Friday, May 29, 2009

National Bank Q2 2009 Earnings

  
Scotia Capital, 29 May 2009

Q2/09 Better Than Expected - Wholesale Strong

• National Bank of Canada (NA) reported a 9% increase in operating earnings to $1.53 per share, above our estimate of $1.30 per share. Earnings were driven by extremely strong trading revenue, particularly from fixed income, as well as higher security gains and securitization revenue. Operating return on equity for the quarter was 19.4% versus 20.2% a year earlier.

Implications

• Operating earnings were boosted by larger securitization revenue in Q2/09 of $100 million versus $58 million a year earlier representing a $0.17 per share incremental gain. Thus underlying earnings prior to incremental securitization revenue were $1.36, still better than expected.

• Reported earnings were $1.41 per share including a $20 million after tax or $0.12 per share charge consisting mainly of losses on economic hedge transactions.

Recommendation

• We maintain our 2-Sector Perform rating, with NA having relatively low credit risk, solid relative retail momentum, and higher leverage to wholesale, which we believe has a favourable outlook.
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