National Bank Declines After Earnings Underwhelm Investors

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National Bank of Canada shares fell the most in four months after its fiscal second-quarter results underwhelmed investors following a week of blowout earnings from its peers.

While National Bank’s profit topped analysts’ estimates, four of its Canadian banking peers also posted earnings that beat projections this week. National Bank, which generates a bigger portion of revenue from capital-markets activities than any of the country’s six biggest banks, also was hampered by a slowdown in that unit following a strong quarter for trading a year earlier.

National Bank shares fell as much as 3% in Toronto on Friday, the biggest intraday decline since Jan. 29. The stock had climbed 35% this year through Thursday, the largest increase among Canada’s Big Six banks.

“National ran up a lot into the quarter -- the bank has been the best performer year-to-date -- so the expectations were really high entering the quarter,” Scott Chan, an analyst at Canaccord Genuity Group Inc., said in an interview. “But, all in all, National had pretty strong results across the board.”

While net income from National Bank’s financial-markets unit rose 50% to C$238 million ($197 million), the gain was driven by a lower provision for credit losses. Revenue in the unit slipped 5.2% from a year earlier, when pandemic-roiled markets fueled a surge in trading activity.

Still, this year’s climbing equity markets helped the bank’s wealth division, with profit in that business rising 17% to C$165 million last quarter, the Montreal-based company said Friday.

Overall net income more than doubled to C$801 million, or C$2.25 a share, in the three months through April. That compared with analysts’ C$1.94-a-share average estimate.

National Bank Declines After Earnings Underwhelm Investors

Helping net income was a big decrease in provisions for credit losses. The lender set aside C$5 million for potential bad loans, down from C$504 million a year earlier and less than analysts’ C$81.9 million average projection.

Profit in the personal and commercial banking business, which is focused on Quebec, increased more than fivefold to C$321 million in the second quarter. Revenue in the unit rose 6.6% last quarter, and the value of mortgages in the unit swelled 9.4% from a year earlier to C$72 billion.

The bank’s balance of commercial loans also gained from both a year earlier and the previous quarter, helped by its strength in Quebec as well as an emphasis on specialized sectors outside the province, including creative industries, real estate, health care and technology, Chief Executive Officer Louis Vachon said.

“In terms of customer acquisition, we’ve had pretty consistent growth,” Vachon said in an interview. “We’ve been a consistent player in the mortgage market, where we’ve had pretty steady growth over the last quite a few years, and same thing on the commercial side.”

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