National Bank to seek overseas investments as it expands reach outside Quebec

MONTREAL – The National Bank of Canada is seeking small investment opportunities in Asia and Africa as it looks to expand its reach outside of Quebec.

The plan is to create geographic niches like it did with the 2006 acquisition of U.S. distressed consumer debt company Credigy and the recent purchase of a 30 per cent stake in Cambodia’s ABA Bank.

“We will target retail and commercial banking platforms, operating in high growth markets,” president and CEO Louis Vachon said Friday during a conference call about the company’s fourth-quarter results.

The acquisitions will be funded through a $200 million reduction in its Canadian equity investment portfolio, not from excess capital.

“This is not a major risk definition of our strategy. We are, however, looking at giving ourselves more options for the long-term,” he told analysts

The country’s sixth-largest bank expects about 40 per cent of its overall revenues will come from outside Quebec in 2015, mainly within Canada.

The Montreal-based bank has a strong presence in Ontario and has been involved in Alberta’s oil patch since the merger with the Mercantile Bank in 1986.

Vachon said the bank is comfortable with the loan risk despite the sharp decrease in the price of crude that will put pressure on some producers.

“No one is going around like chickens without heads right now,” he said. “We keep monitoring this but no one has pushed the panic button yet.”

Outstanding loans to oil and gas producers are about $3 billion or just three per cent of its total loans and acceptances. Less than $200 million of outstanding loans are in the oilfield services sector.

While the WTI price has reached multi-year lows, the weaker Canadian dollar and smaller differential for Canadian product has softened the impact for its customers that are almost entirely based in Canada.

Vachon said the economic outlook for Canada is positive next year despite the decline in oil prices, and expects the stronger U.S. economy and lower loonie will favour strong Canadian exports. It also sees encouraging signs for the Quebec economy with record manufacturing shipments, improvement in employment and government efforts to address public finances.

National is boosting its dividend for the third time in the past year following record adjusted profits in 2014, which included a strong fourth-quarter.

The country’s sixth-largest bank said Friday that its quarterly payout will increase four per cent to 50 cents per share effective Feb. 1.

National (TSX:NA) said it’s fourth-quarter profit increased three per cent to $330 million. Excluding one-time charges, adjusted net income surged 15 per cent to $407 million, or $1.14 per diluted share, in line with analyst forecasts. That compared to $353 million or $1 per diluted share a year earlier.

Revenues for the three months ended Oct. 31 rose nine per cent to $1.36 billion. The bank was estimated to earn $1.14 per share in adjusted profits on $1.4 billion of revenues, according to analyst data compiled by Thomson Reuters.

For the full year, National earned nearly $1.54 billion on $5.55 billion of revenues. Adjusted profits reached a record $1.59 billion or $4.48 per diluted share, up 12 per cent from $1.42 billion or $4.02 per share in 2013.

During the quarter, its main personal and commercial segment’s profit rose seven per cent to $178 million as a growth in loan and deposit volumes offset the impact of a dip in the net interest margin.

Wealth management profit excluding acquisition-related items was up 29 per cent to $80 million from $62 million in the prior year.

Financial markets adjusted net income was $150 million, up 21 per cent from $124 million in the same quarter of 2013. Trading activity revenues decrease in equities and fixed-income business, while commodities and foreign exchange business activity was up 42 per cent.

The bank recorded $57 million in provisions for credit losses in the quarter, an increase of $9 million from the prior year due mainly to losses on business loans. For the year, the provisions grew 15 per cent to $208 million due to higher provisions for credit losses on personal and commercial loans. There were no provisions on corporate loans, compared to substantial recoveries in 2013.

Gross impaired loans increased $91 million to $486 million as of Oct. 31.

On the Toronto Stock Exchange, National Bank’s shares closed down 70 cents to $49.70 in Friday trading.

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