Q4 2024 National Bank of Canada Earnings Call
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Speaker Change: Nous vous remercions de bien vouloir participer à cette conférence. This conference is being recorded. Cette conférence est enregistrée.
Speaker Change: All participants, please stand by. Your conference is ready to begin. Good morning and welcome to National Bank of Canada's fourth quarter results conference call. I would now like to turn the meeting over to Marianne Ratte, Vice President and Head of Investor Relations. Please go ahead, Marianne.
Marianne Ratté: Merci and welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie-Chantale Gingras, CFO, and Jean-Sébastien Griset, Chief Risk Officer.
Marianne Ratté: Also present for the Q&A session are Jussi Blanchet, Head of Personal Banking and Client Experience, Michael Denham, Head of Commercial and Private Banking, Nancy Paquette, Head of Wealth Management.
Marianne Ratté: Etienne Duduc, Head of Financial Markets, and Stéphane Lachat, Head of International.
Speaker Change: Before we begin, I would like to refer you to slide 2 of our presentation for information on forward-looking statements and non-GAAP financial measures.
Speaker Change: The bank uses non-GAAP measures, such as adjusted results, to assess its performance. Management will be referring to adjusted results unless otherwise noted.
Speaker Change: I will now turn the call over to Laurent. Merci, Marianne, and thank you everyone for joining us.
Laurent Ferreira: This morning, National Bank reported earnings per share of $2.58 for the last quarter of 2024 and $10.39 for the full year.
Laurent Ferreira: With disciplined execution, strong organic growth, and resilient credit performance in a complex environment, the bank met all of its medium-term financial objectives for 2024.
Laurent Ferreira: We delivered EPS growth of 10%, ROE of 17%, and a CET1 ratio of 13.7%.
Laurent Ferreira: We increased our common share dividend by close to 9% in 2024 and this morning we announced a 4 cent increase to our quarterly dividend effective Q1 2025.
Laurent Ferreira: Our proposed acquisition of Canadian Western Bank will be a key pillar in our domestic growth in 2025 and for the years to come.
Laurent Ferreira: We look forward to bringing together two strong teams and highly complementary platforms to accelerate our growth.
The approval process is progressing well.
Laurent Ferreira: CWB common shareholders approved the transaction in early September and all approvals to complete the reorganization of CWB tier one capital were obtained late November.
Laurent Ferreira: On the regulatory front, we received clearance from the Competition Bureau in late September, and the Federal Department of Finance completed its public consultation in November.
Laurent Ferreira: We have also completed and submitted regulatory documentation to OSFI as part of the application review process.
Laurent Ferreira: After OSFI completes its review, the final step will be the decision of the Minister of Finance.
Laurent Ferreira: We expect the Canadian economy to experience slower growth in the first half of 2025 as interest rates remain restrictive.
Laurent Ferreira: The labor market, consumer spending, business investments, and the credit environment will continue to reflect this softness.
Laurent Ferreira: Canadian economy will also face uncertainties with regards the path of monetary policy and a possible divergence between the Bank of Canada and the Fed, as well as trade policies in North America.
Laurent Ferreira: These will potentially have an impact on the term structure of interest rates, Canadian dollar and Canadian businesses.
Turning now to the performance of our segment.
Speaker Change: PNC Banking generated a solid performance in the quarter and throughout the year.
with 2024 earnings up 5%.
Speaker Change: The franchise benefited from strong balance sheet growth, partly offset by an evolving credit cycle.
Speaker Change: Growth in personal mortgages picked up over the course of 2024, ending Q4 up 3% year-over-year.
Speaker Change: We expect momentum in our client channels to continue at the current pace.
Speaker Change: Commercial loan growth was robust, up 14% for Q4 and 13% for the year, reflecting strength in insured residential real estate and broad-based growth across our industries and geographies.
Speaker Change: We expect commercial loan growth to be in the low teens next year before factoring in CWB.
Speaker Change: Wealth management delivered 12% net earnings growth in 2024 with a strong performance in all businesses.
Speaker Change: This included strong deposit growth, volumes, and asset growth supported by significant market appreciation and continued client acquisition momentum.
Speaker Change: Our Wealth Management Franchise is well positioned for continued growth next year.
Speaker Change: Financial markets capped off the year generating net income of $306 million in Q4.
Speaker Change: Global markets delivered a strong performance from equities driven by good market activity and structured products origination.
Speaker Change: Corporate and investment banking results were strong in DCM and corporate banking, offset by lower fees in M&A and ECM.
Speaker Change: For the full year, financial markets grew net earnings by 18%, leveraging our expertise in select areas while maintaining a disciplined risk management approach.
Speaker Change: Looking at 2025, the impact of Pillar 2 on our European activities and a credit environment that remains challenging are expected to temper net income growth for this segment, particularly against a record year.
Speaker Change: However, our strategy remains unchanged and we continue to target net income growth in 2025.
Speaker Change: Credit G had a strong year with net income growth of 10%. Investment volumes exceeding 3 billion US dollars resulted in average asset growth of 14% for the year.
Speaker Change: In 2025, we expect to generate investment volumes and average asset growth in line with 2024.
Speaker Change: The U.S. market remains competitive, and the team will maintain its usual discipline as it pursues opportunities with attractive risk-reward profiles.
Thank you.
Speaker Change: Shifting to ABA Bank, the local economy is operating below potential and tourism spend remains lower, which impacts the businesses we serve there.
Speaker Change: However, the economic long-term fundamentals remain highly attractive, including favorable demographics, the diversification of the economy, and strong GDP growth potential.
Speaker Change: Against this backdrop, ABA continues to grow its balance sheet with loans up 11% year over year in Q4. It also continues to grow its client base up 29% year over year, translating into deposit growth of 19% year over year.
Speaker Change: This reflects ABA's unique strengths, including its digital payments and cash management capabilities.
Speaker Change: 2024 was a year of significant progress in the execution of our growth strategy.
Speaker Change: I wish to recognize our employees and the senior leadership team for their contributions, our growing number of customers for their trust.
and our shareholders for their continued support.
Speaker Change: Looking ahead to 2025, the economy continues to remain uncertain and complex.
Speaker Change: In this context, our approach and our discipline in credit, capital, and cost management remains unchanged.
Speaker Change: As we pursue the growth of our bank, long-term value for our stakeholders is our most important priority.
Marie Chantal, over to you.
Thank you, Laurent, and good morning, everyone.
My comments will begin on slide 8.
Speaker Change: In 2024, the bank achieved record revenues, pre-tax, pre-provisioned earnings, and net income, each representing double-digit growth year-over-year.
All business segments contributed significantly to this strong performance.
Speaker Change: We maintained our cost discipline across the bank and expenses were in line with our growth.
We were pleased with the overall efficiency of our businesses.
Operating leverage was positive in every quarter this year.
Speaker Change: Fourth quarter results were solid, revenues increased by 10% and with continued cost discipline, PTPP grew by 11%.
Operating leverage was positive at 1.5 percent.
Speaker Change: Wealth management generated particularly strong revenue and PTPP growth of 14% and 16% respectively year-over-year.
Speaker Change: PNC as well as ABA and Critigy delivered solid balance sheet ropes.
Speaker Change: Expenses were up 8% year-over-year. This was primarily driven by total compensation, which also increased by 10%. As well, technology costs and professional fees were higher year-over-year, in support of our business growth and our investments.
Now turning to slide 9.
Speaker Change: Non-trading NII in Q4 was up 6% sequentially or 4% excluding the remaining impact of the conversion of BAs to CORA loans.
Speaker Change: This increase was mainly driven by solid asset growth in P&C, CrediG, and ABA, improved NII from corporate activities, and a favorable impact of $12 million in CrediG's fair value portfolios.
Speaker Change: The All Bank NIM excluding trading was 2.26% of four basis points quarter of a quarter.
Speaker Change: The overperformance of Credit G's fair value portfolios accounted for about half of this increase.
As expected, the PNC-NIM was relatively stable quarter-over-quarter at 2.30%.
Speaker Change: Turning to slide 10 which highlights the continued broad-based growth on both sides of our balance sheet.
Loans were up 8% year-over-year and 1.5% quarter-over-quarter.
Deposits, excluding wholesale funding, grew 9% year-over-year and 3% quarter-over-quarter.
Speaker Change: Personal demand deposits increased by $2 billion, up 5% sequentially, while non-retail deposits grew 4% quarter over quarter.
Deposit trends are evolving as short-term interest rates are declining.
Speaker Change: Within personal banking, growth in term deposits has been slowing, while demand deposits have been growing at a solid pace over the past two quarters.
Speaker Change: Furthermore, our customers' appetite for investment solutions has been strong given their favorable market performance in 2024, and this resulted in solid growth.
Now turning to Capital on slide 11.
Speaker Change: We ended the year with a robust CT-1 ratio at 13.7%, up 25 basis points sequentially.
Speaker Change: Fourth quarter earnings, net of dividends, contributed 37 basis points to our ratio, again underscoring our internal capital generation capacity.
Speaker Change: Excluding effects, growth in risk-weighted assets accounted for 17 basis points of CT-1, driven by organic growth in our businesses.
Speaker Change: Before offering some comments on our outlook for 2025, I would like to mention that effective November 1, we will be discontinuing the presentation of revenues on a taxable equivalent basis.
Speaker Change: The TEB presentation is less relevant following the introduction of the Pillar 2 tax rules in Q1 2025 and of Bill C-59 regarding the taxation of Canadian dividends earlier this year.
Speaker Change: The change will have no impact on the net income previously reported.
Speaker Change: We will publish results revised on this basis for fiscal 23 and 2024 shortly.
Speaker Change: As well, please note that comments relating to our outlook exclude the impact of our pending acquisition of CWB.
With that said, operating leverage will be positive next year.
Speaker Change: We continue to be disciplined around costs and strategic around investments to simplify operations and gain efficiency as we pursue our growth.
Looking at the All Banks Non-Trading NIMS.
We expect modest quarterly fluctuations.
Speaker Change: with our P&C NIM remaining relatively stable in 2025 on the backs of improving loan margin, mitigated by lower deposit margin as term deposits renew at lower spread.
Speaker Change: As for Pillar 2, it will impact the taxation of activities in Europe within our financial market segment, beginning in the first quarter of 2025.
Speaker Change: At this stage, the bank estimates that the impact from the implementation of the Pillar 2 rules should increase the effective tax rate, all things being equal, by approximately 1 to 2 percent.
Speaker Change: However, the effective tax rate for any particular period may also be impacted by other factors, including changes in our business mix.
Thank you.
Speaker Change: Finally, as we take into consideration the interest rate environment, the implementation of Filler 2, and a credit environment that remains uncertain, we expect mid-single-digit EPS growth in 2025, backed by strong execution.
Speaker Change: In conclusion, we are pleased with the bank's performance in Q4 and in 2024 and are excited about the opportunities that lie ahead.
Speaker Change: With a robust balance sheet and a proven business model, we are well positioned entering the new year and as we prepare to welcome the CWB clients and teams.
I will now turn the call over to Jean-Sébastien.
Merci Marie Chantal, and good morning everyone.
I'll start on site 13.
Looking back at our credit performance over the full year.
Speaker Change: Throughout 2024, the Canadian economy continued to show signs of softness.
including slower growth and rising unemployment rate.
Speaker Change: Against this macro context, the performance of our credit portfolios proved resilient.
benefiting from their defensive positioning and discipline risk management.
Speaker Change: Total provisions for credit losses for the full year were 24 BEEPS versus 18 BEEPS a year ago.
Speaker Change: We took four beeps of performing provisions as we prudently built additional allowances.
Speaker Change: As expected, impaired PCLs rose to 2024 and reached 20 weeks for the full year.
Speaker Change: This was in line with the guidance we had provided in 2023.
Speaker Change: Now, turning to the fourth quarter results, total PCLs were $162 million, or 27 beeps, an increase of 2 beeps compared to the last quarter.
Speaker Change: The primary drivers of performing provisions this quarter were model calibration and portfolio groups.
partially offset by more favorable macroeconomic scenario impacts.
PCL's unimpaired loans were $145 million or 24 beats.
which was three beats higher, quarter over quarter.
Speaker Change: Personal and commercial impaired PCLs increased quarter of a quarter and stood at 55 million dollars and 22 million dollars respectively.
Speaker Change: Financial markets, a 16 million dollar provision, was due primarily to a newly impaired account in the manufacturing sector.
At Credigy, we sell our normal seasoning of portfolios.
At ADA, impaired provisions remained elevated.
as we've seen for several quarters now.
Looking ahead to 2025.
Speaker Change: interest rates remain restrictive and there remain significant uncertainties in the forepath of economic growth.
Speaker Change: In our domestic portfolios, we expect further increases in delinquencies and impaired PCLs both in our retail and wholesale portfolios.
Speaker Change: As previously discussed, our wholesale book remains subject to periodic lumpiness.
Speaker Change: At Credigy, as in prior years, we expect provisions to be primarily driven by portfolio growth and mix.
Speaker Change: At ADA, with the local economy operating below potential, we expect impaired PCLs to remain elevated.
Speaker Change: At the total bank level, we expect impaired PCLs to be in the range of 25 to 30 BPs for the full year 2025.
Turning to slide 14.
Our total allowances for credit losses reached 1.6 billion dollars.
Speaker Change: representing 4.1 times coverage of our last 12 months net charge-offs.
Speaker Change: Our performing allowances grew 1% quarter over quarter to reach almost 1.2 billion dollars.
representing 2.4 times our last 12 months impaired PCL.
Additional metrics under allowances are provided in Appendix 12.
Speaker Change: We remain comfortable with the prudent level we've built over the past several quarters.
Turning to slide 15.
Our growth and parent loan ratio increased to 68 beeps.
Up 90s, quarter of a quarter.
Speaker Change: The main driver of higher gills throughout the year has been ABA.
due to elevated formations and a longer resolution process.
with the current trends we are observing.
Speaker Change: The levels of net formations we have experienced this quarter would likely represent the higher end of what we expect going forward.
Speaker Change: ABA's gross impaired loans have an average LTV in the 50s.
at an average size of about $80,000 US.
Speaker Change: When a loan becomes impaired, we take prudent Stage 3 provisions that are in excess of our historical net charge-off experience.
Speaker Change: Over the past few years, we continued to build our IMPAIR allowances, which now reach $155 million.
Speaker Change: Our coverage of gills from impaired allowances is strong at 24 percent.
Speaker Change: a level we have maintained along with the increases in yields over the past few years.
Speaker Change: and finally about two-thirds of the impaired loans which were resolved in Q4 and in 2024 experienced no loss.
Speaker Change: On slide 16, we present highlights from our Canadian Resolve portfolio.
Speaker Change: The geographic and product mix remains stable, with Quebec accounting for 54%
and insured mortgages accounting for 29% of total RESL.
Speaker Change: Average LTVs for HELOCs and uninsured mortgages remained in the 50s.
Speaker Change: and higher risk uninsured borrowers remain stable at around 50 bips of the total RESL portfolio.
Speaker Change: On slide 17, we provide additional details on our Canadian Mortgage Portfolios.
Speaker Change: Of note, 65% of our mortgage portfolio has now been repriced at higher interest rates.
and 90 delinquencies remain below pre-pandemic level.
Speaker Change: 90-day delinquencies for the entire Canadian retail portfolio can be found in Appendix 11 and the trends discussed on prior calls remain.
In conclusion,
We are pleased with the credit performance in 2024.
We remain well-positioned given our defensive attributes.
resilient mix, and prudent level of allowances.
Speaker Change: And with that, I will turn the call back to the operator for the Q&A.
Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1.
Speaker Change: You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience.
Speaker Change: Our first question is from Manny Groman from Scotiabank. Please go ahead.
Bye!
Speaker Change: Good afternoon. Just following up a question on CWV approvals, Laurent, I'm just curious if OSSI has completed its review. It wasn't clear from your comments whether it had.
Speaker Change: A while back you made a comment, a public comment basically suggesting that everything could be on the Minister of Finance's desk by the end of November, so I just wanted to see if that's...
Speaker Change: If that's happened, if that's the case. Thank you for your question. What I said is the documentation...
Speaker Change: was submitted to OSFI. So OSFI has all of the documentation. They are right now conducting their review process and will submit when they are done to the Minister of Finance their recommendation. So we are right now waiting for OSFI to finalize their work.
Does that answer your question?
Speaker Change: Do you have a sense of the timeline there? Could it be done? We're still optimistic. Things are progressing as we expected. We're still optimistic. Closing early 2025 is still the target.
Speaker Change: Okay, but just to be clear, GeoKnowledge Osphy is still working on it. That's the status right now. Absolutely, yes. Yes it is.
Speaker Change: I just wanted to dig into the guidance in the financial markets business for next year in particular. We are hearing other banks talk about...
Speaker Change: pretty bullish pipelines looking at the next year. I'm just wondering if we could get an update in terms of what you're seeing across the different business units from a pipeline perspective in 2025.
Speaker Change: Yeah, Manny, it's Etienne. Thanks for the question. And I think it's important here to take a step back. When we evaluate the outlook,
and the key drivers that positioned us for success.
Speaker Change: So, for 2024, net income for financial markets grew by 19% year-over-year.
Speaker Change: with strengths in several businesses. Three standouts for me were in rate-structured products, in securities finance, and in DCM. And that really reflects...
Speaker Change: Well, really good market conditions. You had lots of growth in equities, lots of volatility in the rates.
Speaker Change: The fact that we have deep client relationships and these clients needed advice, needed structuring and liquidity through these uncertain market conditions, and then it was about our disciplined execution.
Speaker Change: And as Laurent mentioned earlier, this year will really be about consistency in the strategy
focusing on our niches and tight risk management.
Speaker Change: So, as we look to fiscal 25, the objective is to deliver positive net income growth.
Speaker Change: which we would view as a good outcome for a franchise considering it's against a record fiscal 24. So this objective reflects first some headwinds that we'll navigate through. So first there's the global minimum tax as Laurent and Marie Chantal mentioned.
Speaker Change: We could also see a normalization of government borrowing as deficit caused by the pandemic and inflation should stabilize and the fiscal position of provinces starts improving.
Speaker Change: And on the lending side, the pipeline is a bit lower than the last two years at this time of year, although I think that's partly a function of the very strong capital markets.
Speaker Change: We're in a position to continue to deliver solid volumes on the issuance business.
Speaker Change: especially if markets keep trending higher as a significant portion of our book continues to be culled and rolled into new structures.
Speaker Change: On the advisory side, we expect corporate issuers to take advantage of constructive markets. The debt primary markets remain very attractive for them.
Speaker Change: and also in funding markets with markets at record highs especially in equities and tightness in dealers balance sheet we continue to see good client activity and a lot of our opportunities especially in equity financing.
Speaker Change: We do see financing levels being more volatile than usual, but staying at elevated levels
and they will sit at elevated levels.
Speaker Change: unless there's a significant equity sell-off. So I think this would translate into good but but lumpy results.
Speaker Change: And also currently implied volatilities are very low, especially in Canada. If they remain low, that's probably a good environment for M&A and equity and new issue activity. On the other hand, an increase would benefit our structured products trading and our intermediation business.
Speaker Change: These are businesses where we continue to leverage our trading and manufacturing technology to be the top Canadian market maker and issuer.
Speaker Change: So, in summary, and considering the environment we expect to operate in, I remain optimistic about the franchise's ability to grow earnings beyond the record fiscal 25, and so that's the objective for fiscal 25.
Speaker Change: Go ahead, that was very thorough, so I guess if I just summarize and you're saying you'll be able to grow from here, but
We have to take into account the...
Speaker Change: It's fair to say, Manny, that some of the businesses will need to consolidate the gains that they've made. But yeah, I expect overall that we will deliver growth for 2025.
Great, thanks so much.
Speaker Change: Thank you. Our following question is from John Aiken from Jeffries.
Please go ahead.
Speaker Change: Good morning, John and Sebastian. I wanted to dive in a little bit further in terms of ABA. Now, I know you gave us some commentary in terms of the outlook.
Speaker Change: But when we classify the provisions as elevated, I mean, they've almost doubled from Q3 to Q4. They're now representing almost a bit of a fifth of your total provisions. And when you say that you expect it to remain elevated, should we expect to see continued growth in provisions in EBA over the next couple of quarters, or are we approaching a peak in your estimation?
Speaker Change: So, John, thank you for your question and I think if you go to my prepared remarks I did talk about the level of formations being on the higher end and what you've seen in the past is quite a correlation between our impaired PCLs and the formations that we had built.
Speaker Change: So, I think that kind of answers your question. We think we're near AP.
Great, thank you. All with you.
Speaker Change: Thank you. The following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. I'm just sticking with ABA, maybe Laurent, you know, you've had good growth in this business continually, and the question I often get asked, so I'll throw it to you, like, how big are you willing to let this business get within national in terms of a percent of earnings? Are you comfortable with it being 15 or 20 percent?
Speaker Change: You know, I know it's about, I think, $0.11 a quarter, and it goes down once you finish the CWB acquisition. But just trying to get a sense.
Speaker Change: So, on the strategy side, thank you for your question Doug, on the strategy side for a BA longer term.
Speaker Change: We're very comfortable with our investment and the focus of ABA and the business we run there within Cambodia.
Longer term, clearly this ADA has done a phenomenal job.
And one thing, we don't talk.
Speaker Change: about is the digital payments platform, the cash management platform as well that they are offering. It's one of the reasons why we are performing so well in terms of client acquisition and in terms of deposits.
Speaker Change: We could see possibly, one day, an opportunity to monetize the value of that platform and also
Speaker Change: Outside of Cambodia and Southeast Asia, there is a possibility one day that ADA could grow outside of Cambodia.
Speaker Change: What I said, and I'll repeat what I said publicly, is if that is something that we would contemplate one day, we would do it with a local strategic partner with a very strong balance sheet that could help us there.
Speaker Change: So, I don't think in terms of, you know, what kind of percentage ABA could take, you know, within the bank. We're very comfortable with the investment as it is.
Speaker Change: If ever there is a possibility to grow it even more, one day, we'll address that at some point in time and our preference would be to have a strategic partner.
Help us there.
Speaker Change: Does that help you? It does and I'm just curious like you know this sounds like you've thought about the monetization and expansion like are you advanced in that side of the strategy or is this just something that's far off into the future?
Speaker Change: No, I'd say it's more medium term, you know, nothing right now that we're discussing.
Speaker Change: I won't stop them from growing and from their performance right now.
all. Thank you.
Speaker Change: And then just a second, Credigy, I think it was mentioned there was a fair value impact that benefited the revenue line this quarter. Can you flesh that out just and quantify what was that and how much did that represent pre and post-tax?
Speaker Change: Yeah, Doug, thanks again. So, yeah, there was a re on the right.
on some portfolios of reverse mortgages.
Speaker Change: and that had a positive impact, I think of 12 million on the NII and then it also had a negative impact.
Speaker Change: impact on non-interest income. So the positive impact really comes from...
Speaker Change: reassessing the property values behind that, and that has a favorable impact on.
on the collective sums, and so that...
Speaker Change: increases the IRR of those deals and then the negative impact on the other side is really linked to the
Speaker Change: The timing of the cash flows, which are then pushed further in time because of the model, and so the NPV of those cash flows becomes lower, and so that triggers a negative impact on the non-interest income.
Speaker Change: And I assume the positive and negative offset, like there's no earnings.
Speaker Change: Well, it doesn't totally offset because overall, I mean, these are pretty complex models but and certainly that re-underwrites and reassessing of these property values as an overall positive impact but these two effects go one against the other.
Can you talk a little bit about that?
Speaker Change: I'm sure I can talk quite at length about that. I think there's just too many variables. What I can tell you is that basically performing provisions are correlated to growth, migration,
Speaker Change: economic scenarios, scenario weights, model calibration, and finally management overlay. So there's a lot of variables there.
Speaker Change: When you look back at 2024, what we saw was that the major drivers of performing allowances were growth, model calibration, and macroeconomic scenarios.
Speaker Change: We also have maintained a high weight on our pessimistic scenario and you can see that in our disclosures in note 8 if I remember well.
Speaker Change: And if credit trends and portfolio growth continue, then it would drive an increase in performing PCL, which would then be reduced or increased by the variations of the other drivers that I maintained.
Speaker Change: But given where we are in the cycle right now, I'm very comfortable with the allowances we have, and you can see them in Appendix 12.
I'll leave it at that. Thank you very much.
Speaker Change: Our following question is from Matthew Lee from Canada Continuity. Please go ahead.
Matthew Lee: Hi guys, thanks for taking my question. If I think about your 16.7% adjusted ROE this year,
Matthew Lee: I know it's a great result, but I think about the medium-term objective of 15 to 20 percent. And just given a bit softer credit next year, maybe a bit of headwinds in the financial market, and the addition of CWB, can you talk about what has to happen there to get to the higher end of that range, either this year or kind of in the medium term?
So it's, no, I'll take that question. Thank you.
So our
Our medium-term objectives of 15 to 20 remain unchanged.
Matthew Lee: The acquisition of CWB does lower a little bit our ROE in commercial.
for a period of time.
but through the integration, synergies, capital optimization, and revenue.
in a window of two to four years.
Matthew Lee: We expect to bring back the ROE of CWB to the level of our commercial operation within the bank.
So our guidance at this point in time...
we're within that range. In terms of premium ROE, which
Matthew Lee: like we delivered this year. We expect, you know, it's definitely our mindset to continue to deliver premium ROE, but we expect once finalized with the integration
Matthew Lee: Roughly, again, two to four years to be back in line with what we've delivered this year.
Hello?
Yeah, that's good. Thanks. I'll pass you on.
Okay, good.
Thank you.
Speaker Change: Our following question is from Paul Holden from CIBC, please go ahead.
Paul Holden: Yeah, thank you. Good morning. Appreciate all of the outlook and guidance you provided for the upcoming year. And of course, that does exclude CWD, as you noted. Just wondering if you can provide an update on your thoughts around year one EPS accretion, you know, sort of regardless of when that deal closes.
Speaker Change: Hi Paul, it's Marie Chantin. Thanks for the question. For CWB, as Laurent was saying,
process is progressing well. Our intention is
Speaker Change: to give an update on the different financial KPIs upon post-closing. So at the moment, we're still very confident with the synergies.
Speaker Change: figures that we announced back in June, whether it's a cost or funding synergy, so still confident with these numbers.
Speaker Change: And as I said, post-closing, our intention is to provide you with an update on those synergies and as well as some color on the revenue opportunities that we see coming in from those combined banks.
and we'll get to that question at that time.
Speaker Change: Okay, fair enough. I'm going to try one follow-up on that.
Speaker Change: The cost synergies you've highlighted previously, you know, how quickly might you be able to execute on those are those things where, you know, system integration can be done quickly, some redundancy on, you know, mid office, back office done quickly, or these things that would, you know, take some time to execute on.
Speaker Change: Thanks for the follow-up question, very logical, and that's also one of the aspects that will definitely give you some more color as well post-closing, because it's an important factor, so definitely something on our radar.
Speaker Change: I've had to try. Laurent, you talked about strong commercial loan growth continuing.
Speaker Change: I don't know, different angles where, oh, you know, there's tariff risk for Canada, so maybe CapEx in Canada slows for the time being, just to see where things land. Are you getting any sense that, you know, there's any kind of delay in projects? It doesn't sound like it, so maybe you can talk a little bit about how that's...
Speaker Change: I'd like to start by asking you, what is the most important thing that you've factored into your outlook and what are you seeing on the ground level from your commercial clients?
Speaker Change: It is a bit early, but generally not a positive for our clients, Canada, or Canadian economy.
Speaker Change: You know, it brings a level of uncertainty and some confusion at this point in time.
Speaker Change: Having said that, I tend to believe that it is more a negotiating tactic from the U.S. government.
They know very well that our economies are intertwined.
Speaker Change: We're going to support our clients. A lot of our clients have operations in the U.S. and in Canada. Depending on what our clients do, we'll be there to help them, support them.
I mean, I just, my bigger concern is maybe...
You know, if we don't respond quickly...
you know does that have an impact on
you know, productivity gap in Canada.
Speaker Change: I think the importance to react to an administration that clearly is going to be very pro-growth, pro-business is going to be important for Canada, but I think our clients are going to adapt and we'll be there to help them and support them.
Okay, I share your concerns. Okay, thank you.
Speaker Change: Thank you. The following question is from Neymar Persaud from Cormac. Please go ahead.
Neymar Persaud: Yeah, my first question is on credit here. I wonder if you guys can talk to...
Speaker Change: comment earlier where you suggested ABA formations this quarter are at the higher end of what you'd expect moving forward. Is it because you're seeing improvement in tourism in the country, GDP growth? Can you expand on that comment and what it gives you confidence in?
Speaker Change: Sure and Stéphane can probably add some more color to this.
Speaker Change: So, as you've seen, we saw a pretty big increase from quarter to quarter, and within the quarter we saw some encouraging signs from month to month last quarter, so that's what we're basing it on.
Speaker Change: The other thing I'd add is we're seeing record announcement of fixed assets investments for Cambodia in 2024. There are youth projects going on.
Speaker Change: We have a positive outlook for FDI next year, that's one element. And diversification of the economy. Let's remember it's one of the highest GDPs in the Asian region. It has slower potential, much like Laurent Rennet.
Speaker Change: and Chelsea Bethea have mentioned but it's a steady recovery so also we're confident about that that statement that Chelsea Bethea made.
What specifically is driving the recovery there in the economy?
So first...
Speaker Change: Yeah, so so there's been a several factors the localization of some production facilities from China from Myanmar that have been moved to Cambodia
Speaker Change: So we're seeing manufacturing plants and low-value electrical goods, electronics on the low-value end as well. We're seeing car manufacturers from the Asian zone being established over there. And then there's large construction projects that require a lot of labor coming in as well.
Speaker Change: Let's remember that the performance of the U.S. economy, Cambodia, its biggest export partner is the United States, so the performance of the U.S. economy is also a factor leading to that recovery.
Speaker Change: Thanks, and I'm just moving on to a different type of question. I think in Laurent's opening remarks he offered that commercial loan growth for the year, XCWB, would be in the low teens.
Speaker Change: It begs the question, what are your thoughts on the outlook for personal loan growth? Does it feel like commercial loan growth will outperform personal next year?
Speaker Change: I'll take this one. Thank you for the question. It has the commercial logo as of the personal one in 2024. And that's the way we look at it right now. It should also be a reflection of the same pattern in 2025.
Speaker Change: So the way we look at it, from the retail long-haul perspective, we believe it would be
Speaker Change: The growth would be roughly similar than what we had last year, well in 2024.
Speaker Change: Like Laurent said, the guidance around mortgage growth is that we should continue at the current pace that we have right now. And auto loan is also expected to moderate a bit as we adjust also to market conditions.
Speaker Change: I appreciate that. And then one more if I could sneak it in here. One of your peers shifted their guidance to providing NII growth guidance. I appreciate that you provided some commentary on margins. Is that something you guys could provide as well?
Speaker Change: I'll take that one. It's Marie Chantal. As you heard in my remarks, we provided some guidance on the All Bank Non-Trading NIM, and as of now, it's working.
Speaker Change: providing some guidance on the NII is not something that we are contemplating at this moment.
Okay, okay, I thought I'd try. Thank you
You're welcome. Thank you.
Thank you.
Our following question is from Saurabh Moverhedi from BMO.
Please, please go ahead.
Speaker Change: Okay, thank you. I just wanted to ask just a couple of clarifying questions just on on the commercial, the low teens, I think you had said commercial long growth. Is that going to be in any particular...
Speaker Change: types of business or any particular geographies or sectors where can you just provide a little bit of color as to where you see that coming from?
Sure, sir. I'd be thankful and we've been um
Speaker Change: on the strategy for a while. The two big sources of growth for us are
Speaker Change: Insured real estate, a great partnership with CMHC. That's a big area of demand, population growth, housing crisis, et cetera. So that's one. And second is kind of across the board, but really kind of mid-market opportunities in Ontario and Western Canada. Our starting position is obviously relatively small, and we've had a nice run of growth, and we expect that to continue. So those are the two big drivers of growth that produce that low double-digit guidance we're providing for next year.
Okay, helpful.
Speaker Change: It's just a second question for maybe, I don't know if it's Stéphane or if it's Laurent. Just a reminder, ABA's growth...
Speaker Change: has been self-funded or have you been providing an additional capital or balance sheet resources? So in the first few years, you know, we had to provide capital by way of the venture that's been fully, you know, reimbursed and it's a self-funded franchise and actually extremely well self-funded franchise with deposits.
Speaker Change: Okay, thank you. And maybe just one last one for Mary Chantal.
Speaker Change: I understand the ROE targets. Can you just tell us what sort of capital... I know obviously you're in preparation for completion of an acquisition, but hopefully once the acquisition is done, we'll fast forward. What sort of capital ratios do you think the bank will be looking to operate at? And then for Laurent...
Speaker Change: How active do you expect to be on buybacks if you are actually in excess of those numbers?
Yeah. Hi, Sarab. Thanks for the question.
Speaker Change: So, as you saw, our capital position is strong, ending the year at 13.7%, and so...
Speaker Change: Operating above 13 is something that we were comfortable with. That's the first thing maybe I wanted to point out.
Speaker Change: And obviously, because of the high level of capital position that we are at,
Speaker Change: We do anticipate to close the transaction at a slightly higher CT1 ratio than what we announced back in June. Just remember that we are at closing.
Speaker Change: will remain under the standardized method for the CWB portfolio, and as the integration progresses, our intention is to move to the advanced models, and doing that very progressively.
Speaker Change: sharing that we wanted to give you an update on synergies post-closing. We'll also do that on our capital optionality as we are progressing with the transaction. So more likely in the second half of the year than early on.
Does that help?
Speaker Change: I guess what I'm trying to understand is if you came into, I'm going to throw out a number, if you came into half a billion dollars of excess capital, what would be the priority deployment for that?
Speaker Change: So the first one is organic growth, and we'll be able to talk about that towards the end of 2025.
Speaker Change: But, you know, we'll lay out a capital plan and possibly share buybacks at that point in time. So stay tuned.
Okay, thank you very much.
Speaker Change: Thank you. Our following question is from Mario Mendonca from TD Securities. Please go ahead. Good afternoon. Good afternoon. Marie Chantel, just a couple things to clarify. I think you said
Speaker Change: At the time of the CWB announcement that the CUT1 ratio would close, and I could have this number wrong, but I think it was 12.7. Is that what you offered back then?
We offered $12.75. Okay, so it's close enough.
Speaker Change: The word progressively, I understand what that means on its own, but I don't know what it means in the context of migrating to a new language.
and Vance Verstappen.
Speaker Change: Could you be a little bit more clear, what does progressively mean in this case?
Speaker Change: Yeah, well, what I mean by that is that we will be gradually integrating the CWB portfolios model for model.
Speaker Change: So that's why we're saying progressively, because it will not be a big bang from going to standardized to the advanced. It will be done as we evaluate the different models and that we get all of the regulatory approvals for all of them. So that's why we're saying it's going to be done progressively.
Speaker Change: It starts to progressively be accomplished, say, 12 months after close. I don't want to put like a timeline on you, but is that a reasonable estimate? That could be a reasonable estimate. Okay. Yeah. Other areas follow up?
Speaker Change: I think you referred to 1-2% increase in the tax rate and I couldn't tell when you said that whether you were talking about financial markets specifically or the bank. The bank.
Speaker Change: The impact would be 1-2% on the effective tax rate for the bank.
Speaker Change: And then finally, when you were referring to, and I believe this is in the capital markets segment or financial markets specifically,
Speaker Change: When he referred to the global minimum tax, I couldn't tell whether
Speaker Change: The reference was to slower growth in financial markets because the global minimum tax would lead to a higher tax rate in financial markets, or whether the global minimum tax would lead to certain products being less attractive.
in financial markets.
There's a distinction there and I'd like to understand it.
Speaker Change: Some jurisdictions, the taxation regime was below the global minimum tax. And so that will affect really these operations in financial markets.
Speaker Change: It doesn't really impact our strategy though, when you look at what the strategy has been in Europe.
Speaker Change: This will stay the same. This is where we like to deploy a lot of our expertise in the short-term secured funding trades. This will continue to be a hub for what we do in that space. But it does sound to me like some certain structured products in your trading book.
Whore.
advantaged by the tax regime the way it was pre-G7.
and William T. That sounds right.
Speaker Change: things that we do with large banks over there, things like equity swaps, index arbitrage, cross-currency arbitrage, securities lending. The profitability of these trades will be marginally hit by the global minimum tax. I understand that. Thank you.
Speaker Change: Thank you. Once again, please press star 1 at this time if you have a question.
Speaker Change: The following question is from Dr. Mielek from RBC Capital Markets. Please go ahead.
Dr. Mielek: Thank you. Can I just pick up right there where you left off again? Are you just suggesting that it's not that volumes are going to go down, it's just that you're going to have a higher tax? Is that the way I should think of it?
Speaker Change: Well, that's part of it, Darko. And also, as you know, our business mix can evolve really quickly according to the opportunities we find globally and across asset classes.
But I think you nailed it.
Speaker Change: of our activities will not change. We do these trades because they're really good trades for us, and so it just impacts the marginal profitability for them.
Speaker Change: Okay, understood. Thank you. I just have another clarification question as well. This one is with respect to Credigy.
Speaker Change: From the outside looking in when I see formations up 75% year-over-year, gross impaired loans up 132%.
The loan books are actually up, what, 14.
Speaker Change: And your provisions for credit losses are up three times. So, from the outside looking in, this does not look like normal seasoning. This looks more like credit deterioration.
Speaker Change: I'm just curious if you can maybe give some, provide a little more color on why should we should consider this to be normal seasoning And why it might not get a little worse from here
Speaker Change: Yes, so I think I'll start and then I'll let Etienne continue. So, it is seasoning, and if I split your question in two, if you look at the formations, they're really mostly driven by the mix that's changing. So we have more mortgages, and mortgages take more time to resolve, so that keeps...
Speaker Change: formations higher and gills higher for longer. In terms of PCLs, it's really normal seasoning of portfolio. There's really nothing that is to see there in terms of individual performance of portfolio that brings any type of worry to me.
Etienne Duduc: And I have nothing to add. I think Jean-Sébastien covered it very well. We see it as normal seasoning.
So is it is it close to peak?
Speaker Change: Well, it's very difficult to say with predigy because it's so driven by portfolio growth and business mix, like I've said in my remarks.
Okay.
Speaker Change: Okay and here's my last question in respect to the mortgages that you have coming due over the next few years. I understand the characteristics of your books and the differences and so on. One thing I'm curious about though
Speaker Change: is how I should think about the behavior of the Quebec.
Speaker Change: Mortgage market versus other markets and not with respect to credit quality. I'm just actually curious about loyalty. So whether or not you have a better
on renewal in Quebec versus the rest of Canada.
Speaker Change: Yes, it's Lucie. I would say overall that we've performed very well historically in terms of mortgage renewal.
almost 95% historically.
Speaker Change: So I wouldn't say there is a difference necessarily with the Quebec market because our approach to renewal is
is the same.
Speaker Change: But we've always performed very, very well in terms of renewal. So we expect that to continue in 2025. Obviously, with the amount of volume we have to renew, we added capacity, we've simplified the customer experience. So we're ready to face the increase in volume. But with that, we don't expect to lower our performance there.
Speaker Change: Does that answer it? It does, thank you. And just as a follow-up to that with respect to the increased resources on on renewal.
Speaker Change: Is it fair to say that the auto renewal letters that are going out today might be different from in the past?
Speaker Change: in the sense that you may be offering or suggesting a shorter-term mortgage and, more importantly to me, is the auto renewal that are going out with a rate that would be below posted, whereas in the past it might be around posted.
Thank you.
Speaker Change: You mean auto-renewal, auto-loan book or the auto-renewal? Yeah, so presumably somebody who's coming up for renewal, you would send them a letter and let them know that they're coming up for renewal. So we call that an, I call that an auto-renewal letter.
Speaker Change: Maybe the term is different. And so if I'm a customer of National Bank, and I'm receiving a letter from National suggesting that my mortgage is coming due,
Speaker Change: Here are the here are some options for you. Have those options changed? In other words, are they more competitive than they were versus three four years ago?
Speaker Change: Well, you know, we definitely adapt to the competitiveness of the market and the mortgage market is very competitive.
Speaker Change: So, the important thing is that renewal time is a very important moment for advice and especially in the current, you know, time where the rates are higher, it's a perfect occasion for us to bring that advice there and go much more...
Speaker Change: beyond a letter that we have to send from a regulatory perspective 90 days before renewal rate.
Speaker Change: Does that answer? Yes, thank you and I may follow up offline. Thank you very much. Okay, thank you.
Thank you.
Speaker Change: We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Ferreira.
Laurent Ferreira: Thank you operator and thank you everyone for joining us today. On behalf of the National Bank team, we wish you all the best for the holiday season and look forward to seeing you in 2025.
Thank you.
The conference has now ended.
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and we thank you for your participation.