National Bank of Canada Q4 2024 Earnings Call Transcript

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

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Just following up a question on CWB approvals, Laurent, just curious if OSFI has completed its review. It wasn't clear from your comments to whether it had. I think a while back, you made a comment a public comment, basically suggesting that everything could be on the Minister of Finance's desk by the end of November. So I just wanted to see if that happens, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Do you have a sense of the time line there? Could it be done?

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Okay. But just to be clear, so OSFI is still working on it, that's the status right now.

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Okay. And then just wanted to dig into the guidance in the financial markets business for next year, in particular. We're hearing other banks talk about pretty bullish pipeline, looking ahead to next year. Was just wondering if we can get an update in terms of what you're seeing across the different business units from a pipeline perspective in '25? Maybe starts there.

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Got it. That was very thorough. So I guess if I just summarize, you're saying you'll be able to grow from here, but we have to take into account the strength that we saw in '24, and that's , that would be hard to repeat for '25. Is that that correct?

Question: John Aiken - Jefferies - Analyst : Jean Sebastien, I wanted to dive in a little bit further in terms of ABA. Now I know you gave us some commentary in terms of the outlook. But when we classify the provisions as elevated, I mean they've almost doubled from Q3 to Q4 are now representing almost about 1/5 of your total provisions. And when you say that you expect it to remain elevated, should we expect to see continued growth in provisions in EBA over the next couple of quarters? Or are we approaching a peak in your estimation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Doug Young - Desjardins Securities - Analyst : Just sticking with ABA, maybe Laurent. You've had good growth in this business continually. And the question I often get asked, so I'll throw it to you, like how big are you willing select this business get within National in terms of a percent of earnings. Are you comfortable with it being 15% or 20%. And I know it's about, I think, 11% this quarter, and it goes down once you finish the CBB acquisition. But just trying to get a sense.

Question: Doug Young - Desjardins Securities - Analyst : It does. And I'm just curious, like this sounds like you've thought but the monetization and expansion. Like are you advanced in that side of the strategy? Or is this just something that's far off into the future?

Question: Doug Young - Desjardins Securities - Analyst : And you wouldn't want to say like -- I mean, would you be comfortable if the ABA got 15% to 20% of earnings or? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Doug Young - Desjardins Securities - Analyst : Okay. And then just second, Credigy, I think there was mentioned there was a fair value impact that benefited the revenue line this quarter. Can you just flesh that out, just quantify what was that? And how much did that represent pre and post tax?

Question: Doug Young - Desjardins Securities - Analyst : And I assume the positive and negative offset, like there's no earnings -- positive earnings impact because of --

Question: Doug Young - Desjardins Securities - Analyst : Okay. and then lastly, thanks for the outlook, Jean-Sebastien, on the impaired PCL. Any thoughts on -- you've done a great job historically building performing loan allowances, thoughts on the evolution of that as impairments roll, should we start to think about some release of these performing ACLs or can you talk a little bit about that?

Question: Matthew Lee - Canaccord Genuity - Analyst : If I think about your 16.7% adjusted ROE this year,. I don't think result, but I think about the medium term objective over 15% to 20%. And just given a bit softer credit next year and maybe a bit of headwinds in financial markets and the addition of CWB. Can you maybe talk about what has to happen there to get to the higher end of that range this year kind of in the medium term?

Question: Matthew Lee - Canaccord Genuity - Analyst : That does.

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Yes. I appreciate all of the outlook and guidance you provided for the upcoming year. And of course, that does exclude CWB, as you noted. Just wondering if you can provide an update on your thoughts around year one EPS accretion sort of regardless of when that deal closes?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Okay. Fair enough. I'm going to try one follow-up on that. I mean the cost synergies you've highlighted previously, how quickly might you be able to execute on those? Are those things where system integration can be done quickly, some redundancy on mid-office, back office done quickly, these things that would take some time to execute on. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Okay. Back to try. Laurent, you talked about strong commercial loan growth continuing. I've heard from I don't know, different angles where there's tariff risk for Canada, so maybe CapEx in Canada slows for time being, just to see where things land. Are you getting any sense that there's any kind of delay in projects. It doesn't sound like it. So maybe you can talk a little bit about how that's factored into your outlook? And what are you seeing on the ground level sort of from your commercial clients?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Right. I share your concerns.

Question: Lemar Persaud - Cormark Securities - Analyst : My first question is on credit here. I wonder if you guys can talk to comment earlier where you suggested ADA formations this quarter or at the higher end of what you'd expect moving forward. Is it because you're seeing improvement in tourism in the country, GDP growth? Can you expand on that comment and what gives you the confidence there?

Question: Lemar Persaud - Cormark Securities - Analyst : Like what specifically is driving the recovery there in the economy.

Question: Lemar Persaud - Cormark Securities - Analyst : And then just moving on to a different type of question. I think in Laurent comment opening remarks, you offered that commercial loan growth for the year, CWB will be in the low teens. I guess, (inaudible) to the question, what are your thoughts on the outlook for personal loan growth. Does it feel like commercial loan growth will outperform personal next year?

Question: Lemar Persaud - Cormark Securities - Analyst : I appreciate that. And then one more if I could sneak it in here. One of your peers shifted their guidance to providing NII growth guidance. I appreciate that you provided some commentary on margins. Is that something you guys could provide as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. I just wanted to ask just a couple of clarifying questions. Just on the commercial low teens, I think you had said commercial loan growth. Is that going to be in any particular types of business or any particular geographies or sectors where can you just provide a little bit of color as to where you see that coming from?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. Helpful. Just a second question for maybe. I don't know if it's Stephane or if it's Laurent. Just a reminder, ABA's growth has been self-funded? Or have you been providing additional capital or balance sheet resources.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. And maybe just one last one for Marie Chantal. I understand the ROE targets. Can you just tell us what sort of capital -- I know obviously, you're in preparation for completion of an acquisition. But hopefully, once the acquisition is done, we fast forward what sort of capital ratios do you think the bank will be looking to operate at? And then for Laurent, how active you expect to be on buybacks if you are actually in excess of those numbers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : That's helpful. But I mean, I guess, yes, I mean, Laurent, like I guess what I'm trying to kind of understand is if you came into -- I'm just -- I'm going to throw out a number. If you came into $0.5 billion of excess capital, what would be the priority deployment.

Question: Mario Mendonca - TD Securities - Analyst : Marie Chantal, just a couple of things to clarify. I think you said at the time of the CWB announcement that the CET1 ratio would close, and I kind of had this number off, but I think it was 12.7%. Is that what you offered back then?

Question: Mario Mendonca - TD Securities - Analyst : Okay. So -- the second thing, the word progressively, I understand what that means on its own, but I don't know what it means in the context of migrating to advanced standardized. Could you be a little bit more clear what does progressively mean in this case?

Question: Mario Mendonca - TD Securities - Analyst : Would it be fair to suggest that it starts to progressively be accomplished, say, 12 months after close. I don't want to put like a time line on you, but is that a reasonable estimate?

Question: Mario Mendonca - TD Securities - Analyst : Yes. Other area of follow-up. I think you referred to a 1% to 2% increase in the tax rate. I couldn't tell when you said that whether you were talking about financial markets, specifically for the bank.

Question: Mario Mendonca - TD Securities - Analyst : Got it. And then finally, when you were referring to -- and I believe this was in the capital market segment financial market specifically, when you refer to the global minimum tax, I could tell whether the reference was to like slower growth in financial markets because the global minimum tax would lead to higher tax rate financial markets or whether the global minimum tax would lead to certain products being less attractive in financial markets. there's a distinction there, and I'd like to understand.

Question: Mario Mendonca - TD Securities - Analyst : But it does sound to me like some certain structured products in your trading book. were advantaged by the tax regime, the way it was pre GMT. Does that sound right? Does that sound right?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Can I just pick up right there where you left off Etienne. Are you just suggesting that it's not that volumes are going to go down. It's just that you're going to have a higher tax. Is that the way I should think of it?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. Understood. I just have another clarification question as well. This one is with respect to Credigy. From the outside looking in, when I see formations up 75% year over year, gross impaired loans up 132%. And -- the loan book is actually up, 14, and your provisions for credit losses are up 3 times. So from the outside looking in, this does not look like a normal season. This looks more like credit deterioration. I'm just curious if you can maybe give some -- provide a little more color on why we should consider this to be normal seasoning and why it might not get a little worse for them. Unidentified Company Representative Yes. So I think I'll start and then I'll let Etienne continue -- so it is seasoning. And if I split your question into, if you look at the formation, they're really mostly driven by the mix that's changing -- so we have more mortgages and mortgages take more time to resolve. So that keeps formations higher and yields higher for longer. In terms of PCLs, it's really normal seasoning of portfolio. There's really nothing that is to see there in terms of individual performance of portfolio that brings any type of worry to me.

Question: Darko Mihelic - RBC Capital Markets - Analyst : So is it close to peak? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call Unidentified Company Representative Well, it's very difficult to say with Credigy because it's still driven by portfolio growth and business mix, like I said in my remarks.

Question: Darko Mihelic - RBC Capital Markets - Analyst : It does. And just as a follow-up to that, with respect to the increased resources on renewal. Is it fair to say that the auto renewal letters that are going up today might be different from in the past in the sense that you may be offering or suggesting a shorter-term mortgage. And more importantly to me is the auto renewal that are going out with a rate that would be below post-Asia that might be around for.

Question: Darko Mihelic - RBC Capital Markets - Analyst : So presumably somebody who's coming up for renewal, you'll send them a letter and let them know that they're coming up for renewal. So we call that -- I call it an auto renewal letter maybe you've made the firm is different. And so if I'm a customer of National Bank, and I'm receiving a letter from national suggesting that mortgages coming due here are some options for you. Have those options changed? In other words, are they more competitive than they were versus three, four years ago?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Yes. I may follow up off-line. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 4:00PM, NA.TO - Q4 2024 National Bank of Canada Earnings Call