National Bank of Canada (NA) January 6, 2026 Conference Transcript

Within the next session, I've been asked to tell you that Laurent Ferreira's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections, or conclusions in these statements. Listeners can find additional details in the public filings of the National Bank of Canada. Laurent, welcome to the stage. Thank you for coming.

Thank you very much for having me. Happy New Year. You know, most of the day I've been just sort of diving directly into bank-specific things and not touching on too much macro. But I think in this instance, as I did with the very first meeting, I think I want to touch on macro, because you do have a particular vantage point. And now that vantage point sort of expanded into Western Canada. So maybe, you know, with you being a dominant player in Quebec and now an emerging player in Western Canada, I thought maybe you could talk on some of the macro, Maybe some of the disparities you're seeing and how we should think about 2026, you know, with the trade uncertainty and even political uncertainty. I'll just leave it wide open and ask you to comment on the macro that you're seeing.

Absolutely. Look, the environment in 2025 brought a lot of uncertainty on, you know, the trade war that our friends in the South just started. You know, GDP potential, labor market that's, you know, definitely more fragile, consumer confidence. I would say the most concerning thing and the theme across the country is really business investments that are on pause and just this hesitation to invest in Canada. So, that's, I think, the biggest concern I have right now with the macro environment. Having said that, you know, it has been resilient, and I just heard Daryl talk about it, but I think we're all surprised at this point in time to see how the Canadian economy has been resilient. But the most important thing that we need to do, and, you know, I've said this in the pass is with what's going on in the world. Geopolitics are at our doorstep. National security is I think one of the most important priority of our country. You know I think the the priorities that are set right now by Ottawa in terms of nation-building, re-industrialization, defense spending, those things are so important right now for our country and I think we need to speed up. I think you Any kind of opposition, whether it's ideology, whether it's bureaucracy, to that is not a good thing for our country. We are in a state of... The world is... Economic war is how I would basically summarize what's going on in the world right now, in tie geopolitics into this, and we're part of this. and if we want to be part of the new world order we need to speed this up now looking at Canada and looking at what we have I'm betting on Canada I like the fact that Ottawa has shifted we need to work together the governments the business sector the the you know indigenous communities also and we need to speed up our decisions on what we need to do and we have so much to offer Natural resources, energy, engineering and manufacturing know-how, aerospace, naval. So building supply chain and critical mineral with steel, with aluminum. So I think we are in a really good spot with what's going on in the world. And we just need to now speed it up. You know, the events this weekend as well, all these things I think should play into our decision process so I like where we're going right now I like what I'm hearing in Ottawa I like the direction that the budget is taking the MOU with Alberta is good we just need to sit down and all work together and what about trade barriers interprovincial ones you know that's a good one and I was thinking about you specifically you know in Quebec and now Western Canada how do you view that we need to do more we need to do more there we need to to you know address and you know it takes work so it's not just it's really understanding what could help us and and and trigger more growth so there was this you know spike in in May last year where everyone got together and let's let's work on that it feels like it's died down a bit but so we need to go there but on trade We obviously need an agreement with our greatest ally quickly as well to resolve all that.

Okay, so let's shift back now the focus to your bank specifically. One of the things that you've been a little bit vocal on, I would say recently, last couple quarters, is about your ROE target and sort of getting there. I'd love to hear a little bit more about timing of getting there as well as how you get there. And, you know, I had this discussion earlier today. Is there a lot of the denominator effect built into that 17% ROE kind of target?

So 15% approximately for 2026, right? And our target for 2027 is 17 plus. Now, very high level, roughly half-half, denominator and numerator. So on capital deployment, it's, you know, so CWB, we're going to have the ARB conversion this year. So that's one thing. We have a little arrangement portfolio that's going to cost us 25 basis points. the you know share buybacks are part of it but we're not dogmatic about share buybacks right it is part of the solution but we always will favor organic growth we will always favors strategic tuck-ins that are creative like the Laurentian bank one you know on the Q3 call I was asked about you know why aren't you buying back more shares and we had obviously the Laurentian bank transaction in the back of our mind 25 basis point but having said that we are we have a very strong capital position our our capital generation is greater than our capital consumption in general we have the benefits of ARB coming so we are active in our current NCIB we have bought back approximately 50% of our 8 million shares so there's a very high probability you know I think it's fair to assume that we are going to renew an increase that before year-end 2026 given all the benefits in our current capital position but again you know the way we view buybacks is there are their complement we want to remain

agile flexible depending on opportunities how do we you know position ourselves but they are obviously part okay that's a great answer I think to help me understand that the sort of denominator effect now let's sort of switch our focus to the numerator and think about you know improving the are we know one of the things that we saw from your bank was sort of PCL guidance in 26, it's more or less the same as 25. It is the same. So, is there a lot of PCL improvement built into getting to the 2027?

No. So, on the P&L side, first it's CWB. Okay. So, you have 270 million of cost and funding synergies that are going to be at target in 2027. You have revenue synergies, so 2026, approximately $50 million, but we expect 2027 to be a big year. So there's a CWB component. And then there's organic growth. So it's wealth, capital markets that we see tons of opportunity over the next couple of years to keep growing the franchise at superior returns. PNC beyond CWB synergies will contribute as well and our growth outside of Quebec is going to accelerate starting second half of 26 and into 27 and you know we're seeing some credit improvement in 26, 27, but it's a bit early. So we're not banking on, you know, PCLs being much lower in our ROE target.

Okay, so let's unpack a little bit of that. That's interesting on the PCL side being a very small component, if any, to the improvement. So let's...

If we go back to our range of 2025, right, were, you know, our impairs were 28. So it's, going back to our range, we'll be, you know, five to eight basis points lower. So it's... Okay.

The revenue synergies at CWB. Yes. Very interesting number. They seemed high to me. Can you maybe unpack them a little bit? And what's the more immediate opportunity there?

Seem high. I mean, CWB, the thesis behind CWB was growth, right? And yes, there are, you know, cost synergies and but you know the reason why we acquired CWB is to grow outside of Quebec and so revenue synergies is a big part of that so look 2026 it's mainly going to be fees with commercial clients and second half of the year and then we see you know doing like CWB has a decent platform now so much larger balance sheet capital funding much more competitive and so we're able to do a lot more with existing clients we're able to attract new clients a lot of products like you know cash management deposit swaps foreign exchange advisory all these things were were not part of the product suite of CWB so initially more fees and then you know 27 28 more NII I would say and growth of the balance sheet and that term you know 2028 we see about two thirds coming from commercial clients and two thirds coming from NII and one third from from fees and in fees I include fees with commercial clients growing wealth, and retail.

We've got to think about that and conceptualize it. I mean, I think one of the things that's... I covered CWB for a very long time, and that bank had historically had, I want to say, 10% sort of asset or loan growth aspirations for, like, as long as I can remember. Now, obviously, the environment matters, but is that something that we should...

You know, you say two-thirds of it being NII in 2028, so it's really going to be a lot of growth, and maybe a wider spread because of funding but are you thinking about pushing that region of the country back to like a 10% loan expectations my focus is domestic growth and that's the focus of the teams right now and whether we go back to exactly that I do I see more growth coming from our Canadian operations going forward yes so do I see more deploying more RWA in Canada yes. Do I see deploying or growing faster outside of Quebec? Yes. So, yes, I mean, it's hard to predict exactly where the opportunities are going to be. RWE deployment, CreditG right now is a bit on pause because of the credit environment, but we could see if there's dislocation in the market, that could be an opportunity to grow.

Capital markets, volatility comes back we'll deploy more market risk but the mindset is to deploy more domestically that's okay so maybe we touch on that that's an interesting sort of segue into ABA but you know we have seen National Bank and when we published this yesterday you have the highest rate of RWA growth of the big six banks in virtually any timeframe I choose pre-pandemic till today. But a big chunk of that came from ABA. There was a lot of RWA growth there. But now you're saying you're switching the focus to domestic. Is it a function of the environment in Cambodia kind of shifting and slowing the growth?

Or is it really just we want to go full bore in Canada and we're going to tighten the growth? It's both. So there is a credit cycle in Cambodia. There is a slowdown in the economy. The growth perspective for for 2026 are around four percent and long term is roughly seven percent so and you you see if you look at the past three years uh you know we're growing more deposits in cambodia so so that's part of it but there's a shift in in focus uh and and to grow more in canada so that's part of it okay and and so maybe just you know while we're on aba maybe you can touch on credit quality uh in ABA and maybe anything else I mean there's a little bit of geopolitical issues going on over there too so maybe you can just touch on that and let everybody know like is this something we should be thinking about yeah so maybe before I go to ABA maybe just the economy in general so we are going through a credit cycle the economy is is trending at lower potential to roughly four percent like I mentioned I mean is it seven percent full potential or maybe it should be more five or six. Now, having said that, you have one of the countries that has, I would say in the region, the greatest perspective in terms of growth. So that's one. Their exports are up 15% this year in the region. We have a trade deal with the U.S. You know, when you go back to Liberation Day, you know, they were front and center with very high tariffs, and the approach of the government was to sit down with Washington, what do you need, what do you want, let's work out a deal. They have one of the lowest tariffs in the region, at 19%, and in 2025, trade in the country is up 20% with the U.S. So very, very pro-business, execution, get things done, you know, I sat down with the Deputy Prime Minister in October, I met with the Prime Minister last year, Central Bank, you know, regular visit, and they're very serious. You know, you talk about geopolitical and some events, you saw the, you know, articles in the New York Times, you saw the articles in the Wall Street about scam centres and, and the Prince Group, they took things seriously. Sanctions right away, yes, we're going to fix the problem. So I have great confidence in the current government in Cambodia. So real estate is a little slow, and that's part of the reason why we're seeing higher PCL and and you know what what gives me confidence is that you know the market is slower not trading but we're seeing deposits go up significantly so people are saving money in Cambodia now in terms of ABA and credit you know the approach has been to be as prudent as possible right so we've you know we have increase our stage three allowances we're now at you know 20% in terms of coverage for gross impaired loans and then you look at resolution if you look at you know the past resolution about 60% of them have been resolved at zero losses so you know we keep on having you know net charge-offs very very very low look it's it's we've seen a bit of a pickup on the resolution process over the past two quarters but it's still early and and and it is encouraging but early but I have zero concern on on the legal process and the rule of law in Cambodia. So given where we are in a cycle, given the growth prospect, we're going to remain conservative. We think that we're going to see gross-impaired loans remain elevated, and we're going to keep managing prudently like we've done in the past, and there's a point in time where I think we're going to get out of this cycle. Lower rates will help, and, you know, we'll see how things go.

Do you see potential for lower interest rates? Is there any signs that maybe?

Well, yes, and a lot of it's driven by U.S. monetary policy, so yes.

Okay, and, you know, good segue, because the U.S. might be lowering interest rates, and what we saw last year with your business, and in particular with capital markets, there was a lot of, first of all, it was a great year, but there was some good volatility in there too. So I think maybe we can, and what we're hearing, what we've consistently heard from CEOs today is they are expecting a constructive environment for cap markets, but a lot of it out of the U.S. The expectation is for better growth out of the U.S. in cap markets. What's your expectation for your cap markets business and how should we think about 2026 vis-a-vis 2025?

The markets are constructive. The opportunities are definitely there. Now, let's go back to 2025. Exceptional year for capital markets, $2.2 billion in PTPP. That's a 58% growth over 2024. And, you know, exceptional markets, but also we took advantage of major dislocation in the market, specifically in Q2. Our execution there was very good, and so we took advantage of that. So going into 2026, our base case for PTPP in 2026 is a range of $1.8 to $2 billion. So down from 2025. Now, having said that, and I'll stop my remarks on that with this here, is that markets are good and we are seeing opportunities in the market. So yeah, markets are constructive and it's on trading and also on the investment banking Interest rate markets are conducive, credit, DCM is also very active, pipeline is strong. Everyone has probably talked about mines and metals and mining and metals, so all of that is definitely buoyant.

And geographically, is there anything you'd point out?

It's always the same for us. so we we know where to focus so it's a canadian platform niche in the u.s so infrastructure in the u.s investment banking in the u.s uh in in in in you know infrastructure is definitely a place where we can play we do a lot more and i've mentioned this before uh structured products In the U.S., we do a lot more securities lending in the U.S. So, opportunities in North America are there.

It's interesting when you say that, you know, you took advantage of some dislocation last year in the markets and you had a very good trading result. Does anything change for you? I mean, if we have similar volatility, does anything change for you? Or is that simply, you know what, we'll wade right in there and we'll do what we did last year? Is that how we should think about your business?

So that's a very good question. It is not that simple.

I didn't think it was.

It's not that simple.

I had to ask.

And so you position yourself defensively, but then when chaos happens, you have to manage it. And so there's a lot of decisions that have to be taken on a daily basis in figuring out how to position yourself through a chaotic market. So what I will say, and you can go back to March 2020, April 2020, and you look at our results back then in a time where we saw significant market dislocation, we took advantage of that. Now, what I will say about this year, 2025, is that we were well positioned, but our execution was pretty good. And so it's not always perfect, our execution, but you have to know when to rebalance, when not to, when to increase position, when to double down on certain. So experience is a very important part of the result. But look, I think our story on capital markets is we want good markets and we do well in good markets because you know we are active with clients and we we position ourselves such that if there's liquidity crunch volatility we're going to take advantage of that so it's safe to say then that even going into 26 you're still positioned defensively okay

so okay that's uh that's that's great Maybe now we can just sort of dovetail back to capital.

It doesn't sound... Obviously, you have tons of capital, and there's a lot of capital that could be freed up. But I wanted to go back on what you said earlier, which is credit G. And for now, there isn't a lot of RWA growth. There isn't very much. Can you maybe touch on what your expectations would be for that in 2026? And what opens that up? What makes it better?

So, Credigy is under Capital Markets now, and the person responsible for Credigy is also responsible for all capital allocation and liquidity within Capital Markets. I wanted it to be part of that decision process. You know, in Capital Markets, we've got, you know, short-term to medium-term, we've got a little bit more long-term in Credigy. and so I do think that there's an opportunity there to optimize that and take advantage of trades that are more profitable so that's the reason why it's there and so we're starting that work and so yes we're going to see a lot of opportunities to increase margins you know in our capital allocation in in capital markets now in terms of what's going on in the market right now the market is in the US and private credit is too hot right now to deploy capital profitably due diligence contractual framework out the door miss pricing so you know we're we're we're gonna remain true to our approach discipline you know we have market players that are coming up to us and and saying well no you don't you don't need due diligence why are you asking for data sets you know your other competitors are not asking for that well so it's it's it's real it It is extremely frothy, there's too much cash out there, and we're going to remain prudent. So where do we see opportunities is, and I don't know when this happens, but maybe we need equity markets to take a bit of a hit, we need concerns, we need more cockroaches, we need a point in time where there's going to be a bit of a squeeze, and then dislocation, and then we'll be there. But right now, it's too hot. Yeah, and credit spreads are really tight. How long have you seen this behavior? The past six months. The past six months. It's been gradual, but the past six months, and deals are getting done. So it's not that, you know, deals are getting done. So longer-term players, they're, yeah, closing their eyes on due deal, and we're not going to do that.

Okay, let's see what we've got here on questions from the audience. I'm going to go to this iPad here.

Okay. You have to dim those lights, by the way. They're very bright. I keep looking.

So the question that's been upvoted is, would you be interested in tuck-in wealth acquisitions in Quebec, or would your focus be on diversifying the wealth footprint elsewhere? elsewhere.

So, I would be definitely interested in tucking an acquisition. Now, wealth is tricky. I always use this example. In 2012, we bought the wealth platform of HSBC. And when we did that, we put an initial price on the platform, $250 million, but we put a condition. We said, we're going to meet with every single investment advisor, and we're going to ask them if they want to join us or not and we're going to have to you know broker a deal with them and then at close we will decide we will we will know who's joining us and then we'll pay for that and it was 250 million initial bid and we ended up paying only 100 so more than half of the people left so wealth is tricky you have it's it's you have to make sure that there's a strong cultural fit that people want to join you. You're banking advisors. That's what you're banking. And so, yes, we are open to tuck-ins across the country. And sometimes you don't want to buy the whole business. And the reason for that is you want skin in the game. Our approach with ABA, our approach with Credigy was you buy a portion, you want to make sure that the people who built the business are going to stay there, and they're going to keep building that business, but they have to have skin in the game. So, wealth is trickier, and I know everyone wants to buy, I'm sure everyone is interested in buying wealth. So, prices are going to go up too, so you have to be careful there. So, I'm going to be inclined to do a trade much faster when someone knocks on my door than me running after deals.

Now, you started off answering, you said, yes, I'd be interested in tucking, but wealth is tricky. So, where would you be interested in? In wealth? No, just outside of wealth now. Oh, it's PNC and wealth.

That's definitely where I'm interested. Technology as well. across the bank could be capital markets as well. Anything that can lower our cost space?

Interesting on technology. You guys had a write-down of soft intangibles, and I always found that to be a bit odd because my impression was always that you worked with... Like, you outsourced a lot of it, a lot of your tech. You know, unlike some of the bigger banks in Canada that spent in developing their own in-house, I thought you were working with us. I think you work with Flinks now. and so it was interesting that you had that write down we do a lot internally and we're not perfect sometimes we do make mistakes so that was a decision that we took okay another question here from the audience okay so NA avoided restructuring charges and expects CWB cost funding synergies to be realized ahead of plan where do you see opportunities for cost control in 2026

So, the whole bank, PNC, we think PNC is going to be a much better year than 2025 in terms

of cost control.

XCWB?

Now, on costs in general, and this is something that we're working on, we see opportunities in PNC, but mainly in P. So, our retail business is something that we're going to look at carefully over the next couple of months. We have a new head of retail now, Julie Lévesque, who ran technology and operations for us, so she has the mandate to look at our retail business. I'm a big believer that we're gonna see a lot of disruption in retail over the next five years, whether it's you know fintechs, AI, the willingness of our government to increase competition in banking in Canada, which is specifically retail and SME. So it is going to be a big focus for us over the next three years on the cost and I think we have a lot of opportunities for us to be much more efficient.

I don't want to put words in your mouth, so I'm going to just ask this as a follow-on to that. I'm assuming, but I could be very wrong on this assumption, that this has nothing to do with the branch network and everything to do with technology.

It's technology, it's digital onboarding. On the branch network side, it is, to a certain extent, also, yes, it's part of it. We have been reducing our footprint. we've been we have a big portion of our branches in Quebec that are we call them cashless but what it means is that they're not transactional so it's advice you can get cash at the ATM so it is looking at our our branch network and and and you know evolving with it because people don't use branches as much as they used to it is you know another example you know we used to do a lot of multi-channel and development in all the channels focus on the channels that we know where the growth is going to be mobile okay we've hit the stage in the conversation where I get to put my questions down and just hand the floor over to you and ask you Laurent for your key messages that you want investors to take away well thank you very much for this then I remember last year we talked about 2025 it's gonna be a very big year for us so we're very proud of what we are able to execute you know going back February 3rd is when you know that that was our closing day for CWB and this past November all the CWB branches are now national bank branches so the IT conversion is done now we're working with our clients engaging with them and so that's going to be part of the work over the next couple of months you know very happy also with the Laurentian transaction, which was a very complex transaction when you have three parties working on it. So very proud of what our teams were able to execute in 2025, so a very big year for And 26 is going to be another very big year, and that's consolidation, engaging with our clients, all the synergies that we talked about. So, listen, I want a big special thank to our employees because we're doing, in terms of the execution, incredible, and to our shareholders, thank you very much for your support and have a happy new year.

Great. Thank you very much. Appreciate it. Thank you. Thank you very much. Thank you.