01 December 2010

National Bank Q4 2010 Earnings

Scotia Capital, 2 December 2010

Q4/10 Strong Earnings - 6.5% Dividend Increase

• NA reported a 17% increase in operating EPS to $1.63 in line with our estimate but above consensus of $1.57. NA announced a 6.5% annual dividend increase to $2.64, slightly below our 10% increase estimate.


• Earnings were driven by strong retail earnings, which increased 34% YOY and Wealth Management, which was up 27% YOY, offsetting a 19% decline in Financial Markets earnings, although Financial Markets rebounded 21% from a very weak Q3/10.

• Bank earnings growth was driven by volume growth of 5% YOY, revenue growth of 2%, with expenses declining 1% for positive operating leverage of 3%. Earnings quality was relatively high with modest reliance on security and securitization gains and trading revenue. Operating ROE was 17.5%.


• Our 2011E EPS is unchanged at $6.80. We are introducing our 2012E EPS at $7.50. We are increasing our one-year share price target to $82 from $77 as strong earnings, dividend increase, and high capital levels are supportive of higher absolute and relative valuations. We reiterate our 1-Sector Outperform rating.