The big boss of the National Bank believes that a recession is avoidable, although he believes it is possible to see the Canadian economy record more than one quarter of “slightly negative” growth.
“The risk is there,” said Laurent Ferreira in an interview. “The Bank of Canada is very aware that the rate hikes this year are a shock. However, it will have to change its strategy quickly when it feels that inflation has reached the desired level,” he adds.
“Efforts to achieve a soft landing in Canada are continuing,” said the man who has just completed his first year at the head of the Montreal financial institution.
“Economic indicators are moving in the right direction, which could allow the Bank of Canada to slow the pace of rate hikes so that the key rate peaks in the coming quarters,” says the CEO of the largest bank. Quebec.
The labor market is showing signs of moderation and inflationary pressures are less strong than earlier this year. At this point, growth in the Canadian economy is expected to continue to moderate in 2023.
Laurent Ferreira, CEO of National Bank
Laurent Ferreira anticipates that the Bank of Canada will raise rates again in December and at the start of the year. “We are closely monitoring the impact on consumers and mortgage renewals, but also on our business clients. Rate hikes affect their confidence and their business decisions. We are also monitoring the impact on the labor market. »
He adds that the tightening of monetary policies has as yet unsuspected effects.
“The decision by central banks to no longer buy assets (bonds, loans, etc.) is a very important element affecting risk appetite all over the planet. It affects the liquidity of the products and it will continue to bring volatility to the markets. I believe that the longer-term impact of central bank monetary policies on liquidity and investor psychology is still not fully understood,” he says.
PHOTO PROVIDED BY THE NATIONAL BANK
Laurent Ferreira, CEO of National Bank
“There is still a lot of uncertainty and that is why we have adopted a cautious stance at the Bank. We take care of our reservations. We stay close to our customers to try to understand their behavior and concerns. »
Results below expectations
National Bank unveiled a year-end performance below expectations on Wednesday and the financial institution’s stock spent the day under pressure before closing down 2.5%.
The profits of the largest Quebec bank reached 738 million for the months of August, September and October, the equivalent of a decrease of 4% over one year.
Diluted earnings per share were $2.08 for the quarter, versus analyst consensus of $2.24 per share.
Management argues that its performance was offset by higher credit loss provisions due to a deteriorating macroeconomic outlook as reversals of credit loss provisions were recorded in the same period last year in a more favorable macroeconomic context.
“On the face of it, it was a tough quarter overall for National Bank,” said analyst Mike Rizvanovic of Keefe, Bruyette & Woods.
Weakness was observed in the results of the financial markets sector, as this segment of the business had performed better than that of the other banks in recent quarters.
The financial markets sector generated net income of 205 million in the fourth quarter, down 27% from the previous quarter and 14% year on year.
RBC analyst Darko Miheli expected the sector to bring in $268 million in the quarter.
The Bank’s trading activities notably generated significant losses on one day in particular during the quarter.
These losses are mainly related to positions in the pound sterling.
Senior Executive Vice-President and Co-Head of Financial Markets Denis Girouard explains that the tax measures presented in the British budget at the end of September in the United Kingdom took the financial community by surprise.
A period of high volatility in the bond and currency markets followed. During this period, certain positions of the bank which were intended to cover the needs of customers suffered a loss.
“The market dislocation affected us at that time. There was a lot of action,” said Denis Girouard during the conference call with analysts.
The Bank’s quarterly dividend is also increased by 5%, or 5 cents, to increase to 97 cents per share.
For the full fiscal year 2022, the Bank’s profits increased by 8%, to 3.38 billion.