Friday, February 25, 2011

National Bank Q1 2011 Earnings

  
Scotia Capital, 25 February 2011

• NA cash operating earnings increased 16% YOY to $1.80 per share above expectations.

• Operating ROE: 19.0%, RRWA: 2.37% Tier 1 Capital: 14.6%.

Implications

• Earnings were driven by strong Retail and Wealth Management earnings and higher security gains. Volume growth was strong at 7% with revenue growth of 7% and expenses increasing 4% for positive operating leverage of 3%.

• Wealth Management earnings increased 91% with Retail earnings increasing 15%, offsetting a 5% decline in Financial Markets earnings.

• The bank disclosed its Basel III Tier 1 Common ratio at 8.1%, exceeding minimum 2019 requirement of 7%, extremely positive.

• NA dividend payout ratio of 38% on our 2011 earnings estimate is below its target range of 40%-50%.

Recommendation

• We are increasing our 2011 and 2012 earnings estimates to $7.00 and $7.70 from $6.80 and $7.50 due to strong earnings from wealth and improving retail. One-year target is unchanged at $90. We maintain our 1-SO rating.
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