National Bank of Canada Q4 2018 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 : Few on the segments here. First, on Credigy, I hear there's a bit more of a toned-down outlook for growth but on a sequential basis, we saw the balances up for the first time since the last year. I'm wondering if we've hit like kind of a trough in where you expect the loan balances to be at Credigy and maybe there is some growth that we're maybe underestimating next year?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. Then on -- I mean, for either Denis or Laurent in the trading business. I think I must have heard equity derivative is about 20x this earnings season, implying that the other banks are shifting away from FICC as that flows down and doing a lot more on the derivatives side. How is that affecting your business, and that's been a big growth driver for you, historically, in trading? Do you see other alternatives developing or opportunities, I mean? As the -- or how are you positioning yourselves vis-a-vis that potentially intensifying competition?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Great. And then my last one would be for Martin, wealth. I think the -- it is really about the rate outlook, noninterest income in your business was up almost 20% during the year, I think largely attributable to the rate hikes we saw over the past year, plus. If it wouldn't -- BOC didn't hike today obviously, if we see a more subdued pace of rate increases, how do you think that revenue line looks going forward? 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. DECEMBER 05, 2018 / 6:00PM, NA.TO - Q4 2018 National Bank of Canada Earnings Call Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management & Co-President and Co-CEO of National Bank Financial So I would say that Q3, Gabriel, was really an interest rate quarter. The last one for Q4 is more of a volume quarter overall, and if we look at our net interest income, it was 50-50 due to rate and due to volume. We -- if -- in terms of outlook, I don't call interest rates, obviously. I don't control that, but we do have some interest rate beta that -- and we have different levers to play for 2019, but now we have 30% of our revenues coming from net interest income. So it is significant, and we have different levers to play in order to capture that going forward.

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : I just wanted to pick up where Mario left off here. If we looked at -- Bill, you've got a chart, I think -- or Ghislain, you guys have a chart in here on Page 22 that gives a regional breakdown of your loans, and I think about 57-or-so percent of your loans are in QuTbec. If we were going to fast-forward a year, is QuTbec going to be a higher proportion than it is this year?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Yes, I was, actually, more trying to figure out if it's going to become more skewed towards QuTbec? And you're saying not necessarily.

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. And, Bill, I mean, when every one of your counterparts talks about their IFRS 9 provisioning and they talk about the macro drivers, I mean, given the QuTbec focus that you have, I assume you have slightly more fine-tuned macro drivers than the peer group? Like, is yours more sensitive to the QuTbec unemployment rate or you still take stuff at the national level?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. And then last one. Just, Louis, you I think once upon a time had said that we need to be at least at 10.75% CET1 before we do buybacks. Obviously, you're well clear of that. You've done the buybacks. Ghislain noted that you're up over the last couple of years in CET1, I think, 160 basis points. I think just as importantly, your ROE has been up. Just want to get a reminder as to where you see the ROE going and where you see the capital levels kind of settling in at over the next, call it, 12 to 18 months maybe? 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. DECEMBER 05, 2018 / 6:00PM, NA.TO - Q4 2018 National Bank of Canada Earnings Call

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : So is this at all a byproduct of the decisions you've made not to pursue growth basically at dilutive rates, is that fair?