The National Bank’s third-quarter results show pressure on the financial markets and rising provisions for non-performing loans

The National Bank of Canada reported a sharp decline in performance at its financial markets division last quarter as it also increased provisions for bad loans to prepare for a possible impending economic slowdown.

The National Bank of Canada reported a sharp decline in performance at its financial markets division last quarter as it also increased provisions for bad loans to prepare for a possible impending economic slowdown.

“We continue to operate in a challenging environment,” CEO Laurent Ferreira said in an analyst meeting on Wednesday.

“The Canadian economy has yet to absorb the full impact of rate hikes since monetary tightening began, leading to continued uncertainty.”

He said the bank has posted solid profits but sees a “less constructive environment” in its segment of financial markets.

The division posted a profit of $205 million last quarter, compared to $279 million in the third quarter of 2022, which the bank attributed to lower trading activity and exceptionally low market volatility.

Overall, the Montreal-based bank reported net income of $839 million, or $2.36 per diluted share, for the quarter ended July 31, up from $826 million, or $2.35 per diluted share diluted shares in the third quarter of 2022.

Quarterly revenue was $2.52 billion, up from $2.41 billion in the same quarter last year.

On an adjusted basis, National Bank reported earnings per diluted share of $2.21, compared to $2.35 per diluted share in the year-ago quarter.

According to estimates by financial market data company Refinitiv, analysts on average had expected adjusted earnings of $2.38 per share.

The failure was largely due to the “precipitous decline” in earnings from financial markets, Barclays analyst John Aiken said in a note.

The bank’s costs also rose by 8.6 percent, or 6.7 percent adjusted, due to technology costs.

The bank is focused on keeping costs under control, especially amid economic uncertainty, CFO Marie Chantal Gingras said on the conference call.

“As the environment is expected to remain challenging for the foreseeable future, we continue to be strategic in how we prioritize and manage spending.”

The bank has worked to reduce its headcount, primarily through downsizing. The number of full-time equivalent employees decreased by 227 to 18,821 in the third quarter from a first-quarter peak of 19,048. However, the total number of employees is still above the level of 18,502 in the third quarter of last year.

While the bank continues to monitor headcount closely, it is not planning any major job cuts, Gingras said.

“At this point we remain very focused on protecting our current talent base and are not considering any major layoffs.”

National Bank said its personal and commercial banking operations generated $328 million in the third quarter, up from $319 million a year earlier, as revenue growth was partially offset by higher noninterest expenses and higher loan loss provisions.

The bank’s wealth management business generated $183 million in the most recent quarter, up from $175 million in the same quarter last year. National Bank’s US specialty finance and international business had revenue of $128 million in the third quarter, compared to $125 million a year earlier.

The bank’s “Other” category posted a loss of $5 million for the quarter, compared to a loss of $72 million in the year-ago quarter.

This report from The Canadian Press was first published on August 30, 2023.

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Ian Bickis, The Canadian Press