Q1 2022 National Bank of Canada Earnings Call
No one else seemed to be honest, we lapped a silty duckenfield it'd be tough soup the level pre owned at the end of Hulu I had thought of it get it gives us though they knew who I know some of the best guilty.
[music].
Hum.
Hum.
[music].
All participants thank you for standing by the conference is ready to begin.
Good morning, ladies and gentlemen, and welcome to National Bank of Canada's first quarter results Conference call.
I would now like to turn the meeting over to MS. Just ended up nicely senior Vice President of Investor Relations. Please go ahead.
Thank you operator.
Everyone and welcome to our first quarter presentation.
Presenting this morning are a little high figures huh, president and CEO of the bank.
Uh-huh Chief Financial Officer.
And Bill Bonello, Chief risk Officer.
Also joining us for the Q&A session are they found out shop, and you see blotchy co heads of P&C banking Mustang gone young head of wealth management didn't use your hallo head of financial markets and job actually senior VP finance.
Before we begin I refer you to slide two of our presentation, providing national bank's caution regarding forward looking statements.
With that let me now turn the call over to Laura.
No cylinder and thank you everyone for joining us.
Today, the bank reported strong first quarter results with pretax pre provision earnings up 14% from last year.
The market and economic environments were conducive to business growth and translated into continued momentum across all business lines.
Looking at our fundamentals, we are very comfortable with our current position.
We generated strong asset growth, while reaching a CET one ratio of 12, 7%.
We have prudent credit reserves and we delivered a return on equity of 21, 7%, reflecting our balanced approach to revenue growth and cost management.
Our capital deployment discipline.
Credit quality.
Our capital deployment strategy remains unchanged.
Our number one priority is to maintain strong capital ratios, allowing us to support our clients and generate solid organic growth.
We're also actively returning capital to shareholders through sustainable dividends and share buybacks.
In the first quarter, we Richard we repurchased 5 million common shares and we have $6 5 million shares remaining under our current and CIB program.
Our credit quality is strong and our portfolio has continued to perform well supported by the ongoing economic recovery.
We are also focused on optimizing our operational performance to maximize value creation delivering positive operating leverage in Q1.
We will maintain our usual balanced approach to investment.
And cost management, while remaining cognizant of inflationary pressures.
Turning now to our segments.
P&C delivered strong results with PTP earnings up 11% year over year.
Our performance was driven by strong growth across the franchise.
The housing market remains robust with retail mortgage loans up 2% sequentially.
We also continued to experience significant sales growth and investment products.
On the commercial side, we benefited from continued momentum across industries with 3% loan growth quarter over quarter.
Our wealth management franchise continues to perform very well and delivered a strong first quarter PTP earnings up 13% year over year.
We saw continued momentum in full service brokerage and mutual fund sales client assets were up 17% year over year.
Financial markets delivered a record quarter with revenues of 661 million global markets generated particularly strong results due to increased client activity and volatility.
Corporate and investment banking delivered a resilient performance after coming off a record year once again ranking as a top government debt dealmaker in 2020 one.
A b a bank continues to perform very well with revenues up 33% loaned up 38% and deposits deposits up 38% on a year over year basis.
Cambodia did well during the pandemic despite the hit to tourism.
Growth outlook for a be a bank continues to be very attractive Cambodia is a high growth economy with favorable demographics. It is an under bank market with strong potential we continue to expect double digit growth for a be a for fiscal 'twenty to 'twenty two.
Yeah.
Credit continues to perform well with strong portfolio performance in Q1, and a healthy investment pipeline.
Revenues were up 26% sequentially.
As mentioned on our last call.
We expect revenues to be relatively stable in 2022.
Given the $26 million gain $26 million gain on the sale of a portfolio in the first quarter of last year.
This translates into high single digit revenue growth for fiscal 2022, excluding that gain.
We continue to foresee double digit asset growth for the year.
I would now like to share an update on two recent changes first and supportive enhancing our client experience accelerating our digital transformation and gaining efficiencies we are bringing together our operations and technology teams under the leadership of Judy Levek.
Who has been responsible for the bank's technology sector since 2020.
Second we are proactively leveraging our collaborative models between commercial and private banking.
Two client segments with natural synergies, namely we are adopting a unique go to market strategy by merging the sales teams to enhance the overall client experience.
To finish our head of commercial banking and a big mutual head of our private banking well now be corresponds bull for this strategic initiative and will report to me.
Before I conclude let me share a few thoughts on the macro environment.
We are obviously, keeping a close eye on inflation global supply challenge.
Global supply chain challenges as well as unfolding geopolitical events, which could exacerbate inflation and volatility and potentially have an impact on the global economic outlook.
That being said our current outlook for Canada, and Quebec is positive.
The Canadian economy benefits from strong demographics, which supports GDP and loan growth.
The price of commodities are at record highs, which also indicates the potential growth for the Canadian economy.
Quebec remains well positioned.
With household saving rates above the national average low unemployment and a diversified economy.
Well come back to respond more aggressively to omicron than other regions in Canada. Most restrictions are being lifted and any impact will have been transitory.
To wrap up.
We had a very strong start to the year.
And all of our businesses are well positioned to continue to perform well.
In light of our first quarter results. We are currently tracking ahead of our mid single digit P. GP growth guidance for the year.
At this point in time it is too early to provide an update on that front.
Overall, we remain confident in our ability to generate solid <unk> growth and positive operating leverage for fiscal 2022 .
National Bank has a strong record for delivering superior value to its shareholders over time and that remains a key focus for the team going forward.
Yeah.
Before ending my remarks, I would like to say a few words on the executive changes announced this morning.
After more than 10 years as our CFO .
As you step out all will be taking on a new role.
Head of international reporting to me.
She's Lance contribution over the last decade has been invaluable to the bank's success.
And I'm very pleased to be able to count on his continued leadership.
Does that Betsy.
Yeah.
We also announced that Microsoft that was I think I will.
Become our new CFO effective April 1st, but he is not that it is a strategic leader and she has held several roles in finance internal audit and P&C banking since joining the bank in 1998.
I am confident that medisoft that it will be an outstanding addition to the executive team.
With that I will now turn it over to Jay.
Thank you and good morning, everyone.
Turning to page seven.
<unk> delivered a very strong quarter with all segments performing well pretax pre provision earnings grew 14% year over year.
We achieved positive operating leverage of 3%.
During the quarter the bank reverse $20 million of the provisions for provincial compensatory tax on salaries without this reversal P. T. P. P earnings would be up 12% and operating leverage would be positive by 1%.
Higher expenses during the quarter driven by it.
Our low expense level in the first quarter of last year.
Higher variable compensation due to our strong performance.
Continued investments in talent and technology to support growth across all segments.
And expenses related to our new subsidiary Slinks.
As mentioned last quarter, we expect continued pressure on costs in the context of inflation. Nevertheless expense management remains a top priority as demonstrated by our consistent track record.
While it may vary from quarter to quarter, we are confident to achieve positive operating leverage for fiscal 2022 .
Turning to page eight.
Our teams are very disciplined.
And some of our segments achieved best in class efficiency ratios.
It was all the ways, we are making targeted investments aimed at growing our topline and enhancing client experience.
Looking at PNC expense growth reflected higher wages to retain and attract talent in a tight labor market.
They shouldn't we continue to improve client experience, which Krishna I T investments aimed at improving automation of our processes.
And leveraging our data.
With regards to wealth management expenses increased mostly due to the solid growth in full service brokerage and mutual funds revenues.
Resulting in higher variable compensation.
We also added resources to ensure our leading client experience in a context of above average growth.
Our wealth management segment efficiency ratio below 60% for Q1 is in the low tier of the industry.
Turning to financial markets.
<unk> growth was mostly driven by variable compensation, reflecting strong revenue growth in global markets. In addition.
Our financial markets team continues to seek opportunities to diversify our revenue streams and is investing in talent and technology Accordingly.
We ended the first quarter with an industry, leading efficiency ratio of 39%.
With regards to international while the segment continues to experience significant growth it posted a low efficiency ratio of 28% in Q1 2022 .
To conclude on this topic the entire team continues to manage costs actively.
With the objective to adapt rapidly to different growth scenarios and still be able to generate positive operating leverage for fiscal 2022 .
Now turning to capital on page nine we ended Q1 with a strong CET one ratio a ratio of 12, 7% up 30 basis points from last quarter positioning us well to generate strong asset growth.
Our strong results net of dividends generated 58 basis points of capital.
Excluding the impact of foreign exchange risk weighted assets grew amounted to 14 basis points of C. T. One mainly driven by loan growth.
And during the quarter, we repurchased 500000 common shares as part of our N CIB program, which reduce our CET one ratio by five basis points.
Now turning to page 10, our total capital ratio stands at 16 point to 1% this quarter, our liquidity ratios remained strong with your LCR ratio of 149% and our net stable funding ratio of 117%.
We are pleased with our capital and liquidity position, which allows us to support continued growth across our segments.
And to return capital to shareholders with that I'll turn the call over to Bill.
Seizures and good morning, everyone I'll begin on slide 12.
Credit performance, we saw in the second half of last year continued through the first quarter provisions on impaired loans totaled $24 million or five basis points, an increase of $5 million or one basis point from last quarter.
Impaired provisions remained close to cyclical lows across both retail and non retail portfolios.
Performing loan provisions, we benefited from a $34 million or seven basis point release, the primary drivers in our domestic loan portfolios were updates and portfolio quality economic scenarios and portfolio growth.
In our international sector strong loan growth generated $4 million of performing loan provisions.
Looking ahead.
Three main factors inform our expectations for credit performance during the rest of the year.
The first is that underlying underlying economic trends have been strong GDP growth employment rates excess savings are all supportive of benign credit conditions.
Second is the level of uncertainty in the future path of the economy that comes from the geopolitical risks inflation supply chain challenges and impacts from the pandemic.
And the third factor is our bank's risk profile, how resilient geographic footprint, our defensive business mix are prudent provisioning and our disciplined approach to underwriting and risk management all position our credit portfolio as well in this environment of increased uncertainties.
Considering these factors we continue to expect a slow normalization of credit performance through the remainder of this year and into 2023.
Given the strong performance year to date and the positive indicators in our portfolios. We've revised our target for full year impaired provisions to between 10 to 20 basis points and currently expect to end up towards the lower part of that range.
As we've commented in the past are performing provisions should be driven by changes to the macroeconomic outlook.
Portfolio growth and migration.
Absent a significant deterioration in the macroeconomic outlook, we would expect additional releases from our performing allowance in the coming quarters.
Turning to slide 13.
Allowance on performing loans declined by $32 million to $847 million, which represents a strong six times coverage of our last 12 months' impaired PCL.
This takes the cumulative release from our pandemic build to 45%.
We are very comfortable with this prudent level of allowances.
Total allowances for credit losses declined by $83 million from last quarter to $1 1 billion and continue to provide strong coverage of our loan portfolio portfolios well above pre pandemic levels.
Now on slide 14.
Gross impaired loans declined further last quarter to $608 million or 32 basis points.
Formations in our P&C portfolios increased quarter over quarter, but remained well below pre pandemic levels.
Financial markets benefited from a net repayment in the quarter.
Formations at a b a increased in the quarter as long as rolled out of Covid related moratoriums and performance on these matched our expectations.
On slide 15 details of our Russell portfolio are provided did.
The geographic and product mix remained stable with Quebec, accounting for 54% and insured mortgages accounting for 32% of the portfolio.
Employment and demographic trends remain supportive of continued strong performance in our rest of the portfolio.
In summary, where we are very pleased with the performance of our portfolios in the first quarter, we remain very comfortable with our portfolio's resilience the diversification of our earnings streams and our prudent approach to provisioning.
With that I will turn it back to the operator for the Q&A.
Thank you, we'll now take questions from the telephone lines you kept your question and yours and your speaker phone lift.
Lift your handset before making your selection Sam question. Please press star one on your device to treat that.
You May counseling question at any time by pressing star two.
Please press star one at this time, if you have a question.
Responsible other participants register for questions. Thank you for your patience.
Yeah.
First question is from it.
In addition from National Bank. Please go ahead.
Okay. Good morning.
Yeah.
Yeah volatility, obviously help the trading numbers this quarter.
You know given the backdrop. We're you know we're in currently I'm just wondering if there's such a thing as too much volatility in what that looks like is it mainly an issue of clients activity falling off or you know maybe positioning.
Yeah. Thanks, Gabriel is the knee Ah Yeah. In fact, you went through your question.
Okay.
Basically yes, it's a combination of a you know above average client activity in in Q1 and also our defensive position that all of you known for for.
For many years as we keep repeating that the you know we are we have a small position that we keep on when the things are getting a little bit erratic out there, but also I have to mention that on the global market. The fixed income did fairly well also because they have a very defensive position, meaning very small position in credit spread and a very small position on the yield curve then.
All in all together they made that quarter spectacular in term of trading revenue.
The current quarter.
Of course, what happened yesterday, there's a bit of a twist, but how we go.
Really good about the trading backdrop.
I'm not sure I understand what you just mentioned.
Yes, Yes yesterday, we've had you know we have a quarter, where we're midway through Q2, and then Oh, yes yesterday happened I'm wondering if you.
You can make a comment there.
What it's been like so far this quarter.
Wow.
You know, it's not because the market is saw erratic and so while I thought that it would be it's going to be as you can understand it's tough for me to tell you what I should expect for this quarter then things are going okay got.
Got it depends on what type of other people are going to see also you know and then there's some that we can do a bit better. There's others that are you know we will do okay.
But right now yeah, you know we're tracking okay, but that's the most I can say right now because of the you know the environment we're in.
Tomorrow can be quite different than yesterday.
Okay.
And just switching gears to a be a another business, but really humming along nicely.
Hum.
I got to ask the sustainability question then that's more of a is there a point at which you grow your loan book to a certain size and then that's kind of spur the and investment requirements and scale up again or have you built this thing because I know there was an in person because a few years back.
We built this thing for a very long road runway of growth.
You have to give it in is just saying thank you for the questions. So.
With the improving economic conditions, I anticipate that a b as our expense level will return to where it was pre pandemic.
And then the efficiency ratio will stay in the low Turkey. So we do not anticipate major investments into French network.
And inflation level as you know in Cambodia was already I before it depends it makes so we expect that that will stay the same afterward to independently.
Okay, well very fitting that you answer the questions and congratulations and good luck in the new role.
Thank you we have it here.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Hi, Thank you good morning.
So when I ask you a question about the investments youre, making in future growth.
Our argue that that's the wrong approach to take over time, but I guess, what I wanted to ask is why is that the right approach today.
Given the tight labor markets inflationary pressures like how do you how do you think about the cost of those investments versus the potential future returns.
Well decisions late here, so I can probably start with the <unk>.
Well I'll answer and then I will pass it along to see and maybe others.
So to answer your questions.
Of course.
So we are what we try to do we essentially use them you know, it's two <unk> targeted investments so of course.
You know, we could we could probably do more but because of what you. Just mentioned you know we try to to make our investments in talent in it too.
To support growth and we wanted to be targeted so.
Lee This is what I could say for the moment, but you know too.
To sustain to maintain long term growth.
We have no choice to maintain some investments in it and.
And talent and this is why we're doing so but once again.
We are targeting these investments where we think they.
They will benefit the most for debate.
Maybe I could add Paul its law.
Hum.
You know.
Discipline is is the number one you know that the mindset that we have when we look at our investing in our businesses.
So are we.
We target when when she talks about targeted investments so.
It's really focused on the in the areas that we believe we can grow.
And I think we've demonstrated our agility overtime. So you know if there is a.
A slowdown in terms of topline revenue.
Then we just reduced the pace of hiring in our it spend and obviously you know variable comp adjusts naturally.
Do you know if you look at our you know.
Uh huh.
At our performance through time, I think we've demonstrated discipline and and also if you look at our you know the efficiency ratios of some of our businesses I think you know our performance speaks for itself.
Yes for sure I agree with the historical track or not.
Good question, but something I am contemplating.
Perhaps my second one is an easier one.
Just wondering if you can give us an outlook on.
On your take for residential mortgage growth.
For 2022.
One of your competitors yesterday kind of guided to high single digit mortgage growth wondering if you're thinking the same or higher lower.
Yeah, Yes. Thank you for your question it's Yossi.
So I would say that we are in line with that we are comfortable with our disciplined approach between balancing volume margin and risks and the way we see the market right. Now we are constant then took her phone close to high <unk>.
To date in the double digits.
Similar to what we achieved in Q1.
And we think that despite the rising in rates need the imbalance between supply and demand should continue to stimulate the real estate market during 2022.
That's great. Thank you that's all for me.
Thank you. The next question is from <unk> from Scotiabank. Please go ahead.
Hi, good morning.
A little I'm interested to ask about just lynn's appointment that new position in international.
Signal a different phase in the evolution of the international business like what what's the message for investors from that.
Our new role.
Nothing in terms of the strategy I think in Q4, it was pretty clear our focus remains on the a b a and credit in and the sector has grown enough that I think having a an executive like she sat to to be responsible for the continued growth of <unk>.
<unk> sector.
<unk> has granted at this point so that's our that's the story behind that but at this point in time no changes and.
And our strategy.
And just specifically on the moratorium in terms of.
New acquisitions in the international business is there any sense about is getting closer to changing.
No.
Not at this point.
And then.
Thanks for that and then just a question for Bill.
So when you see 21% year over year commercial loan growth, we've seen strong loan growth now with very strong loan growth on the commercial side for a while.
Is it raise your blood pressure how do you.
[laughter] thanks for the question.
I've actually got low blood pressure.
The D.
As you know I'm paid to worry, but lots of things that the loan growth that we've seen I, there's not it's not been a cause of concern for me, though if you look at particularly you'll see it this quarter and I think stuff on.
Prelude to it last quarter. It's it's very diversified I think this quarter, there were five or six sectors, which were above our average portfolio growth.
If you remember to before the pandemic in 18 and 19 as we felt we were late cycle.
And the late in the cycle, we had been pretty disciplined at controlling the growth in our in the book and particularly in some cycles. So if that set us up to be able to seize opportunities and we've got a strong teams are in and those are the sectors that we grew in both Hindi and.
Stephens.
Business, but also in my credit shop, and we've been quite quite comfortable with the growth.
Does that answer your question Manny.
Yeah. Thanks, Tom.
Thank you the.
The next question is from Lamar Prasad from <unk> Securities. Please go ahead.
Yeah.
Looking at our balance sheet is a big step down in the repo balances throughout 2021, and then a sharp step back up this quarter can you talk to I guess, what drove the decline in 2021 and the step back up.
Q1 'twenty two.
Maybe I could start a slow on a I'll, let so you have a 2021 with the inject the injection of liquidity by central bank's quantitative easing.
The whole sector Securities Finance, which includes repo.
You know the pricing went down significantly and the demand for our about our balance sheet went down significantly.
And so with you know obviously the change in the AR and AR.
The monetary policy across the world.
For 2022, we've seen that shift coming and so there is more demand for our I think for for balance sheet and financing securities. They need yeah, yeah, specifically in AR and the equity and equity markets. We haven't seen that much in the the bond side, though but and equaled either a market on lease increased lending yes.
We saw an uptick.
But I don't think you know it was a quite interesting, but I can tell you that right now in February we said that thing back to where it was last year, which is a kind of a mindboggling right now because it's kind of bizarre. That's we're seeing that but you know what things may change very very rapidly, but it's probably a temporary situation, but yes. The first one.
Water it was a nice uptick because it was pretty low in fact, historically last year are in that particular business.
Okay, great and what about spreads in that business have they are they increased it well do they increase in Q1.
Going back down as we look forward in to Q2.
They did increase in Q1, they came back a little bit in Q2 at the start of February but its too soon to say, if it's going to stay like that for a while.
Because theres a lot of stuff in the market for as long as you know.
Okay, Great and then my next question is just on the domestic.
Take mortgage for us is perhaps a little bit softer than some of your peers. This quarter can you talk to what happened. There like is there is there some unique factors in the Quebec mortgage market maybe increased competition.
Maybe that impacted that at all.
Any comments there would be helpful.
Cool.
Yes. Thank you, it's Lucie I would say that we've seen orange nations, a little softer this quarter, but everything that with the increasing rate environment.
But just as a reminder, you know originations I'm French record high in 2020 into 2020 . One so it's not anything that we that is really immaterial at this point.
Okay, great. Thank you.
Thank you.
The next question is from Nigel D'souza from a fantastic investment research. Please go ahead.
Thank you good morning, I wanted to first touch on your performing loan allowances you noted in your slide that there's been accumulative release of 45% from what you built.
Through the pandemic and I'm trying to get a sense of the timing of when do you think that could completely released and when we have around the corner I return to office in a more broader reopening and the current credit environment is still fairly benign so assuming that we don't get it.
The deterioration in the economic outlook when do you think you're performing allowances might.
Get back to a more normalized level.
Thanks, Todd Jones spill I'll I'll take the question of course, the I think I referred to that in the script and as you as you pointed out in your question, but you know absent a significant a shock in the macro outlook. We would expect continued releases of those in the.
In the coming quarters, so the you've seen that over the past three or four quarters that have been there have been releases, we want to remain prudent and our prudency is is.
Is linked to the level of uncertainty in the market. So there are on the pandemic seems to be close to turning into an end up.
That make phase more back to the office however.
The this is the first time, we've been through a pandemic cycle as I think I've commented on the past and we think that it's prudent to remain well provisioned.
Sure.
Yeah. It does it doesn't sound like you're going to accelerate that our that at least so that's that's good color and if I could switch gears to your trading P&L and maybe ask it in a different way when I look at your daily trading P&L last quarter, we had elevated interest rate volatility October and you had some P&L losses there.
At January .
You haven't had any P&L losses in January despite.
More elevated interest rate volatility that month. So I think you touched on having I guess less exposure to the carbon spreads, but could you touch on your exposure to interest rate volatility and how that affects your P&L.
Well the interest rate volatility.
This is not affecting our P&L, that's much because as I said.
We're running very little balance sheet in fixed income right now and we have no exposure to the market that is perceived as interest rates and you know we're not betting on the interest rate on all of them. In fact, what we're doing is we're servicing the client on that the trading activity in the business that they wanted to do and on the creative side you know we are.
On purpose, we keep our CSO, one is very very low either or in the corporate sector or the our government sectors. Then we just do quite a lot of volume and activities with clients, but we keep packages and exposure at the minimum as are we cant right. Now that's why we haven't you know not that much exposure to.
The movement of interest rates.
Got it and just last question for me you mentioned that you know too much volatility could could be.
Detrimental in some scenarios, if we could switch to maybe the ability of.
You know go to market for equity or debt issuance are you seeing any challenges there and in an environment, where we have a lot of volatility both in equities and interest rates.
Well you know.
They can can take the form of many aspect in a sense that you can have an intraday volatility and long term, whether T, where you have a market trading down.
I would say that we haven't see yet.
Every very long.
And they've got this slope on let's say equity less is being down 15 2025 per cent. Okay. What we saw in the first quarter, it's more intra day volatility, where we can catch those movement through our volt position.
The other one the other situation you know, we'll see when we were there and and how it can affect positively or negatively the book, but right. Now you know we're not in that situation not all of it. What we're seeing is just that intra day volatility and that type of environment that we are doing quite well.
Because of the war.
Yeah go ahead sorry.
Because of our positioning that's we're very very conservative the way, we trade those vault and I see those game our position.
That's really helpful color. Thank you.
Thank you. The next question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Yeah. Thank you I just wanted to also pick away a little bit at the at the trading results. This quarter very strong maybe maybe ultimately.
Is it possible if you have that 150 $200 million swing.
And trading revenues to the upside can we also see something like that from quarter to quarter or to the downside.
And would you say that you know how would how is the positioning to pre.
I guess to defend the downside to provide some downside protection here.
Maybe I could start a sore habits law.
And you know and you know I grew up in financial markets with the knee.
The financial markets business is a client driven business and so when you have heightened levels of our volatility often you know it does drive more transaction. So we did see more trading activity with our clients during the first quarter.
And then he was mentioning we trade we position ourselves defensively, that's the philosophy that we have whether it's credit whether it's equity ball.
Our or interest rates.
And so if you look at our past performance.
We tend we tend to do well when volatility increases.
If you go back and run all the numbers and so that's the philosophy are we immune no no one is immune.
What are we.
The way we built the business is we want to make sure that through volatile times, we can keep growing our franchise.
But that's that's the objective yeah.
And you know what yeah, you're talking a lot about the trading and the Oh, you know what the other.
We started the first quarter, but also.
And I mentioned it earlier.
Our client activity was way above expectation thats means that our distribution channel and all of the product that we're selling is a is more robust than in the past and much bigger than in the past I would say even outside Canada and that's why we had a very very good equity are you know numbers are in Q1.
And then as long as the the client about half are active you know in different type of a run we will do well that's for sure.
I mean not to not to belabor the point, but you had an exceptionally strong quarter because of client activity if next quarter for whatever reason.
We have an exceptionally inactive.
Client yeah.
You know could we be back down to $200 million or below from a trading revenue perspective.
200 million seems to be a big number to me, but we can see the numbers being down.
With lower client activity, but not at that level.
Okay. That's very helpful and then bill and if I can just come to you obviously.
I think.
Pretty good condition as far as reserves and what have you you mentioned that pre pandemic.
Obviously reasons unrelated to the pandemic the bank had kind of started to throttle back a little bit from that.
Maybe your risk appetite didn't allow for some of the growth that was available and now Europe .
Blood pressure is low and all that kind of good stuff, but the what sort of stuff are you looking for.
Should decide when is the right time for the bank.
The throttle back again, if if a tool like what are some of the leading indicators you as a as an experienced risk manage our printing attention too.
Aside from the fact that you've well reserved and you've got good frontline origin atreus them what have you, but what are some of the things you were paying attention to.
To figure out when the blood pressure should maybe start going up.
Hey, Thanks RF.
The question I had.
Take it.
At had a philosophical approach, but what's important is the consistent disciplined through the cycle and that's that is the most important factor so at points in the cycle you should expect that we're where yields are where growth is low and yields are low there could be pressure in the market test.
Stretch and those are the times when one must remember a disciplined approach through the cycle is very important but I think that's what you saw in the AR and the pre pandemic late cycle period, and you should expect that will continue to be disciplined balanced that Lucie mentioned, it's the same in commercial and financial markets as well.
All the the balance between our growth.
And and spread return and a risk is as always on our minds. So I couldn't point you to any particular red flag or a shining light that will be the factor I just.
Say that where we see some stretches in one of those you know the balance between those three factors were likely to be to be disciplined and prudent.
So to answer your questions Sarah.
I think it does and maybe if I push my luck. So would you say in that points in the cycle comment what would you say you think we are in the cycle early third middle third or the final thing.
That's another very good question Sohrab.
And Oh related to we haven't been through a pandemic cycles. So this this this is unlike previous cycles.
There are some aspects of current conditions that seem seem more mid cycle. Some seem later.
Mid to late and some seem early to mid and that's reflects the level of uncertainty in the forward view so the.
I couldn't tell you exactly where we are in the cycle, but I'll remind you as I said in my script, the underlying economic growth the underlying conditions unemployment.
And the economy are strong.
And there was uncertainty about the path in the future. So I Didnt give you a direct answer if I. If I was capable of telling you what inning, we're in I would but that's kind of the balance as I see it does that help.
That's good enough. Thank you very much.
Thank you. The next question is from Mike <unk> from Stifel. Please go ahead.
Hey, good morning, I want to go back to Lucille your mortgage growth and specifically the Quebec market. So I I do notice some pretty strong market share gains in Quebec for national pretty much all the way throughout the pandemic and then the last couple of quarters, you've actually lost a lot of that I'm not sure. How this quarter is going to shake out.
But.
Clearly some of your peers have been more aggressive in the Quebec market I'm. Just wondering you don't get them that it's more than half your reservoir book overall.
I guess for lack of a better term do you have to defend your turf you do.
In terms of client acquisition, what does that mean potentially for your for your margins going forward.
Yes, thank you for that question.
And I think the mortgage market is always a very very very competitive and especially in a rising rate environment clients rate lag and a little bit.
And we see more market competitiveness. So we've seen some of that in the last quarters last two quarters, maybe so that's why I get so many there and this is where you're getting back towards this and we are very prudent in or a balance between the volume the margin and the risk. So lately I would say that's marching on things like push her.
In the context of rising rate environment.
However, we do see much more customer engagement and coming from a from a mortgage activity. So we are I think we were very happy when I was trying to see which is based on our internal channels in terms of growth and this is also something that is very very important in our strategy. So we stay on coincidence of D N.
Yeah approach, we have on the client side.
Okay. Thanks for that.
Yeah. That's helpful. And then just I guess I'm wondering also what sort of impact is the broker channel having in the Quebec market. If any is it mostly impact there in terms of where the competitive pressures are sort of being exacerbated or is it your traditional channels.
70, 75% is based on our internal channels.
As you know we made a big change on our strategy on broker cyclical and years ago, and we are back in that channel now because it's a challenge that if anything customer.
Specifically first time homebuyers.
Preferred so we are present, but I'll start easy is mainly based on our internal China.
Again for a longtime customer engagement strategy.
So would you say, you're you've lost a little bit of its market share predominantly brokerage channel or in your and your branch channel.
I missed the beginning of your question sorry, I was just wondering with respect to the recent market share losses. The last couple of quarters would that have come in your broker channel or your or your branch sourced originations.
Broker.
Got it okay. Thanks for that I appreciate it.
Thank you the.
The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning, Bill could we go back to you and a focus on <unk> for a moment.
Olivier a long steady are now about a third of the company's common equity in.
And you're growing those loans at I think it's around five times the growth in GDP in Cambodia. So so clearly this has become a very important part of the overall business of National <unk>.
Could you just remind us how do you get comfortable with this sort of loan growth.
Particularly given your comments about.
The uncertainty, where we're really not sure where we are in this cycle.
So how do you get comfortable with that kind of growth.
In this environment.
Okay.
Thanks for the question Mario I'll I'll I'll start off with the macro picture.
The rationale for the investment in a b, a and Cambodia is as part of the answer to your question. So it's an economy that is is growing.
Strong growth rates.
It's an economy that is a quite a young population.
It's an economy that is under banked and so the relationship that you would normally find in say the banking growth and and GDP growth and developed our economy like Canada is it's a different relationship.
At a country like Cambodia.
In addition to that we have had very good execution very good strategy.
To to be quite performing in that are in that space. So the digital rollout the <unk>.
Execution on our.
Expanding discipline approach to expanding the French network and maybe he's just low pass it over to just land but.
The context is quite different than they have been and economy like Canada, where a comparison that you're making in terms of loan growth and GDP growth would probably maybe not give me high blood pressure, but would certainly generate some more concern.
And do you have any other comments.
Yeah, I would that would probably you know what the country is still under bank to compare to other countries. So which is a which is important to take into consideration also.
We continue to grow in the same business models. So we haven't changed the business model is the same kind of loans. So it's small loans small Smes you know the our average loan balances below $50000. So we have a great Oh, we have a large.
<unk> in terms of loans and throughout the country. You know we have 80 branches throughout the country. So.
The question is good and Mario but at the same time you know we're not a we're not growing in in and things that we don't know this is exactly the same business model.
As we grew from from the beginning.
So the lending is still very much tilted towards secured lending.
That is true is that and loan to values, maybe you could give us an idea of where loan to values are.
Yes, well to answer your question, yes, it's secured business.
And I think I talked to have the number maybe people could come back to you on that but it's very high.
The loan to values are very small no no no no no in terms of sicard our Ria.
But I think that the loan to value is below 50% if I remember correctly.
Okay and then just one quick question on credit G. I, just looking at the credit performance there.
Wasn't time looking back where credit credit loan losses at the loan loss rate was well, it's obviously much higher than where it is now.
And as I think about the future I, obviously don't feel comfortable assuming that losses reached that level again.
Just remind me how has credit how that's the nature of credit needs business changed.
To support the notion that we're not going to see credit losses. The way we did in the past.
Yeah. So bill do you want to well I will start and then bill. It was complete so I think that during the pandemic. The team showed its resilience and its capacity to change its business model.
So of course, we changed completely the portfolio the portfolio is more than 80% secured right now, whereas you know before depend they make five years ago. It was 20 per cent secure so so so what you're seeing in terms of of Tcl is essentially.
Is there a reflect of you know the changes that we made in the portfolio and of course, you know what that portfolio as a short duration. So we could change our strategy you know very rapidly. So if we take the unsecured business.
You know if we have more opportunities.
And the environment is better for unsecured business. Then we would go in the unsecured business and of course, I mean, we will see probably more PCL, but a greater return on on the asset.
That covers it thank you for your help.
Okay.
Thank you.
The next question is from Doug Young from the short end capital markets. Please go ahead.
Hi, Good morning, most of my questions have been asked and answered just a few follow ups on the card balances they.
They were up 5% quarter over quarter, which was double what we saw with some of your peers. So far this quarter just curious what you're seeing on that front as I assume this is more transaction related relative to purchase volumes or are you starting to see any return in the revolver side.
Yes, Thank you Nancy.
So definitely credit cards will be part of the growth story in 2022, and what we see right. Now is I don't think based on indicators are on an upward trend. So and that is very positive. So in Q1 and I would say.
Yeah, and then purchase volume reached an all time high of the past three years. So.
So definitely there is that in the increase in balances, but also we have active accounts that are growing faster than pre pandemic and slowing either revolving balances are starting to creep up and so definitely the business is going in the right direction.
Can you give a perspective of where the revolver stands relative to where it was pre pandemic like went to pay down rates are 10 versus now.
The Paydown continues to be high.
It is at the same level than what we are witnessing during the pandemic. So definitely think there is still a lot of liquidity in current account that is being used for that and we see the consumer Hey, you know what.
Being prudent on that front.
Doug I'll give you is Stefan I'll give you the view on the commercial side, our pre pandemic levels.
Or when the pandemic started the revolver levels went down by 800 basis points and we've recuperated 500 of that so at this point then its going up every quarter, but we still have if I may save money in the bank in terms of a potential for growth because we are still 200 basis points behind b pre pandemic levels.
Okay.
So yeah.
Yeah go ahead.
So just to finish on their credit cards their way, we senior revolving balance when the consumer base.
It's still a fluid ends.
Probably the portfolio and it wouldn't be more up to the pre pandemic level by the end of the year or early Nick here.
Okay Perfect and then just maybe lastly, just land I mean, I look at the corporate segment and I know, there's a lot of things that go in there, but if I reversed the 20 million unusual item.
You kind of talked about it still seems like corporate losses were lower than them.
Lower than normal and I'm just trying to understand is there anything else unusual that went through corporate this quarter.
Thanks.
I will let John answer that.
There's no other unusual element if you look at it in the last three quarters, it's pretty similar so except for the maybe the expenses that were higher at the end of fiscal year 2021 which is the normal case. When you have projects that are being spent and they're mostly spent at the end of the year. So oh.
Other than that it's a it's normal.
Okay I appreciate the color. Thanks.
Thank you as a reminder, you May press Star one if you have a question. The next question is from Darko <unk> from RBC capital markets. Please go ahead.
Yeah.
Hi, Thank you and sincere apologies if this has been passed my phone.
Phone went dead for a few minutes there during the call are so so hopefully I'm not asking a duplicate question Laurent you mentioned during your remarks that youre, making some organizational changes.
And you.
From the outside looking in it's a little bit hard to understand if this is material like when your emerging private banking and commercial sales teams and so on is this material enough big enough that we should expect maybe restructuring charges.
Or and is there any kind of revenue upside you can you can provide for us or any way for us to size whether.
Whether or not this is really going to move the earnings numbers.
I appreciate you may not happen immediately but is there anything you can you can offer to us in terms of materiality and what you're expecting on the earnings front from this from this move.
Sure Darko. Thank you for your question so no restructuring charges. So that's to answer your first question.
This is an evolution of the approach that we've had with our sales team and we've seen over the past couple of years. We've you know I'd ER at the ground level work really hard to bring our bankers together and various business lines.
And work.
A combined approach towards our client so.
So from our perspective here, it's early days, but we want we definitely saw you know a lot of natural synergies.
Synergies between private banking commercial.
When we look at the overall clients, there's clearly an overlap.
So so first of all you whenever we wanted to send a clear message from the top and get our teams to work even closer together. So that's that's the objective and obviously you know I'm going to let Stefan.
And Eric our work on this but the.
The idea is you have to drive a lot more topline.
Okay. Thank you.
And my follow up question is just on market risk again.
Similar to other banks that reported today somehow in the middle of the volatility.
That we saw as very strong trading resolved, we don't see a change in market risk. Maybe you can just talk to that a little bit.
Thanks, Darko I'll take it it's built the AR I think is didn't you mentioned a lot of the volatility that we saw during the quarter was intra day.
And it didn't AR or VR AR numbers were fairly unchanged I think quarter over quarter.
Market risk capital has got a few components as far as far end to.
And our interest rate specific there's a few different components. The one this quarter was the S far which was which was beneficial from a capital perspective and that really just benefited from our increased.
Christopher suffocation across the risk factors this quarter nothing else to call out.
Okay, but I guess the follow up to that would be.
Given given the strong environment and the strong results.
I guess why not.
Pack more on why not increase.
Your your inventory levels and so on for for higher client activity I, just I'm just curious as to why you.
Wouldn't go down that path given the strong results of that.
You were actually happened during the quarter.
Darko I think I'll I'll.
He may have some get some comments afterwards, but I'll I'll flip that around I think fee because it was driven by client business and client activity. It its activity that doesn't require taking big position. So the the when it's when the more client activity, particularly when it's and transaction happened during the day.
Hey, with intraday volatility it doesn't change your end of day positioned very much so.
That's I think we don't think about it in terms of building up our inventory to satisfy the AR to flow with the flow is quite balanced Denny.
Bill do you have the right answer is that.
With the volume picking up that you know the more volume the more activity you have a client probably the less inventory you have because you can't turned out much faster and this is basically what happened in the first quarter and there was no reason to add any balance sheet or exposure to the market that considering that you know our prudent approach to the market and and we're still the same right now.
Does that answer your question Darko.
I think it is helpful and just one last one I'll throw in there oil prices are rising does it change your your business view.
Does it change anything for you.
With respect to that particular segment in the marketplace.
No. This is law says that it doesn't change anything.
Not at this point.
Great. Thanks very much thank.
Thank you Darko.
Operator, do we have any more questions.
If there's no more question back to you now.
Well, thank you Linda and thank you everyone.
Have a good weekend.
Okay.
Yeah.
Okay.
This concludes the presentation. Please disconnect your lines at this time and we thank you for your participation.