National Bank of Canada at TD Cowen Inaugural Financial Services Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mario Mendonca - TD Cowen - Analyst : I want to get us started with a very broad question. I have a number of conversations with investors about National Bank's Financial Markets segment. They go something like this, man, these guys had a great run, but something's inevitably going to go wrong. For many years now, that has not been the case. National Bank has delivered one solid, consistent quarter after another. There aren't the massive home runs, but nor are there a bunch of strikeouts either. So how is National Bank, the financial markets, how is that segment steering itself away from some of the ditches that we've seen in the past? How do you do it?

Question: Mario Mendonca - TD Cowen - Analyst : I want to flip over to the to the rate story. So yesterday, we had our first rate cut in Canada. I don't imagine one rate cut is that meaningful. But it does signal, there's more to come. Can you speak to how this impacts your business? Presumably, it's positive. But give us some perspective on this rate cut and further rate cuts, what that could mean to financial markets for National Bank.

Question: Mario Mendonca - TD Cowen - Analyst : When I look at capital markets, Canada and the US. The US capital market story, these US banks that reported Q1 '24, the results were very, very strong, and we're seeing US capital markets very strong. Does that benefit National? Your opening comments seem to suggest National's very Canadian-centric, and I get that. But is there an opportunity for National in the US, considering how much stronger the US capital markets environment appears?

Question: Mario Mendonca - TD Cowen - Analyst : So let's marry together two concepts we already discussed. One was National Bank has exhibited very good resilience and consistency in capital markets. And in response to that question, you highlighted the focus of the bank in Canada. A moment ago, we talked about a move into the US. Do you see any increased risk associated with that great reputation the bank has for stability in capital markets associated with the move into the US? Can you move into the US without changing the risk profile of the bank?

Question: Mario Mendonca - TD Cowen - Analyst : Let's talk about structured products. It's an area that myself, I'm sure others thought, could be -- could lead to some volatility, maybe lower revenues when that change in the taxation of Canadian dividends came into play. So help us understand, why that never had a meaningful effect on National? We would have expected something in 2024, either revenue hurt or maybe the tax rate change in a meaningful way. Did the business -- was the business -- did we misunderstand the business is it not really tied to that taxation of dividends?

Question: Mario Mendonca - TD Cowen - Analyst : So maybe speak to the dynamics that created this resurgence in security finance and dovetail into what could go wrong? What would cause that activity to slow materially?

Question: Mario Mendonca - TD Cowen - Analyst : And that's where I was going to go next. If that business falters, presumably that's where the counter cyclicality comes in. There are businesses that recover. And I think you referred to a couple there.

Question: Mario Mendonca - TD Cowen - Analyst : Let's flip over now to a part of the business. I guess you didn't grow up and you didn't grow up in the corporate lending side. You would have grown up on the trading side, as you said, but the corporate lending side is an awfully important part of capital markets as well or financial markets. Let's talk about where trends are on in lending first, what your outlook would be for capital markets lending. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2024 / 2:20PM, NA.TO - National Bank of Canada at TD Cowen Inaugural Financial Services Summit

Question: Mario Mendonca - TD Cowen - Analyst : I was surprised that you mentioned the US in that. I've always thought of nationals not being a player in US lending. Maybe I've misinterpreted that. Has that changed recently? How relevant is the US?

Question: Mario Mendonca - TD Cowen - Analyst : Where are you on that journey, though? That's a -- it's a theme I've heard many times in my career that the bank uses -- banks use their balance sheet to drive cash management and other products. Where are you in that? Have you had some initial proof points that the strategy is working, that you're actually selling stuff more than just your balance sheet? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2024 / 2:20PM, NA.TO - National Bank of Canada at TD Cowen Inaugural Financial Services Summit

Question: Mario Mendonca - TD Cowen - Analyst : I've always found that objectives like that are deriving more from how you put your balance sheet to work. There are some pre-conditions that need to be in place for this to work. Number one, the very top has to insist on it. You, the leader of the bank, you guys have to insist on it or it doesn't happen. And then the second equally important is how do you incentivize? How do you incent the folks underneath you to make this work? Have you changed your compensation structure?

Question: Mario Mendonca - TD Cowen - Analyst : That's interesting. It's hard to imagine a single pool, bonus pool. I've never seen it in my career. Obviously, you got it working.

Question: Mario Mendonca - TD Cowen - Analyst : Let's flip over to a different topic now, let's go to credit. Credit for National Bank as a whole has been stellar. But in your segment in particular, I mean, there are no credit losses. It's virtually almost zero. Help me understand how that's possible.

Question: Mario Mendonca - TD Cowen - Analyst : No doubt. The 15 to 25 basis point guidance on a bank as a whole is very low. And I suspect that reflects -- business makes in some respects, but also reflects some sound underwriting practices. Let's flip over for a moment and would it be right to suggest then that absent a hard landing, losses -- credit losses in your segment will -- it'll be more episodic or idiosyncratic. You don't expect it to be more meaningful then. (multiple speakers)

Question: Mario Mendonca - TD Cowen - Analyst : Okay. Let's talk about the regulatory environment. And anything on the regulatory front, we had the fundamental review, the trading book. There are floors. Are there any issues that are pressing right now that you would alert us to, specifically to the financial market segment?

Question: Mario Mendonca - TD Cowen - Analyst : See, that was another thing that surprised me and I think others that something like the fundamental review, the trading book would be undertaken. It would have an effect on your CT1 ratio I think of 40 basis points, I forget the numbers. But it was meaningful. 40 matters to me. But it didn't result in a change in the strategy. How could a fundamental review of the trading book have that kind of effect on capital without having you rethink the allocation of capital? Or did you rethink it was just blind to me?

Question: Mario Mendonca - TD Cowen - Analyst : That's impressive. I guess if you -- fall on that caption, if you make your bed, not a lot of things need to change. +tienne, I appreciate you taking the time to do this and going through. I think one of the big things that I struggle with, others struggle with, is how National pulls it all together in environments that you'd expect some volatility. So it's gone well and I appreciate you taking the time today.

Question: Mario Mendonca - TD Cowen - Analyst : Thanks, everyone.