National Bank of Canada Q3 2024 Earnings Call Transcript

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

Question: Matthew Lee - Canaccord Genuity LLC - Analyst : Hey. Good morning. Thanks for taking my question here. Maybe just starting off on CWB, can you maybe provide an update on the implementation of cost synergies and just any learnings around the integration of that bank so far? I know it's early days.

Question: Matthew Lee - Canaccord Genuity LLC - Analyst : Okay. Maybe in terms of the revenue side then, I think this is perhaps maybe an area where I underestimate the opportunity, but do you have any kind of pre-requisite numbers or early numbers as to what you might be expecting in terms of cost opportunities between the two banks?

Question: Matthew Lee - Canaccord Genuity LLC - Analyst : All right. I look forward to it. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 3:00PM, NA.TO - Q3 2024 National Bank of Canada Earnings Call

Question: Meny Grauman - Scotiabank GBM - Analyst : Hi. I wanted to ask about the dynamics impacting the decline in the P&C margin after a period of relative stability. So I think you referenced that the conversion to CORRA is part of the impact. Maybe you could quantify that and just help me understand sort of the moving parts here taking the margin down.

Question: Meny Grauman - Scotiabank GBM - Analyst : Got it. And then the bigger question is just to understand how we go from pressure there to margin expansion sequentially at the top of the house. Maybe you could just help me understand how you're able to offset that pressure in that segment and then actually see margin expansion beyond that. I'm a little confused in terms of how that actually all fits together, going from P&C, which is your biggest business, to the overall bank.

Question: Meny Grauman - Scotiabank GBM - Analyst : Okay, I got it. The other question I have was just in terms of market risk. A pretty sizable decline in your market risk RWA, so I know there's some notes here explaining it, but just if you could go into a little bit more detail in terms of what's actually going on here, and is this just sort of normal volatility or is there something more? It looks like something more than your typical movement in that line item.

Question: Meny Grauman - Scotiabank GBM - Analyst : Then if I look -- I mean, this measure has been coming down over the past few quarters. I mean, the introduction of the FRTB, I think it maybe prevents us looking farther back, but it looks like there's a downward trend here in terms of market risk RWA. Is that correct? And is there something that we could say -- expect this line to continue to trend lower if we look at this?

Question: Meny Grauman - Scotiabank GBM - Analyst : Thank you.

Question: Paul Holden - CIBC World Markets Inc. - Analyst : All right. Thank you. Good morning. A couple questions for Bill. I want to talk a little bit more about what you're seeing in customer behavior in Canada just because the delinquency trends, while they're getting somewhat worse, are still better than I would have expected. So why don't you just give us some context, maybe starting with sort of those on variable rate mortgages, how their behavior is, how the delinquency rates are there, and if there's any kind of read-throughs you would use to determine how those on fixed rate mortgages might be impacted as they have to renew?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : I guess it's the second half. To my perspective, the more important part is can we take anything away from that better experience and expected than you would have had two years ago and translate that to how maybe those fixed rate borrowers might be able to deal with higher borrowing costs over the next one or two years.

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Okay. And then second question I have for you both is related to the ACLs. As I look at slide 14, you show the conservatism there. And again, I think with actual losses trending maybe at a slower rate of increase than expected, at what point -- or what would be the catalyst for National to turn the dial on the build and allowances? What could lead to allowances actually starting to come down?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : All right. Thanks for the answer, Bill, today and in the past. Great discussions with you, and all the best in retirement. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 3:00PM, NA.TO - Q3 2024 National Bank of Canada Earnings Call

Question: Jill Shea - UBS - Analyst : Good morning. Thanks for taking the question. I was wondering if you could touch on loan growth in P&C and what you're seeing on the personal side, as well as the commercial side, which is posting really strong growth. Can you just talk about the backdrop and where you see the best growth opportunities and how we should think about the pace going forward?

Question: Jill Shea - UBS - Analyst : Okay, very helpful. And then perhaps staying on that theme of growth, could you touch on Credigy with the assets up 11% year over year? Can you just talk about the piece of growth as we move forward and also touch on the risk profile and profitability of the assets that you're putting on the books?

Question: Jill Shea - UBS - Analyst : Yeah, that's very helpful. Thank you.

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Thank you. Good morning. I wanted to ask a broader question on your credit risk profile. I understand why credit losses tend to run lower for your retail portfolios in Quebec -- lower household leverage, lower debt servicing costs, less swap each, real estate markets -- so that makes sense. I was wondering if you could elaborate on what generates or keeps a lower ceiling on credit losses in your non-retail or commercial portfolios. Is that specific to underwriting practices at National Bank or your business mix, or is it more reflective of broader characteristics of commercial lending in Quebec?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : That helps, and I think the follow-on to that is, assuming CWB acquisition closes, there's an equipment financing piece that you can roll out in your home province, Quebec. Does that at all change their sector exposure, or do you think that's going to change the risk profile, even incrementally, of your commercial portfolio? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 3:00PM, NA.TO - Q3 2024 National Bank of Canada Earnings Call

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Okay. And then last question, just touching on your mortgage portfolio, specifically investor mortgage component, we are seeing some stress build there for investment properties, just negative cash flows. Any insights you could provide on the composition of that portfolio between Ontario and Quebec and other characteristics that's financial strain different in Quebec versus what Ontario rental property owners are experiencing?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Okay. That's it for me. Thank you.

Question: Mario Mendonca - TD Cowen - Analyst : Good morning. Again, last quarter, you provided a pretty fulsome discussion around your outlook for capital markets going into Q3. I think you broke it up between global markets and corporate investment banking. It had the added benefit of being right because the numbers were pretty strong this quarter, so it would be helpful if we had a similar rundown. Are you as optimistic about Q4 as you were Q3?

Question: Mario Mendonca - TD Cowen - Analyst : And then maybe one quick follow-up then. What would you identify as the one or two most meaningful differences between National's financial markets business and that of the other banks in Canada? What would you draw my attention to as the one or two most meaningful differences?

Question: Mario Mendonca - TD Cowen - Analyst : Thank you.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Thanks for taking my questions. I want to come back -- maybe I'll start off with a very quick one here. If the impact of the changes in interest rates is so minor on the CWB deal, why bother with the hedges at all? And then, how should we think about the cost of these hedges? Is that an important consideration or not? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 3:00PM, NA.TO - Q3 2024 National Bank of Canada Earnings Call

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay, that's perfect. And then, my more fulsome question, I want to come back to the discussion that Meny was having here on these treasury gains and margins. You seem to suggest that these results, the ALM results, can be volatile, and I can appreciate that. That's really nothing new. What I'm hoping you can help me think through is, is this volatility driven by market factors or more so the bank-specific interest rate positioning? Because what I'm trying to understand is, if the more important factor is the volatility of interest rates, then maybe it's easier to forecast. But if it's the bank's interest rate positioning, then it's just something that, as an external analyst, it's very tough to kind of back into. Any thoughts on that would be very helpful.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : And then, would you say the more important factor here is the level or the volatility in the level of interest rates, or is it the shape of the curve, like the steepening or flattening of the curve?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay, thanks. I appreciate it.

Question: Sohrab Movahedi - BMO Capital Markets (Canada) - Analyst : Okay, thank you. Maybe I can just start off with +tienne. +tienne, can I just follow through with some of Mario's questions? And generally speaking, I mean, this quarter -- or this year, financial markets has had three quarters of over $300 million earnings contribution a quarter. What does it take for that to go below $300 million next year per quarter, do you think? Or what does it take for you to maintain that? Do you need more RWA, or do you need more luck? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 3:00PM, NA.TO - Q3 2024 National Bank of Canada Earnings Call

Question: Sohrab Movahedi - BMO Capital Markets (Canada) - Analyst : Okay. That's very helpful. And a quickie for Bill. Bill, congrats on the retirement. We've asked you to play many roles over the years. I'm going to ask you to play a bit of an economist role here. You talked about 60%, I think, of your mortgage book has repriced. What I'm trying to kind of get a sense of is what's the consumer behavior of those 60% that have repriced? And is there any reason to believe it's additive to the let's call it economic activity or growth in the Quebec market, presumably because it's due to Quebec?

Question: Sohrab Movahedi - BMO Capital Markets (Canada) - Analyst : Yeah, that's very helpful. And within your customer base, are you seeing -- those ones that have repriced, do you see a change in consumer behavior that would be positive or negative, or is it neutral?

Question: Sohrab Movahedi - BMO Capital Markets (Canada) - Analyst : That's very helpful. Thank you very much for taking my questions.