December 1, 2010 / 7:03 PM / 7 years ago

UPDATE 2-Canada bank shares rise on National Bank results

* Shares of Canada’s No. 6 bank rises 2.9 pct

* Ups dividend by 6.5 pct, earlier than some had expected

* Profits tops estimates, boost other bank shares (Updates shares to close)

By Cameron French

TORONTO, Dec 1 (Reuters) - National Bank of Canada (NA.TO) shares rose 2.9 percent to touch a record high on Wednesday after the bank reported a surprisingly strong quarterly profit and raised its dividend for the first time in three years.

The bank’s 19 percent profit gain also gave a modest lift to shares of Canada’s other big banks, most of whom report results over the next two days.

The dividend hike -- the bank raised its quarterly payout by 4 Canadian cents to 66 Canadian cents -- makes National the first major Canadian lender to resume dividend increases in the wake of the financial crisis.

Canada’s banking regulator recently gave the all-clear to the banks to resume big capital payouts such as dividend hikes following a virtual two-year ban, but some analysts had expected the bank to wait before making the move.

“We expected National Bank would be among the first to raise its dividend but we were expecting an increase in (first quarter 2011),” RBC Capital Markets analyst Andre-Philippe Hardy said in a research note.

National’s shares rose C$1.98 to C$69.82 after touching a record high of C$70.09 earlier in the day.

The dividend increase puts National’s payout ratio -- the percentage of profit the bank commits to dividends -- around the bottom end of its traditional 40-50 percent target range.

Patricia Curadeau-Grou, the bank’s chief financial officer, said National wasn’t changing the target, but would exercise restraint for the next few months until the impact of new Basel III bank regulations becomes clear.

“We’re going to keep it in the (bottom end) for the percentage” until the bank gets a better sense of its own profitability and the economic landscape, she told Reuters.

“There’s different uncertainties right now, but you have to give us some time to confirm what our plan is for the ongoing increase in dividends.”

Other big Canadian banks are widely expected to wait until next year to begin raising their payouts, although tiny Canadian Western Bank (CWB.TO) has said it could make a move when it reports next week.

STRONG PROFIT LIFTS SECTOR

National Bank’s profit, excluding items, was C$1.63 a share in the quarter ended Oct. 31, it said late on Tuesday.

That topped analysts’ expectations for a profit of C$1.57 a share, and gave a small boost to the shares of other Canadian banks as investors hoped for similar results.

“It could at least foreshadow that we’re going to have a reasonable result from the banks this quarter,” said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.

The Toronto Stock Exchange’s S&P/TSX financials index .SPTTFS rose 1.7 percent on Wednesday, and was among the strongest sectors on the market.

Canadian Imperial Bank of Commerce (CM.TO) and Toronto-Dominion Bank (TD.TO) will report quarterly results on Thursday, followed by Royal Bank of Canada (RY.TO) and Bank of Nova Scotia (BNS.TO) on Friday. Bank of Montreal (BMO.TO) will release its results next week.

On a conference call to discuss the results, National Bank Chief Executive Louis Vachon said the bank aims to generate growth outside its home province of Quebec, and will seek acquisitions on the wealth management side of its business.

Other Canadian banks and insurers have also been trying to raise their wealth management presence as the business offers stronger profit growth than retail banking, but less risk than wholesale banking.

National is also restructuring its financial markets division to focus on equity sales to mid-cap miners and energy producers.

The overhaul, which prompted the bank to cut 37 jobs, is not related to any pending acquisitions, Curadeau-Grou said.

$1=$1.02 Canadian Reporting by Cameron French; editing by Peter Galloway

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