National Bank of Canada Earnings Call Nuggets: Financial Market Recovery and Deploying Excess Capital

National Bank of Canada (NA) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Financial Market Recovery

Stephen Theriault – Bank of America Merrill Lynch: I have a couple of questions, first I think for Bill, Bill, can you tell us a little bit more about the nature of the recovery in Financial Markets this quarter is quite a large number and as I look back, there hasn’t been a provision north of, I think, C$5 million since 2009. So, where did the recovery come from?

William Bonnell – EVP, Risk Management: There were a couple of repayments during the quarter in Financial Markets and one of those repayments was from an old file dated at least prior to 2009 time.

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Stephen Theriault – Bank of America Merrill Lynch: So it is just really long dated timing on this stuff?

William Bonnell – EVP, Risk Management: Yes.

Stephen Theriault – Bank of America Merrill Lynch: (Indiscernible), please, this is a first time we’ve seen expenses improve in pretty dramatic fashion since the acquisitions. So can you talk a bit about the sustainability there? How sustainable is the improvement we saw this quarter? Are we turning the corner here really on expenses?

Ghislain Parent – CFO and EVP, Finance and Treasury: The answer to that is yes. We’ve worked hard. We have a good momentum both on the revenue and on the expense side and I don’t see major changes. That’s not a one-time normally.

Stephen Theriault – Bank of America Merrill Lynch: So we’ve moved from sort of the mid-70s op the low 70s, you would say?

Ghislain Parent – CFO and EVP, Finance and Treasury: I think so.

Deploying Excess Capital

Peter Routledge – National Bank Financial: A question for Louie. Bank had pretty strong operating performance for some time now. You stayed on strategy in terms of your acquisition activity. In particular in terms of your superregional objective, in terms of regional banking Canada. The region Canada is slowing and you see that in the revenue line. I guess sort of stepping back, do you need to broaden out or think differently about how you’ll do acquisitions and how you might deploy your excess capital over the next few years, given that you’ve got headwinds in Canada that operating, good operating performance might not be able to overcome?

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Louis Vachon – President and CEO: It’s a pretty deep question here, but fundamentally the answer is we are sticking to our superregional banking model and with the exception of Credigy where I think you see improved performance and we are looking and discussing allocating more capital and resources to Credigy and clearly as you know it’s a platform that operates exclusively outside of Canada, but aside from Credigy, I think our focus remains very much Quebec and the an areas in Canada, where we add value and we think we can continue to expand. So I think the way to see this, I think we’ve historically been focus on the regions where we add value and it’s also perhaps why I think in some sense we don’t feel we need to be, assuming that there are no surprises on the (NYSE:DCV) level that the consensus of additional 100 basis points proves to be correct. So let’s say the minimum capital is 8%. We need a buffer above that 50, 75 bps. We don’t feel, we need to be much above that and if there are no opportunities to grow through acquisition we’ll simply return to capital to the shareholders. We feel that having the right balance between moderate grow and very discipline capital management, will serve our shareholders very well, and that’s how we’re positioned and right now I think the other thing too I think we have to take into consideration is our sense is that growth in Quebec and Ontario right now is probably below what we feel is sustainable over the long-term basis. So I think we still anticipate moderate growth in Quebec and Ontario of 1.5%, 2% (REO) for the next two to five years. Right now, I think over the last quarter or two, I think we have been running probably closer to 1%, maybe a bit even below that. So I think we are growing below long-term trend right now in Central Canada. So if we would go back to trend, that’s going to help us a little bit. Then we still feel that there is plenty of places for us to grow in both Quebec and the rest of Canada and we stick to what we know. I think shareholders will be well rewarded for that.