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 as well as its wealth management business and national financial markets franchise. 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.

National delivered strong earnings growth in its Wealth Management and Financial Markets units in the first six months of 2013, as the Bank has begun to reap the benefits of a greater national presence outside of its core Québec market. National is leveraging the interprovincial acquisitions it has made over the past few years to establish a broader domestic presence in Wealth Management and Financial Markets.

National’s efficiency ratio (operating expenses over operating revenue) continues to sit above the average of its peer group, partly as a result of the high cost structure in the Bank’s Wealth Management segment. Given the number of acquisitions undertaken in Wealth Management over the past five years, most recently the acquisitions in 2012 of HSBC Securities (Canada) Inc. and Wellington West Holdings Inc., the Bank will now have to focus on aligning the different pieces of the business unit. The broader domestic presence of the Wealth Management segment and the alignment of the different pieces of the business should create the potential for the Bank to lower the expense base of the operating segment.

DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.

National’s Deposits & Senior Debt rating of 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 and the Deposits & Senior Debt and Subordinated Debt ratings.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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 the 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 12, 2012