National Bank of Canada is shrugging off bleak economic forecasts for the coming year, and has decided not to scale back its profit expectations amid growing predictions of an economic slowdown in 2012.
Canada’s sixth-largest bank by assets told analysts Thursday that it expects earnings growth of between 5 and 10 per cent, a bullish outlook for a year in which GDP growth is expected to slow to less than 2 per cent.
“If you have a very pessimistic view about the Canadian economy in 2012, and of a recession, of course the 5 to 10 per cent is going to be very tough to achieve,” National Bank chief financial officer Ghislain Parent said in an interview as the bank reported a 2-per-cent increase in fourth-quarter profit.
“But this is not our view. Our view for the moment is that we think there will be a slowdown, and we are probably in the middle of a slowdown, but we think it will be possible to grow in 2012.”
Mr. Parent said the bank expects two recent acquisitions to help fuel some of that growth. National Bank bought the remaining 82 per cent of asset-manager Wellington West Financial it didn’t already own for $333-million in 2011, and purchased HSBC Canada’s retail brokerage for $206-million in a deal that closes Jan. 1. Both purchases were done to expand the bank’s wealth management capacity.
Mr. Parent’s comments come as several banks are taking a cautious approach to their earnings forecasts for the coming year. Bank of Montreal chief executive officer Bill Downe eschewed bullish proclamations this week, characterizing expectations for 2012 as “reasonable” with “moderate but acceptable growth.”
He joined other bank chief executive officers in offering a cautious tone with regard to growth, though Toronto-Dominion Bank CEO Ed Clark did warn analysts against too much “wallowing in pessimism” given the debt crisis in Europe and a struggling U.S. recovery.
National Bank CEO Louis Vachon said the bank intends to take a six-month pause on deals, but will likely resume growing through acquisitions in the back half of 2012.
National Bank made $294-million, or $1.74 a share, compared to $287-million, or $1.66 a share during the same quarter a year ago. Revenue rose 8 per cent to $1.19-billion.
The results exceeded analysts’ expectations for the quarter. Excluding one-time items, the bank made $303-million or $1.80 a share. Analysts were expecting $1.65 a share of earnings on average. However, the earnings were boosted by $44-million in securitization revenue from payments on bonds it sold to third parties, which added 20 cents a share to earnings.
Analysts also noted that the bank saw compressed margins in the quarter. Personal and commercial banking net interest margins, which are the difference between the bank’s costs to borrow and the money it makes on lending, shrank to 2.27 per cent, from 2.34 per cent in the third quarter and 2.48 per cent a year ago. A similar trend has been seen across the sector, as banks compete for loans amid persistent low interest rates.
National also boosted its quarterly dividend by 6 per cent, increasing the payout by 4 cents to 75 cents a share. The increase made National the only member of the Canada’s Big Six banks to boost its payout, though some analysts had been predicting an increase. Laurentian Bank, the country’s seventh-largest bank by assets, also increased its dividend slightly this quarter.
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