DBRS Confirms National Bank at AA (low) and R-1 (middle)

DBRS has today confirmed the ratings of National Bank of Canada (National or the Bank), as listed below, including its Deposits & Senior Debt at AA (low) and Short-Term Instruments at R-1 (middle). All trends remain Stable.

National continues to maintain its strong regional franchise in Québec, with particular emphasis on its retail, small business and commercial banking units and wealth management businesses. While strong market shares in the home province remain a key strength of the Bank, the ratings reflect the Bank’s regional concentration in Québec, which accounted for 69% of the loan portfolio at July 31, 2012.

National has been active in the acquisition area with the purchase of Wellington West Holdings Inc. (Wellington West) finalized in July 2011, with the Bank later selling the mutual fund group of Wellington West to Manulife Financial Corp., and the acquisition of the full service investment advisory business of HSBC Securities (Canada) Inc. completed on January 1, 2012. Both acquisitions stand to improve the Bank’s geographic diversification and scale outside of Québec. With the acquisitions of Wellington West and the full-service brokerage of HSBC, the distribution of global Wealth Management revenues is now 55% sourced form Québec with the remaining 45% being sourced outside of the province. Similarly the Financial Markets division now stands to generate approximately 65% of revenue outside of Québec following the recent acquisitions, representing a further geographic dispersion of revenue in a division that has historically been the most geographically diversified across Canada.

National’s asset quality metrics, with respect to its lending operation, outperformed most of its peers through the recession and continue to do so. National’s capital metrics have declined slightly over the first nine months of 2012 largely as a result of the application of IFRS, increased risk-weighted assets driven by organic loan growth and the acquisition of a 35% interest in Fiera Capital Corporation. However, the Bank’s tangible common equity and Tier 1 ratios still remain within the middle of the Canadian bank peer group and compare favourably relative to international peers, at 9.5% and 12.7%, respectively.

National’s long-term deposits and senior debt rating at AA (low) is composed of an Intrinsic Assessment of A (high) and a Support Assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada), which results in a one notch increase from the Intrinsic Assessment to the Issuer Rating, Deposits and Senior Debt and Subordinated Debt ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (June 2012), DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website under methodologies.

DBRS ratings for NBC Capital Trust and NBC Asset Trust are based on ratings for National Bank of Canada.

The sources of information used for this rating include information provided by National Bank of Canada, Investment Funds Institute of Canada, Bank for International Settlements, Office of the Superintendent of Financial Institutions Canada and Bloomberg. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see Banks and Banking Organisations Linking Document by clicking the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

National Bank of Canada’s Cumulative Preferred Shares are notional, none outstanding.

Lead Analyst: John van Boxmeer
Rating Committee Chair: Brenda Lum
Initial Rating Date: March 31, 1981
Most Recent Rating Update: October 20, 2011