February 28, 2008 / 1:45 PM / 10 years ago

UPDATE 2-Canada's ABCP market fix on track - National Bank

(Recasts with comments from conference call, analysts)

By Nicole Mordant and Lynne Olver

VANCOUVER/TORONTO, Feb 28 (Reuters) - First-quarter profit at National Bank of Canada (NA.TO) rose 6 percent, the country’s sixth biggest bank said on Thursday, as it tried to allay ongoing concerns about the repair job being done on a troubled corner of the money market.

Officials at the bank, which has the largest exposure of Canada’s big six lenders to the country’s non-bank asset-backed commercial paper market, said the restructuring of that seized-up market is progressing well and that a margin call and trading standstill agreement is still in force.

“We are getting much closer to execution and documentation and obviously that creates more complexity... But all parties are fully engaged and we are very confident that the process will reach a successful conclusion,” said Ricardo Pascoe, Co-President and Co-Chief Executive of National Bank Financial.

A standstill agreement, freezing trading in and collateral calls on ABCP securities issued by groups other than Canada’s big banks, expired on Feb. 22.

Market watchers expected an announcement from the committee leading the market restructuring but none has come. This has raised concerns that the repair is in danger, especially after news this week of a collateral call on a Canadian ABCP trust, albeit one that doesn’t fall under this restructure.

“We are still operating under a standstill. There have been no collateral calls,” said Pascoe, who is a member of the market fix-it committee.

Canada’s non-bank ABCP ran into trouble last August when investors stopped buying the paper on fears its underlying holdings were exposed to U.S. subprime mortgages. A committee of investors was hastily put together to try to prevent the market from going into default. It is expected to finish its work at the end of March.

National Bank said earlier on Thursday that it has not made any change to the carrying value of the ABCP it holds, which it valued at C$1.71 billion at Jan. 31.

Bank CEO Louis Vachon repeated that he doesn’t expect National to take further writedowns on the paper unless there is a severe U.S. recession or a disorderly liquidation of the ABCP conduits, neither of which he anticipates.

Earlier, National Bank reported net income of C$255 million ($263 million), or C$1.58 per share, for the three months ended Jan. 31, up from C$240 million, or C$1.43 a share, in the same period a year earlier.

Excluding certain items, including a gain on the sale of operations in Bahamas, net income fell 1 percent to C$237 million, or C$1.46 a share.

Once adjustments are made for a few other items, the earnings were slightly better than analyst expectations of C$1.39 per share, according to Reuters Estimates.

National Bank’s shares were down 30 Canadian cents at C$50.80 on the Toronto Stock Exchange on Thursday afternoon, less than its peers.

The retail operations of the regional bank, which is a key lender in the province of Quebec, performed “pretty well”, said Edward Jones analyst Craig Fehr.

But looking ahead, he and others noted a headwind for National.

“More than any other bank, they are going to be negatively affected by the slowdown that we see out of the capital markets business,” Fehr said.

National also announced the appointment of Rejean Levesque as head of its personal and commercial banking unit. Levesque, who starts his job immediately, has been with the bank since 1988 in various retail and operations-type positions.

$1=$0.97 Canadian Additional reporting by Allan Dowd; editing by Rob Wilson

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