Thursday, January 31, 2008

National Bank - Investor Day

National Bank Investor Day Summary

• National Bank (NA) held an Investor Day in Toronto on January 30, 2008. Presentations were made by Louis Vachon, CEO, as well as the head of each of National Bank's business segments, namely Personal and Commercial Banking, Wealth Management and Financial Markets. Risk Management was also addressed in a separate presentation.

• Listed below are key takeaways from the presentation.

New Client Centric Strategy - Focus on Cross-Selling

• National Bank unveiled its new bank-wide strategy of becoming a more client centric bank. Management plans to shift the focus from selling products to servicing its clients and taking advantage of cross-selling activities across segments for a bigger share of wallet.

• NA has outlined four key areas where it will focus its efforts to ensure the change in strategy is successful: technology, culture, organization and market and client knowledge.

• Some of the initiatives that have already been taken include adjusting compensation and outlining expectations to take cross-selling goals into account, changing the bank's motto to "One client, One bank" to help create a new culture within the bank, and attempting to better integrate technology platforms across different business segments.

NA Addresses Recession Concerns - Believes Quebec Economy is Solid

• NA attempted to address concerns of a U.S. recession by assessing the risk-profile of the Quebec economy. Management identified that the industries with heavy exposure to the U.S. economy such as manufacturing and transportation & warehousing have declined as a percentage of the overall economy by 6% to 18% in 2007 from 24% in 2000. Also, exports as of 2006 were more concentrated in high-tech sectors and less in automotive and Quebec manufacturing insolvencies have been declining despite a sharp increase in the Canadian dollar.

ABCP Update - More Granularity

• Mr. Vachon indicated that he believed the level of the non-bank ABCP provision taken in Q4/07 was extremely conservative and only two scenarios would cause the bank to take additional charges; if the U.S. were to go into a severe recession or if there was a disorderly sale of non-bank ABCP conduits. Neither scenario is believed to be extremely likely.

• NA reaffirmed that there are fewer than 100 clients holding the non-bank ABCP and that liquidity lines of $580 million have been extended to these clients but only 1/5th of the value has been drawn down.

• NA confirmed that its holdings of non-bank ABCP with U.S. sub-prime exposure are not disproportionately higher than the industry which is less than 10%.

NA Maintains Positive Outlook for 2008

• NA remains comfortable with its previous earnings growth estimate of 3%-8% for 2008; however, management recognizes that the majority of growth may occur in the second half of the year. NA also outlined a longer term three to five year growth rate of 5%-10%. Our 2008 earnings estimate of $5.60 per share represents a 1% decline in earnings from 2007. We remain concerned about NA's high reliance on high risk wholesale banking and its concentration in Central Canada.

• Maintain 2-Sector Perform.