Friday, August 28, 2009

National Bank Q3 2009 Earnings

  
Scotia Capital, 28 August 2009

• National Bank (NA) operating earnings increased 17% to $1.79 per share, substantially above expectations. Operating ROE was 22.2% with RRWA of 1.99%. Reported earnings were $1.78 per share including a $1 million after-tax or $0.01 per share charge related to holding ABCP.

Implications

• NA third quarter earnings were extremely strong driven by record results from the Financial Markets segment, solid retail bank earnings, offset by weak Wealth Management Earnings. Earnings were also supported by very low loan loss provisions.

Recommendation

• We are increasing our 2009E and 2010E EPS to $6.35/share and $6.40/share from $5.55/share and $6.00/share, respectively, based on the strong wholesale platform and lower-than-expected credit losses. We are increasing our share price target to $75 from $70, representing 11.7x our 2010 earnings estimate.

• We upgraded NA to 2-Sector Perform intraday yesterday due to its stellar results, high credit quality, and record results from wholesale.
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