National Bank of Canada (NA) Earnings Call Transcript & Summary

Okay. Great. Thanks. Welcome back, everyone. This is our last presentation for this -- for today. Joining us is National Bank of Canada. From National Bank of Canada, we have Judith Menard, Head of Commercial and Private Banking. Judith, welcome, and thank you for joining us.

Thank you for inviting me. Very excited to be here.

Great. It's been almost two years since you took our responsibility for Commercial Banking and Private Banking 1859, following the announced acquisition of Canadian Western Bank. Can you give us an overview of these businesses, explain how they fit into National Bank's broader strategy and discuss how your experience prepared you for this role?

Good. So I -- actually, it's 1.5 years now that I'm in the new role. Just to give you a little bit of my background, so 20 years at the bank, actually 28 years with 20 years in the risk function. So I used to be head of compliance for wealth management, capital market and retail and commercial banking, which I know the bank really well. So I think this is the part that really, really helped. So when -- just before having that position, I was leading private banking and commercial banking outside of Quebec. So basically, the mandate was like how do we grow our bank outside of Quebec. And that really drove it true commercial and private banking with wealth management in capital market. So that's really prepared me just before the acquisition, had a pretty good sense of what was working, what was not working? And how do we adjust our strategy when you actually are not the main player, which we are, as you know, in Quebec. So that experience, I think, really led us understand more and to really think about it even in the light of the integration. So when I started 1.5 years ago with the integration of CWB, I think these -- all these experience understanding really deeply the bank, but also understanding the reality of Western Canada and Ontario and how we grow in these markets were, I think, really priceless.

Excellent. And so the integration of Canadian Western Bank appears to be on track with both revenue expense synergies running at or above target. Could you provide more detail on the integration process and discuss potential opportunities beyond the current targets of approximately $300 million expense synergies and $200 million to $250 million in revenue synergies?

So if I just take a step back on the integration like how have been and so we took a very bold decision at the beginning to really use our processes, our platform and change of branding, like right away, that decision was made. And it actually allowed us to convert clients faster in the time line. So by the end of 2025, I think a lot of things really were rolling. So in the last 6 months, I would say the integration really started. The conversion of data was what big piece and the integration started. So we've been really, really working hard of onboarding employees upboarding clients in our cash management platform, and that was the grind, like the grind of starting the integration and making it happen with people, for people. And that's -- I insist on that because employees are a big, big part of it. The connectivity with client, of course, was the employee. So we really wanted to get it right. And where we are now, and I look at what we said to the market that it will come from the fee income of the synergy revenue, that's exactly what's happening right now. That's what we've seen. So we kind of added a tool to the Canadian Western Bank employees for them to go to market and bring more to the client? Is it extending our balance sheet. Is it bringing some more products to the client. And that's what we've been really seeing in the last few months. So where we are right now in September, the pipeline is really robust. We're at a very different place we were 6 months ago. And when I look forward, and I look at what's in front of us, so there's two things happening. So again, on the lending side, you've seen it was flattish last quarter. We're already seeing early signs of growing the book, which is very encouraging, but also all the deposit and the cash management. Also there's also some space where we can continue growing on that space. So it's on both sides. So the revenues are going to come both on the lending and on the cash management side and the deposit side.

Excellent. And then maybe kind of excluding the impact of CWB, we've seen commercial loan growth was very strong in the third quarter. Maybe talk about what's driving that growth? And how sustainable do you believe that trend is?

So if you look at our track record in terms of loan growth, we have always been like #1, #2. So our franchise in Quebec, again, is very, very strong. And from that, like the muscle of lending is very good inside the bank and also kind of our credit risk as well. I would say that even in terms of PCL, we have a very disciplined approach in terms of risk, and it materialized in -- when you look at the numbers. So it really comes from everywhere. It comes from our specialty business. It comes from mid-market, from National [indiscernible] group, a larger corporation. So it's all the businesses that are performing in the heritage NBC book. And yes, I can see that it's continuing growing. That's really the part that we have the, I think, the right expertise, but we also have a right deal team around. So that means that we're kind of bringing the full bank in front of clients and they actually really like that.

May think about the other side of the balance sheet. Deposit growth in the commercial segment has been very strong. Maybe also talk about the trends that are driving that growth and how sustainable they are as well.

So on the deposit growth, I would say that there's kind of two things. Like in the last quarter, it was really driven by governmental deposit, the taxes are being paid. And it was especially like higher kind of growth on that segment. We're still growing on the commercial kind of diversified business, which we want. We want these cash management account being open, but also the deposit that comes with the operational deposit with the business. So we're seeing that. But we're still growing faster on the AB SP, like government deposit than on the commercial deposit side. So where we are with that, we've been investing in the last few years in our cash management platform. We've actually transferred or onboarded 99% of our clients in our new platform. This is an ongoing process. This is something that we will continue investing. It's a tech business, the cash management business. And we will continue investing in that, that we see it very clearly. And on the CWB side, we really, really did a lot of new onboarding. We have some specialty business that the clients were waiting for cash management, and we're executing on that as we speak.

Okay. Great. And then let's just talk about how is the ROE profile and efficiency of commercial banking compared with the rest of the National Bank? And as these businesses continue to scale, where do you see opportunities for further gains?

Good. So next quarter, as you know, we are going to split retail and commercial banking and the ROE side, we're going to show numbers in the next quarter. On the efficiency ratio, this is a business that was actually well managed in terms of efficiency ratio. We are really in a good spot. I would say where we are with the efficiency ratio. We see a lot of growth in commercial banking. And for us, this acquisition is is really central of -- it's the biggest acquisition of National Bank. So we know now we have the platform across Canada. So the growth trajectory in terms of grabbing market share, organic growth in every market in Canada, it is a very big accelerator for us, and that's really how we're positioning commercial banking inside the bank. I would say that commercial banking and the proximity with capital market is also very tight. So we're doing a lot of things together. We're using all the risk management solution capabilities to accelerate. We have an M&A private company team is helping us doing the business transfer. We know there's a big opportunity in terms of business transfer. So all this is also an accelerator in our trajectory. And the fact that we're working really well as a team, no silo clients see the deal team in front of them. So in the bigger picture to answer your question, we think commercial banking is a big lever of growth in the next few years.

As on the private banking side, what sense Private Banking 1859 apart from other wealth management competitors?

So private banking is a gem inside the bank I find. So in terms of the NPS, very, very high NPS 78. This is a business that is really kind of a bank inside the bank. So when we made the decision to merge private banking and commercial banking, that's a different strategy in the other Canadian bank. So we've been truly integrated all the employees inside the bank. And the reason for it was we knew that we do want to bring the complexity of our bank in front of price. We knew that most of the entrepreneur clients had a private banker, we knew that. But once we go out as a deal team in front of clients, private banker is there, the commercial banker is there. It actually takes out a lot of complexity for a client. The play, and we know that, there's going to be tons of wealth transfer in the next few years. We see $1.3 trillion, 60% the entrepreneurs are going to want to sell or buy a new company, but mostly sell their company. So if you think about the opportunity in terms of being there at the table way in advance of the transaction with in advance of the liquidity event, I think it's actually a very big accelerator on both sides. When I look at these two businesses, like over the last few years, 2,500 more common client. So we're really kind of bringing both sides, from commercial banking client, and we're not private banking client, but also on the other side. So -- this is a focus. This is part of a pillar that we look at how do we kind of cross-sell the bank on both sides, and it's the same team. So it's a lot easier to kind of make people work together, having the same objective, the same goals. So I'm very pleased with this strategy. And it took us like a couple of years to get there because these are two different cultures and commercial banking. We have to work at it. But where we are, it's a very big play. And for CWB, they didn't have a private bank. So when we talk about the toolbox, this was like in addition to the toolbox. So they were very, very excited to get to see the products, the card, like the whole kind of white lot experience.

Okay. The other thing that's been in the news recently is the [ OSP ] recently lowered the domestic stability buffer by 50 basis points. Kind of given the resulting reduction in capital requirements, do you see this as an opportunity to deploy incremental capital in the commercial segment?