National Bank of Canada Q3 2019 Earnings Call Transcript

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

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : I do want to revisit that expense question that Rob was asking earlier, but more on the P&C side of the business. It's been running quite low for a year or more, and I'm just wondering because we've seen some banks talk about stepping up initiative spending and others, most banks actually, without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. AUGUST 28, 2019 / 5:00PM, NA.TO - Q3 2019 National Bank of Canada Earnings Call pulling back after an extended period of elevated cost inflation. Just wondering where National's outlook is -- or what National's outlook is for expenses growth in that business in the next year?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. So steady as she goes. And I assume the transformation plan is underlying that type of outlook? Is that a safe assumption?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Great. Then moving over to the wealth business, Martin. I just want to connect some dots here. The rate environment was a tailwind for your business in '17 and '18. Obviously, the story has changed. And this quarter, the NII was flat for the first time in a long time. I'm just wondering, can you maintain positive growth in this business if we see several bank account or rate cuts over the next year or simply rates are -- market rates are subdued? Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management & Co-President and Co-CEO of National Bank Financial Thank you, Gabriel. So yes, we're maintaining the same guidance as we've given in the past. Our objective is to do double-digit earnings growth through the cycle. So keep in mind, the last 2 years we've compounded at 22%. So it's a little softer right now because of market conditions that you're well aware of. But the long-term plan is still the same. If the market gives us 4% to 5%, organic growth initiatives of 2% to 3% and positive operating leverage is the long-term recipe for us. The last couple of years we benefited from interest rate increases and it represents 26% of our revenues. So we did all kinds of initiatives to benefit from that. Right now, we're not -- even though cash is increasing, especially in the cash performer, rates have gone down, they're compensating, and we're flat in net interest income. But we have other ways of achieving the objective, and I'll point you to 13% and 11% growth in AUA and AUM, which points to very solid underlying trends.

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : I just wanted to maybe a couple of few quickies. Bill, your IFRS 9 model, is it -- does it have any outsized exposure to the QuTbec economy? Or is it -- sorry, outsized weight to the QuTbec economy?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : So I just found that -- so then given the favorable outlook for the QuTbec economy, the addition to the performing loans, how should I think about that? Is that more because of the growth outside of QuTbec then?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : But uncertainties that would be specific to QuTbec?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. And then maybe just on some of the adjusting items that Ghislain kind of had highlighted. Ghislain, would the timing of some of these remeasurements and, call it, headwind, was that just fortuitous that it was around the same quarter that you had the Fiera gain? And was there some control over that? Is that -- was this timed on your part so to speak?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. So just the issue of technology obsolescence, this wasn't an accounting-driven, something outside of your control. This was a degree of management judgment on it. Is that fair?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Understood. And then just 2 more quick ones. Trading was particularly strong from a trading revenue perspective. I mean we have some data going back at least maybe 10 years. Probably the best quarter in equities and overall going back 10 years. Is this -- do you view this as sustainable?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : So a little bit related to Darko's question, I guess, the U.K. was part of the opportunity, or the Dublin operations would have been part of the opportunity?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Right. And then I guess lastly, Louis, I mean, first quarter, probably in about 3 or 4 that the ROE had got back to that 18% level, you're talking about obviously well-managed capital levels but allowing that to drift higher. Do you have an eye on that ROE or medium-term target range? It's comfortably within that but do you think that's going to trend lower from here?