The expectations of the National Bank were so high that even a 23% dividend bonus and a substantial increase in profits failed to satisfy investors. The valuation of the bank’s action in recent months had also appreciated in anticipation of major announcements.
The title of the largest banking institution in Quebec fell 3.5% Wednesday to close at $ 95.84 in Toronto. This is the largest drop in the title in one session this year. The stock has now lost around ten dollars since its peak of $ 106 reached on November 22, but remains up nearly 35% this year nonetheless.
In addition to a 23% increase in the dividend, management has revealed its intention to buy back for cancellation up to 2% of its shares, or 7 million shares.
The Royal Bank for its part announced Wednesday that it raised its dividend by 11%, which Scotia had also announced the day before.
“We kept a little embarrassment”
“As I expected, of all the banks that have presented their results so far, the National is the one that announced the largest increase in its dividend,” said analyst Darko Mihelic, at RBC.
His comrade Scott Chan, at Canaccord, recalls for his part that he expected the Nationale to announce dividend growth above 30%.
“We may have kept a little embarrassment, but we are very comfortable with the announced increase,” said the new CEO Laurent Ferreira in an interview.
Laurent Ferreira officially took over from Louis Vachon at the head of the bank in early November with certainly some pressure as he watched the title surge during the pandemic.
PHOTO PROVIDED BY THE NATIONAL BANK
Laurent Ferreira, new CEO of the National Bank
“I would rather be in this situation with a solid foundation than the other way around,” he says. I am comfortable with the bank’s positioning and we will work hard to make it grow. ”
Regarding the reaction of investors on Wednesday, he judges that expectations were perhaps higher towards the National Bank than towards the other banks. There could also be more short-term investors in the shareholding, he said. “You have to wait until the results season is over to form an opinion,” he said.
Laurent Ferreira sees the economic recovery in a positive light despite the recent appearance of the Omicron variant. “We are seeing good momentum in all of our business lines. However, the two sources of uncertainty that we see in our scenarios are variants and inflation. We remain cautious. It is not known how a variant will react in the vaccinated and unvaccinated population. ”
Laurent Ferreira expects profit growth for the bank of around 5% for 2022 and intends to lead the bank in a spirit of continuity by focusing in particular on the momentum of the organization in the commercial sector and in wealth management. .
Rising profits
The profits of the National Bank amounted to 776 million for the months of August, September and October, the equivalent of an increase of 58% compared to the same period last year.
On an adjusted basis, earnings per share of $ 2.21 turned out to be lower than analyst consensus, which hovered around $ 2.24 per share. “Mainly due to lower income and higher expenses than anticipated,” says Scott Chan.
For fiscal year 2021, National’s profits reached 3.2 billion, up 53% from the previous fiscal year.
The dividend hike announcements by Canadian banks come after the Superintendent of Financial Institutions signaled to financial institutions across the country this fall that they can once again raise ordinary dividends and buy back stocks.
Due to the challenges posed by the pandemic and the economic climate, the Office of the Superintendent of Financial Institutions called on financial institutions in March last year to halt the increase in dividends, share buybacks and hike in employee compensation. leaders.