
So Linda and good afternoon, everyone.
Before we dive into our quarterly presentation I'd like to say a few words about my upcoming retirement from the bank.
As this is my last quarterly conference call.
It's been an incredible ride and after 29 years with the bank and nearly 15.
Now do you all.
The time has come for me to move on.
To express my sincere, thanks, and appreciation to all my colleagues.
Our 26000 employees have all contributed to building a strong and agile back.
I also wish to thank our stakeholders for their support throughout my tenure, namely our customers.
C community partners shareholders, and our broader financial community.
I am moving on with a lot of optimism for the bank knowing that it is in very good hands.
Great confidence in the banks future under the leadership of Lafayette at all supported by a stellar executive team and a strong culture of adaptability and collaboration.
With that let's take a look at our results.
So the bank solid momentum through the first half of 2021 is carrying over in the second half.
For the third quarter, the bank's pretax pre provision earnings were up 15% year over year and EPS came in at $2 and.
36.
We generated stronger organic growth and an industry, leading Roe, while maintaining high capital levels and prudent reserves.
I am proud of our performance, which speaks to the strength of our franchise.
Our constructive view on the economy on the economic recovery remains intact.
Positive macro trends from the first half of the year continue to prevail.
And long term fundamentals in Canada are strong.
We have wanted to highest vaccination rates in the world right now.
And as vaccination increase restrictions ease.
The same goes for our home Province, Quebec.
<unk> positioned given the diversification of its economy.
Governments fiscal flexibility and the resilience of its households.
The overall situation remains nonetheless complex the impact of variance among other factors continues to make its path difficult to predict.
In this context, we remain optimistic.
As well, but also prudent.
Our credit quality is strong and our portfolios have performed well since the beginning of the pandemic.
Given the continued improvement in economic and market indicators, we have released $43 million in reserves this quarter.
In terms of capital deployment, we are staying.
And of course.
Our priority is to maintain strong capital ratios, allowing us to support clients and generate asset growth.
Once regulation restrictions are lifted we will look to accelerate capital returns to shareholders. Our priority is increasing our dividend as our payout ratio is.
But below our targeted range of 40% to 50%.
Turning now to our business segments.
In P&C pretax pre provision earnings were up 18% from last year, driven by strong volume growth on both sides of the balance sheet, partly offset by lower margins.
Our mortgage business.
Following strong with volume up 11% year over year.
On the commercial side loan growth was strong at 14%.
We continue to be active in targeted segments and commercial real estate.
We're also seeing a broad base pickup across other commercial lending segments.
We made solid momentum in client activity across the franchise also led to growth in other income of 12% year over year.
Wealth management delivered an excellent quarter, we pre tax pre provision earnings up 29% from last year.
Year over year assets under administration were up.
6% and assets under management were up 30% with the strongest growth in mutual fund assets among Canadian banks.
Our performance in wealth management was driven by favorable market conditions and strong organic growth across our distribution channels.
We're also seeing tangible results.
20th collaborative model deployed a few quarters ago between our retail and wealth networks.
Earlier this week National Bank direct brokerage announced the launch of the most competitive online brokerage fee structure indicate end market.
And BBB will be the only direct brokerage firm.
From the affiliated with a Canadian Bank with Zero Commission on online trades on Kinder Indian and U S stocks and Etfs.
The self directed investing sector is constantly evolving and this is a great example of our ability to adapt and innovate for the benefit of clients and investors across the country.
Firm, if our financial markets franchise reported solid results this quarter.
Corporate and investment banking performed well with revenues up 20% year over year in the context of favorable markets.
This is a good testimony of the breadth and strength of our Pan Canadian commercial so our corporate and investment banking franchise today.
Looking at global markets, we continued to benefit from favorable market conditions and niche sectors like structured products, while trading activity is continuing to normalize year over year year to date, sorry financial markets have delivered a 7% revenue growth compared to last year.
Given the exceptional results.
Achieved in 2020 this year's performance truly demonstrates the benefit of our benefits of our diversified model and the resilience of our franchise.
A bank add a strong quarter with revenues up 25% year over year loans.
Loans and deposits were up 29% and 30.
<unk> percent respectively.
EBITDA was once again named the best retail bank in Cambodia by Asian banking and finance.
While Cambodia has been in the first wave of Covid.
April community transmission is slowing down and close to 80% of adults have been vaccinated.
Forbes out some sectors of the economy are still suffering, namely tourism, while others are benefiting from strong export growth.
The outlook for <unk> remains very favorable in the context of an evolving sanitary situations.
<unk> delivered another strong quarter driven by portfolio performance.
As there is balance sheet growth and an improving economic environment.
Excluding the impact of FX average assets were up an investment volumes were strong.
The business has a robust pipeline and sees a healthy mix of opportunities and to provide liquidity through financing and to acquire newly originated consumer.
<unk>.
In July we entered into an agreement to increase our equity position in flanks technology from 26% to 80%.
<unk> is a leading fintech specialized and financial data aggregation and distribution.
We initially invested in flanks abounded.
<unk> founding in 2018 through our Fintech venture capital arm any ventures.
Since then we've gotten to know the business and its founders and we really like what they bring to the table.
This investment allows us to tap into the North American Fintech ecosystem.
It's strategic.
It's a positions us in a growth market.
To continue to enhance customer experience and benefit from future technology driven developments.
In closing our strong performance in the quarter and fiscal year to date once again speaks to the strategic choices. We have made over the years our earnings diversification and.
<unk> strength and adaptability of our franchise.
As the economy rebounds.
<unk> is well positioned to continue to grow and deliver solid returns. We have an incredible team of over 26000 employees are all contributing to building, a diversified and resilient and agile bank that puts.
<unk> I.
I have great confidence in the banks future and long term success with that I will now turn the call over to Mr. Bono Louis and good afternoon, everyone I'll begin on slide seven.
Total provisions for credit losses were negative $43 million in the quarter.
The net release was driven by three.
Put centers first impaired provisions declined to just $34 million or eight basis points, which is almost 50% lower than last quarter.
Impaired provisions and financial markets were partially offset by repayments in commercial banking retail portfolios continued to benefit from lower insolvency rates and high levels of liquidity.
<unk> and impaired provisions remained at low levels and our international portfolios.
The second factor was a $36 million benefit from write ups of several pokey portfolios held by credit G. The actual collections performance in those portfolios was significantly better than what had been forecast and this was reflected as a net benefit.
Benefit through PCL during the quarter.
The third factor was release of $41 million or nine basis points from our allowance on performing loans.
This compares to a $62 million or 15 basis point performing release in the second quarter.
The drivers this quarter were positive credit migration.
The improvements in economic and market indicators, partially offset by loan growth.
Given the very strong credit performance again this quarter, we've revised our target for full year impaired provisions to below 15 basis points.
On slide eight we highlight the movements in our allowances for credit losses.
Total allowances declined by 5% in the quarter.
At more than $1.2 billion, they remain more than 60% higher than our pre pandemic level.
We believe it remains prudent to keep these strong reserve levels given continued uncertainties in the future path of the recovery.
Our performing.
Gration allowance declined by 4% this quarter to $938 million. Even after this small release are performing allowance remains just 11% below its peak and provides prudent coverage of our credit portfolios.
Slide nine provides several coverage metrics that demonstrate the adequacy of our allowances.
<unk> out there performing ACL is now representing three eight times coverage of impaired provisions.
And our total allowances provided six six times coverage of net charge offs and represent 77 basis points of total loans.
Turning to slide 10.
Strong credit performance is also evidenced in.
The decline of our gross impaired loans to $699 million or <unk> 39 basis points I'll point out that this is the lowest Gil ratio we've had in several years.
Formations remained low across the portfolio with one new formation in financial markets net repayments in commercial banking and continued low formations.
<unk> still banking and international.
On slide 11 details of our retail mortgage and HELOC portfolio represented credit.
Credit performance in the portfolio continued to be strong and the geographic and product mix remained stable, Quebec represents 54% and insured mortgages represent 34% of the portfolio.
Additional details of our credit portfolios and market risk or presented in the appendices.
In conclusion, we are pleased with the performance of our loan portfolios positive credit trends continued during the third quarter generating new cyclical lows in impaired provisions we are cautiously optimistic about the continuing economic recovery. However.
And really recognize that significant uncertainties remain on the path forward.
In this context, we remain very comfortable with the positioning of our portfolios across geographies sectors and products and with our prudent approach to provisioning.
I'll now turn the call over to Jason Lang.
Thank you Bill and good afternoon.
Everyone turning to page 30 in the third quarter revenue was up 14% on a year over year basis, reflecting a strong performance across the bank.
We posted an efficiency ratio of 52, 8% in the third quarter, maintaining a balanced approach between growth investments and customers.
However.
As mentioned on our last last call expense growth this quarter was impacted by the combined effect.
Of higher variable compensation related to our strong performance this year and the lower variable comp expense recorded in Q3 last year.
Expenses other.
<unk> are both compensation were up 3% year over year, reflecting prudent cost management.
We are very pleased with our performance year to date, we achieved superior revenue growth fueled by the momentum across our businesses PTP was up 14% and 40.
And very long period, and we delivered positive operating leverage of approximately 2% over the same period.
Before turning.
Turning to capital, let me say a few words on the bank's sensitivity to interest rates.
As mentioned during our last call we have broadened the scope of our net interest.
For the nine sensitivity disclosure, which now reflects the sensitivity from client deposits across P&C and wealth management.
The disclosure is presented on page 31 of our report to shareholders.
And shows that the bank is well positioned with regards to interest rate.
And it.
It also highlights the banks prudent approach to managing interest rates.
It is important to note that the bank sensitivity sensitivity to interest rates is dynamic and will vary from time to time has the team manages interest interest rate volatility.
As an example earlier.
We took actions to mitigate some of the volatility in interest rates Halloween us to stabilize net interest income.
Now turning to capital on page 14.
The bank ended the third quarter in a strong position with a high CD one of 12, 2%.
<unk> average risk weighted.
That's a growth industry, leading ROE and significant credit reserves.
Net income generation at 56 basis points to a ratio, reflecting a strong underlying business performance and our strong credit performance help as well.
However momentum in risk weighted asset growth continues the expansion.
Our book Science represents 45 basis points of CD, one this quarter, excluding the impact of foreign exchange in particular, good pickup across commercial lending and client driven activity in derivatives.
<unk> to above average risk weighted asset growth.
Favorable accrued this migration.
And in retail and non retail portfolio was freed up nine basis points of <unk>. This quarter, while the unwinding of the regulatory market risk relief substructure 12 basis points.
For the fourth quarter, we estimate that the acquisition of <unk> technology will reduce the CET one by approximately 10.
Basis points.
Now turning to page 15.
Our liquidity ratios are strong with LCR ratio of 154% and a net stable funding ratio of 123%.
Our total capital ratio stands at 15, 8%.
This quarter to bank delivered an excellent performance on all fronts, all businesses performed well, we maintained strong capital levels, while generating strong organic growth.
Our return on equity exceeded 21% and our credit position is excellent.
Bank enters the new <unk>.
Make cycle from a position of strength.
Before we end the call.
As to take a moment to thank Louis for his inspiring leadership of the bank over the last nearly 15 years Louis.
Louis you leave a strong legacy behind one we are all very proud to carry on.
On behalf of the entire team it has been a real honor and privilege to work alongside you all these years.
On that I will turn the call over to the operator for the Q&A session.
Thank you.
We will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before.
For me. Thank you for your question. If you have a question. Please press star one on your devices Keypad you may cancel your question at any time by pressing star queue. Please press star one at this time, if you have a question.
Our first question is from Scott Chan from Canaccord Genuity. Please go ahead.
Hi, good afternoon.
Afternoon Congrats.
Congrats Louis.
Just have a question on your decision to go to zero commissions.
What kind of prompted the decision was it all kind of a long.
I guess case followers at the pandemic and retail exploration maybe.
Facilitate that.
The second part of the question is just on financials when when we look at the modeling or other income.
Is it in security brokerage commissions and doesn't flow through anywhere else. So I'm just trying to see what the.
The revenue impact would be and where to find it. Thank you.
No thanks for that.
A comment Scott.
It's been keen to answer that question.
Alright. Thank you. So let me take you through the rationale first of all.
Uh huh.
In wealth management, we've embraced a differentiated and innovative strategy for a while now and examples of this include.
And being the only bank without its asset management unit.
Bracing open architecture, and even National Bank Independent network being the only Canadian Bank supporting independent brokers and portfolio managers in Canada. So this initiative is just a continuation of this same differentiated approach.
I need to remind you that five years ago. In 2016. We started we were the first to offer free trading of Etfs and Thats when Robin Hood was just starting soon.
Since then we've worked with our colleagues internally, we fine tune our processes, we improved our pricing essentially get.
Getting ready for free transactions. So this is not a brain cramp that happened. This summer we've been getting ready for this for many years and we were recently at 95, which is pretty close to zero.
With this announcement, we're putting a relatively small amount of revenues at risk as you said.
Some people identified the line Securities brokerage Commission, which is $60 million this quarter.
As many things in it but I will only say that we're putting a very small fraction of this with our new pricing at risk.
And the reason is twofold first of all yes, we do have a relatively small market share.
In this business in Canada, especially compared to our full service brokerage unit, which is much bigger.
But most importantly, we have been constantly reducing the percentage of the revenues of direct brokerage coming from transactions over the years in preparations for this and it has become fairly small.
So the objective.
It's simple it's to increase our client base, we know exactly how many clients we need to have to make up the loss in revenues and we currently estimate that we will achieve this as revenue accretion in fiscal 2022, and remember gaining just a few percentage points in market share could be very significant for us in relative terms.
And if you look in the U S. There has been significant adoption of free transaction. So it's very good news for investors. Louis said people first we also want to say Investor first there's no hidden agenda here, we're really happy to provide.
The standard bank offering.
That had fintech pricing.
<unk> plus all of the added benefit the real quotes real time quotes all the registered accounts and everything and also remember we ranked number one in J D. Power's for investors satisfaction. This year. So we do have the service offering that comes with it and Thats why the timing is good.
So this is the result of.
Five years of planning investing investment in our platform. We're very proud of this achievement and we will continue down this path of disrupting the industry if it improves customer experience.
Alright, Thank you very much.
Thank you. The next question is from Doug Young.
I think capital markets. Please go ahead.
Hi, good morning.
Sorry, good afternoon.
In the commercial loan growth, 14%, hoping you can dive a little bit more into what some of the drivers are and I can see some of the sectors, where you've shown some more expansion just wondering.
Yes.
What's been driving the growth and at the same time it seems like a lot of your competitors are obviously focused on driving commercial loan growth in Canada in particular, I am just curious as to the competitive environment out there and like how are you generating this level of growth.
Hi, overdue, yes, hi, Doug.
So essentially a couple of things for one the Quebec economy was doing very well before the pandemic and its rebounding.
The better than the other provinces and that's our Forte.
Second element, you've seen our numbers and in real estate our growth in real estate and we've said in previous quarters. There is a.
Plenty of opportunities and demand for affordable housing, we're focusing on mid rise low rise ensured real estate and that represents about 80% of our growth in a.
Mortgage real estate.
The other element that you have seen it as well and are in the.
Part of Q.
Q3, we've seen a strong rebound in other sectors of the.
Non real estate sectors, and very diversified finance manufacturing wholesale trade and others are picking up quite quite strongly mostly due to.
M&A activity business transfers.
Our lateral lengths along our credits are still remaining at the at the same level. So so there is money in the bank there when the economy picks up even further.
And so is that a disproportionate to the growth out of Quebec is that and when you talk about unused lines of credit like where would you like where would your utilization.
Right now relative to what it was pre.
Pre COVID-19.
So I would say utilization is approximately I'd say, 20% below what it was before COVID-19.
It's pretty typical across.
Across the market from what we can see.
So and because of obviously the high level of liquidity and Canadian businesses as we speak.
Okay, and then just sorry, just to clarify Mike most of the growth Youre seeing is that they get back can you maybe quantify how much was cut back or how much is that.
So basically the growth outside of Quebec.
Is is higher then within Quebec in it but it's not only real estate. It's also our specialty business being <unk> being.
Being tech and others.
Okay.
And then just second on <unk> I mean, I think maybe you talked a while back that may be seen of it a bit of a.
LOE down I mean, we've seen anything but I mean earnings are up pre tax pre provision earnings were up 41% year over year at 13% quarter over quarter. So.
And there is some ebbs and flows related to Covid. I mean is this level of growth sustainable this level of profitability sustainable can you maybe give a little bit of.
A color of what you're seeing in terms of an outlook with that investment.
Yes.
I think the.
No.
The outlook for.
Short mid and long term remains extremely favorable for EMEA.
Given the strength of the platform.
The combination of.
Strong physical network and very good digital offering and lastly.
Given the long term potential of growth.
In Southeast Asia, and then Cambodia, particularly so I think we're well positioned there for double digit growth.
Over.
Multiple.
Time horizons from quarter to quarter, you know there is the COVID-19 situation is a bit of an unknown.
The impact so far has been.
Less than what we had prudently are anticipated.
But it's quite clear that the franchise.
<unk> gained strength.
Throughout the pandemic.
Because of its very strong digital offering.
And the fact also that they manage to stay open even win portions of our Phnom Penh were were closed they didn't manage to keep their their physical stores open.
So no I think the the future on all time horizons.
And it looks very positive for that asset.
And if I may just one last one bill I mean, you provided guidance for impaired PCL for fiscal <unk>.
'twenty, one do you care to provide any level of guidance or how you see things unfolding for fiscal 'twenty two.
Thanks for the question, Doug I think we have a tradition of.
Talking about our about that in the fourth quarter and I think we'll maintain a tradition, but ill share. Some some comments on what we're seeing.
They're there.
There is still uncertainty about the impacts of what's coming in the near term the government program programs winding down.
And we expect.
That the impacts of those will be mainly felt in those portfolios that are most hit by the pandemics.
I think the what we see in them.
And in terms of the trends in the portfolios is a continuation of the positive trends since the beginning of the year. So the metrics that we look at are still flashing.
<unk> Green and.
And it certainly.
Every quarter I think our view is that <unk>.
Normalization is pushed a little bit further into the quarter.
But I wouldn't want to give you any specific guidance for 2022, yet we will talk about that in December.
Perfect and all the best in retirement living.
Thanks, Doug.
Thank you.
Next question is from many Grumman from Scotiabank. Please go ahead.
Hi, good afternoon, and congratulations on your retirement living.
Particularly your menu has they'll have to go to your event.
Yes, we can do it then.
Good evening.
Just two follow ups, one just on the direct brokerage.
Commission and your business cases are you assuming.
<unk> of response, where your peers, Matt too.
So that's the first one.
Danielle so.
We're obviously you want to capture market share and we made the bet that we would be hesitant and so far so good.
Got it and then just in terms of the.
P&C business, the net interest margin down five basis points quarter over quarter.
Quarter I'm curious what the impact specifically of loan mix is given how strong the commercial growth.
In the quarter.
Yes, it's lucie.
Quarter over quarter. It is the reduction of the deposit spreads also mixed with the asset mix that was partly offset by favorable.
We won't be funding growth. So it's all of these drivers coming into play really.
Okay. Thanks for that and then maybe just one more just on sling.
Is this a signal that there is a new approach that national Bank has a.
To Uh huh.
At syntax.
How significant is this.
And just from a strategic point of view for the bank.
Yeah.
So it's a aloha, maybe I'll take the question.
We were already investor.
We had nearly 30% of.
<unk>.
So.
So what we're seeing here is obviously, we see a growth opportunity in.
In the segment Fintech.
Links they provide services too.
The P&C segment as well as wealth.
So the intention here was to provide.
More flexibility.
We're <unk> in terms of.
Our capital injection.
But no I mean, we've been.
Investing in several play.
Players in the market and from time to time, we take small investments and grow them bigger win where we see opportunities.
Obviously.
Obviously, we look at trends like.
Tumors gravitating towards digital.
Yes.
Looking for improvement on the consumer experience.
The underlying trend of the financial market financial services industry, that's more and more fragmented.
That is not disappearing.
So all of those reasons why were <unk>.
Increasing our investment in <unk>.
On a percentage basis would this be the largest stake you have.
Syntax or are there other examples in the portfolio.
Just two.
Louis.
I think just to put it in historical perspective.
Because.
Now the ancestor on the table.
The 80.20 approach we use that back in the old days would you have a bogey.
Before he became National Bank financial it did serve us extremely well we used the same thing with.
With credit <unk>, which I think would be defined as a fintech today. That's my view, it's a fintech that provides financing to other fintech.
And we use something quite similar with NBA bank. So we do have a history of that.
Making these 80.20 type of investments and.
And over a period of time.
Time, working with partners to grow that and I think it served us extremely well so thats for the history of it now for the future or anything else to add.
I mean.
To answer your question that is.
From our venture portfolio, the largest investment that we have.
At this point in time.
And.
You could see from time to time strategic places like that but.
But that's the only one we have right now in the books.
Thank you.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Thank.
Good afternoon, just wanted to follow up on the NIM discussion I guess the direct question I'd have is what should we expect for NIM.
Going forward like is there going to be continue.
Gradual decline in NIM based on the same factors that impacted Q3 results or should we expect something different.
Different.
Yes, it's lucie.
Sequentially, we expect some pressure on the margin mainly due to the same factor.
So we expect to be perpetually able to decrease gradually no drastic one to ask but a gradual decrease at the same time the increase of loan.
We also picked up.
And explain.
On the commercial side, so that's what we see coming for the next quarter.
Okay.
I'm, assuming as loan mix gradually improves with commercial picking up potentially residential mortgage slowing or at least that's my expectation then.
Eventually that NIM will stabilize.
Lies and reverse is that if I look further out in the next quarter or is that reasonable in your mind.
That is our scenario.
Okay. Okay. Good.
And then I wanted to ask your question around.
Capital. So some of your peers have benefited from.
Lower <unk> density specifically on credit some of it migration some of its model refinement. Just wondering if you see a similar benefit like when I look at your <unk>.
D and LGD assumptions and then the table.
What the actual experience it appears to me that your assumptions remain relatively conservative. So just wondering if there is an opportunity again either for further migration or four model refinement.
Bill will take a first crack at it and.
Yeah. Thanks, Thanks for the question Paul.
We're happy that our actual performance has been better than our conservative.
Assumptions in those models and we will certainly continue to look for opportunities.
Andrew as we refresh our models nothing specific in mind.
Im just wondering anything else to add.
Thanks, Paul does that answer your question.
I mean, so you have been putting up let's reframe. It then so it sounds like not necessarily any model refinements.
But but see potential for continued credit migration and I get that idea for us accounting and capital accounting aren't exactly one for one for.
Sure.
Maybe you can give us a sense of.
You know or some way of framing how much additional capital you might be caring for.
For higher loss rates than you typically would or maybe maybe youre not today.
Well I think to frame it I would say that.
We feel.
That our provisions and our approach on the allowances has been has been it's been good and certainly if the if the good progress in the recovery continues we would expect that to add to capital.
On the on the modeling certainly the normal process as we refresh.
Certain models and as the models go through where there is demonstrably lower actual deep.
Default.
Loss, given defaults have been higher that will impact the models, both <unk> nine and capital.
So that is.
Ahead of us.
But nothing nothing specific to signal to you.
Sure Mark.
And then last question on kind of a N a and that's related to.
The increase in <unk> related to counter party risk.
Fairly significant year to date I understand that the capital markets driven so maybe just walk us through what exactly what line of business is driving that.
Then maybe tie.
Two future expectations as well if you can.
Yeah, maybe I'll start on that one to parliament and he might have something to add but primarily its client client business client activity is providing risk management products and derivatives to help.
Helped by our corporate clients manage the different types of risks anything else to add.
Tie that exactly that its a more volume with more clients.
So there's a lot of that outside of Quebec by the way.
Okay, Okay, I got it and that's all the questions I had and Louis congratulations.
Enjoy the retirement, thank you Paul.
Thank you the next question.
Well from Sohrab <unk> from BMO capital markets. Please go ahead.
Thank you.
Just wanted to ask overall bank question here.
If I look at the last 10 or so years.
Top line growth.
I think you are on track to have the best.
His line growth revenue growth.
The last decade or so.
I'm curious if you are in a position right now to talk about.
What sort of top line.
Growth expectations, you have for next year.
Granted this year is not over yet.
And what would.
The top three drivers of that growth.
Next year.
Those are great questions.
I can I can I quit attempts.
Drunken sailor type of prediction.
Leaving in a few months.
But laurent answer that question.
Yes.
B.
That's where I was going but I think.
I will share them with my body.
That's a great question for for next quarter, I think Ken and possibly even early 2022, but that's certainly the question that.
It'll be him and the team will be ready to answer.
Okay, well then Louis I May ask one other question your U S.
South proclaim to be the answers to at the table.
You would have seen many.
<unk> come and go I mean are you worried about some Africa rhetoric coming out of this election and I am specifically.
Focused on.
Answer this bank tax that may be hitting.
Hitting the headlines now.
So Rob I have enough scars on my phase two not comment.
You know.
Proposals during an election, so I'll take the fifth one that one even though we're in Canada.
I'll apply U S constitutional law.
Yeah.
Well I will.
I will look forward to pick your brain on that again hopefully in October. Thank you.
Thank you.
Thank you. The next question is from David Hilder, Shane from National Bank Financial. Please go ahead.
Good afternoon.
I'll Echo.
So a positive vibes.
Louis and enjoy your retirement and whatever is next.
Sure.
And the next phase of your life.
So on to the question.
Credit G.
The assets there are kind of flat for.
The quarter I was just wondering if theres any insight on reassessing what.
What assets you could be targeting for origination I know the business has been nimble in the past based on market conditions and right now pricing not optimal for us.
Pricing, but if there may be some other initiatives that worked.
For the past.
It will drive some growth there and then the other question would be directed to.
The Canadian Bank, we're seeing about a 51% nix ratio, they're pretty phenomenal improvement over the past year wondering.
If theres a target of getting below 50.
The overtime.
Your thoughts.
Around that.
The second part of your question again, I think that's a great question for early 2022 when Lohan.
We're updating the strategic plan and guidance.
On your first part on credit G.
Just a reminder that in us dollar terms.
The portfolio has been growing so.
Some of that has been.
Volatility with the currency level, but net net the portfolio denominated in U S dollars has been growing.
The good.
There's many good things about that business, but one of the things that we like is that theyre doing more trades.
With more different diversified counterparties.
So in terms of portfolio effect, we have less of a risk of our portfolio coming to maturity.
Big portfolio coming to maturity in having to replace that.
Net income so.
They've been doing more.
More trade small smaller.
Trades, but with a diversified and more diversified asset base and a greater broader group of Counterparties, when we talked to the team they remain very optimistic.
About the future and the potential for growth clearly given a lot of liquidity into the system. This pivoted to financing more of the acquisition.
Acquisition of portfolios by third party as opposed to them buying portfolios of assets.
Given what they feel is.
Expensive prices in the markets, but as you mentioned they've been agile and.
I'm very flexible in terms of deploying capital.
Needless to say I can again, because it's my last call.
I don't know how many portfolios they've bought.
I think it's in the hundreds of portfolios hundreds of trades since we partner up with credits in 2006 to my knowledge. We've had one case of a zero IRR and to my knowledge, we've never had a negative IRR on any of the portfolios that they purchased.
Over.
A 15 year period, I think it's been a very very strong track record.
Okay, great and thanks, again, and I think the only thing you ought to use a star Trek reference.
Earnings call, which was Q2 of last year.
I'll leave it there thank.
Thank you, we'll get ready for Star Trek the next generation.
Yeah.
Yeah.
Thank you. The next question is from Omar Saad from Cormack Securities. Please go ahead.
Yes. Thanks, I just wanted to circle back to the formation of the market's business referenced on slide 10 last quarter I think the formation of the market's been with also.
Due to a client in the utility sector I'm. Just wondering is this evidence of a broader systemic issue in the portfolio.
It's bill Thanks Lamar for the question the answer is no.
Two cases are coincidental a quarter by quarter very very different one was related to weather events.
South of the border and the other one was a specific event with the with some technologies that didn't work and so no completely completely different and don't see any any negative trend in that portfolio.
Okay. Thanks, and then just my next question just looking at the software.
I will step up it and technology spend late 2020 and into 2021 I'm wondering if you could provide some thoughts on what drove the sharp ramp up and then more broadly speaking are there any other expense categories that we.
We should start thinking about accelerate over the course of the next year.
Louis I'll start.
Our technology spend has been.
Growing up steadily.
Steadily for the last 15 years.
So I.
I don't think there was anything particular about.
Yes.
One or two quarters I'm looking at John here is checking.
So only the timing of when we do invest in project sometime there is more that.
Spent upfront in the year and other times, it's getting later into the year. So it depends on where the projects are in their development.
No other particular reason for that.
It's quite clear that us with the rest of the industry.
Technology spend is not going away so.
Between customer facing technologies and cyber security.
That segment will continue to grow we need to keep it growing in a disciplined fashion, but.
And in terms of investments in technology again, that's going to be a great question for Laura and the team early in 2022.
Thank you.
Thank you. The next question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thank you good afternoon, I had a few follow up questions here. The first on your move to the Zero Commission model.
And it makes sense that your strategy is to.
Market share, but I was wondering if you could expand on.
The sensitivity of your market share gains based on when your competitors might move to follow or Zero Commission strategies in other words.
The U S competitors moved very quickly so how sensitive are your assumptions to let's say in a scenario where your competitors.
Pick up Theres match, the Zero Commission strategy within the next 30 days versus let's say a year from now and they still haven't move to the Zero Commission mall can you give a sense of the range of your potential market share gains there.
Hi, Hi, it's nothing I don't think I want to get into the specifics, but the Canadian market is very different.
Competitor as you know, we don't have payment for order flow here, while it's 82% of Robin hoods revenues so different landscape.
Also the other comment that I'll make I'll reiterate we've been getting ready for this for many years.
Which I think is pretty.
Different.
We are the only one we're doing that.
And there is a $6.5 million autonomous investors in Canada about 5000 households.
Sure.
I'll stop there.
You can you can get an idea of market share if you look at strategic.
<unk> insights or economic investors.
And.
I'll stop there in terms of what the math is I don't want to give all of our tricks to our competitors.
Now that makes sense. So if I could then pivot to your your allowance levels for your performing loans and I know theres a lot of uncertainty related to COVID-19.
19, but I was wondering is there a scenario where your allowance levels don't fully normalizes in the next 12 months in other words do you think there is possibility or scenario, where there is still meaningful PCL reversals and still substantial.
Excess reserves more than 12 months now.
Thanks for the question Nigel.
I'll start off by saying.
Have no experience at.
Pandemic cycle.
So to try to be specific and timing of when the end of the end of the pandemic and the impact will flow through it's very very difficult. So.
I don't know, but the 12 months or six months or 18 months.
But if we return to an environment similar to pre pandemic in terms of economic growth and unemployment in Florida and in forecasting the future, we should return to pretty close to where our allowance levels.
We're in relative to the portfolio pre pandemic.
Does that help.
Yeah. That's helpful. I mean, if you could just touch on maybe what you're seeing on the liquidity side in terms of win.
You think the loan growth to normalize I mean, I understand the credit risk side might be harder to predict but do you have a sense on the timing of the normalization at least.
Over the next.
Do you think it's closer to the next three to six months further out than that.
I think the loan growth has been pretty happy with the loan growth this quarter in the last couple of quarters, but I'll hand, it over to Stephane and Lucy if you have any other comments well certainly this is defined gist.
Rising, but the loan growth has remained.
<unk> very strong and we've seen it increasingly pick up over the last a.
A few months, while the liquidities also keep on gaining momentum not as much of that high pay as high of a pace as before but they are still growing so I would argue we probably have several quarters of.
Of these buildups before they read.
<unk> back to normal levels.
<unk>.
Im not concerned about them drawing up too quickly.
Maybe I can expand on the mortgage growth.
Following Stefan so.
We believe this forces driving the real estate market will continue to be present.
And we think demand.
With continued to be stimulated by the lower interest rate environment.
Well, so as the changing housing needs.
As a consequence of the flexible working conditions.
Employees are not offering.
And eventually the reopening of the integration, we announced there will be a factor in medium term.
And.
And I think one of the.
Thank you.
Issuance supply that will continue to put pressure on the market.
It's not an easy one to solve but certainly when we look at specific National Bank Stefan explained the opportunity that it brings in terms of commercial real estate, especially in Quebec.
So we see a we see it.
We see it as being we see then we are continuing to be well positioned to capture that market.
A market change.
Okay, that's really helpful and that's it for me and Louis wish you the best in your retirement as well. Thank you.
Thank you. The next question is.
From Darko <unk> from RBC capital markets. Please go ahead.
Alright. Thank you I have a couple of Bucks a.
A bunch of really quick questions I think I'll start with Montana.
So one of the things that's also missing in the Canadian marketplace fractional share ownership is that a big thing is it difficult to do expensive is that something you guys are considering.
<unk>.
It's been on the list of things that we want to do and we constantly survey our investors.
And I think that with one devote recently is before and after hours trading so I don't know exactly where fractional shares stands.
Dan, but it's in the list Darko.
Okay. Thank you a quick question for Lucie.
The mortgage growth that we're seeing from national is.
Is it Bob.
Average.
Industry average how much of that is coming from mortgage brokers and <unk>.
It material at all.
No I would say thank you for performing as we would be very <unk> about what's happening we've been working on that business for many years now so 75, <unk>, 75% of our growth.
It comes from our appropriate every channel, which is really at the core of our strategy in mortgage broker.
Yes.
All inclusive.
Our paradigm quest activity represents about 16%.
Okay and has that grown from from passengers.
Thats really since we exited the mortgage broker channel we started our partnership with <unk> and now we've complemented it with entry as you know.
Incentives to keep our.
Our strategy focused on appropriate every channel going forward.
Okay, great. Thank you and a real quick question for Bill I'm looking at slide nine of your presentation.
The performing ACL coverage.
Total allowances covering six six times net charge.
Jos.
The question that comes to mind and staring at these graphs.
It is surely the uncertainty today.
Must be less than the uncertainty we saw last year in Q3.
So the begs the question and I know you were asked this previously but.
As we get into Q4, a lot of the things that you cited we will obviously be less uncertain like the programs will be over or should be over whenever Nordic I suppose it could be presented.
Yes.
But we will know a lot more about the delta variant and so on and.
And so forth is it does it not scream at you when you look at these these.
These lines going up that maybe you have to have a much bigger release and really quickly.
Yes.
Thanks, Darko further question.
I think.
You and I spoke about.
When.
First name was implemented how it would work before the pandemic.
And I think I was calling out some of these these ratios before them that dynamic it certainly.
Would not have predicted the lines to go up so sharply to have three eight times coverage for $6 six times coverage I think theres a couple of factors.
In that one is that the impaired levels had been very low consequence of many of the things that we've already talked about but.
In theory before the pandemic I would've expected some transfers of the allowance into impaired are in stage three as impairments came so that's that's one thing I think the second point.
So I'll mentioned as well.
When we think about.
Reserving at our reserving philosophy is certainly our history has been to be very proactive and build reserves quickly where do we see a deterioration I think we did that early on in the in the pandemic starting even in Q1 as we saw the.
The situation evolving in Asia.
And our philosophy at this stage I think is really to remain prudent. So if you add up the releases in the last couple of quarters.
We have released 2020.
Less than 25% of the build over that time.
<unk>.
The reason why we're retaining.
The 75%, 80% is not because we see imminent deterioration.
And we recognize there has been a lot of good things that have happened and we have the vaccines with the rollout of the vaccines in Mexico vaccination rates are very positive it looks like this.
Four programs did provide a bridge to the reopening of the economy and those are the factors, which drove the release.
But the.
We really think that being prudent given some of the uncertainties is the right is the right approach and just like as the positive news to date has generated its releases certainly.
If it continues to be positive news there will be more releases.
I think the if I would describe it and adjectives our mindset is.
We're optimistic Andrew.
And prudent.
Okay.
Yes, I mean, I guess I mean, just.
It just seems that it's <unk>.
Continues on into next year.
I would I would've thought maybe that we would see more aggressive releases and then they just sort of tailing off.
But I guess youre not willing to come to sort of commit to any sort of a pattern.
Yes, it does as I mentioned earlier, we haven't been through a pandemic cycle before and if we have to air we would rather err on the prudency.
Prudent side. However, if if the economy continues to follow the path of positive news continues there'll be releases I think that's as far as I'll go.
Okay, Alright, great. Thanks Louis.
The best in retirement is going to Mr conversations.
And Laura and looking forward to conversations with you going forward as well thanks very much. Thank you.
Dr. Carl Thank you.
Thank you as a reminder, please press star one at this time, if you have a question.
Our next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Thanks, I just got a quick follow up question on flanks, you kind of provided your investment.
The impact.
I just have one and unexpected gain next quarter, but from a P&L perspective is there anything to consider on that front.
I think we guided sorry, Scott Louis I think we guided that it was neutral in terms of yes, yes.
In the press release and they are probably dead.
For the next year or two I think it's pretty neutral okay got it.
Thank you.
Thank you.
No further questions at this time I would like to turn the call over to Mr. Louis Vachon.
So thank you, everyone and I and team will be ready to take your questions.
Q4 meeting so thank you all and have a good day.
Thank you.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Once again the conference has now ended please disconnect your lines at this time and we thank you for your participation.
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