May 29, 2008 / 3:00 PM / in 10 years

Canada's National Bank reels in growth targets

TORONTO (Reuters) - National Bank of Canada (NA.TO) said on Thursday it is unlikely to meet its growth targets for fiscal 2008, given market conditions it described as some of the worst it had seen in 20 years.

National Bank said it would not meet its earnings per share growth target of between 3 percent and 8 percent, joining other domestic banks that have lowered their earnings growth targets for fiscal 2008 amid unfavorable market conditions.

On a conference call to discuss the bank’s 29 percent drop in second-quarter profit, Chief Executive Louis Vachon called February and March two of the most difficult months of the past two decades for financial services around the globe.

Not only did National battle with deteriorating credit market conditions, it also took losses tied to its asset-backed commercial paper portfolio.

“We are reviewing our objectives on a quarterly basis, given the volatile market conditions currently prevailing,” said Vachon.

“Given the ABCP-related charges and current market environment we are unlikely to meet our previously announced earning per share growth target range of 3 to 8 percent.”

Other Canadian banks that said this week they were unlikely to meet previously announced growth targets for the fiscal year include Bank of Nova Scotia (BNS.TO), Toronto-Dominion Bank (TD.TO) and Bank of Montreal (BMO.TO).

National Bank said second-quarter profit was hit by a loss of C$73 million (C$49 million after taxes), or 31 Canadian cents a share, related to hedges for its ABCP portfolio. It also said it does not expect any further material impact related to these hedges.

National Bank, which has the largest exposure of Canada’s big six lenders to the country’s non-bank asset-backed commercial paper market, said it remains confident that a plan to restructure that seized-up market will be accepted and implemented in the next few months.

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 restructuring plan for this part of the Canadian market has already been approved by 96 percent of noteholders but a court ruling on the plan is still pending.


Losses related to National Bank’s ABCP portfolio dragged net income down to C$165 million ($167 million), or C$1.00 a share, for the quarter ended April 30, from a profit of C$233 million, or C$1.40 a share, a year earlier.

Excluding items, National Bank said it had a net profit of C$229 million, or C$1.41 a share, up from a profit of C$233 million, or C$1.40 a share, in the year-before period.

Analysts had expected a profit of C$1.31 a share, according to those surveyed by Reuters Estimates.

The bank said its personal and commercial banking division had a profit of C$113 million, up from C$112 million, as revenue in that segment rose 2 percent to C$534 million.

The division’s loan-loss provisions for credit losses rose 28.6 percent to C$45 million, due mainly to higher credit losses for commercial banking.

National also said that profit at its wealth management segment dropped 2 percent to C$44 million as difficult market conditions brought on a slowdown in securities brokerage activities and cut revenue 8.6 percent to C$213 million.

The bank’s financial markets division saw profit slide 10 percent to C$80 million. Revenue fell 14 percent to C$279 million, due mainly to a drop in trading revenues from equity and fixed-income securities transactions.

Shares of National Bank, up 1.7 percent in 2008, were up 78 Canadian cents, or 1.6 percent, at C$53.18 by late afternoon on the Toronto Stock Exchange.

($1=$0.99 Canadian)

Reporting by Frank Pingue; editing by Rob Wilson

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