For the next session, I've been asked to tell you that Laurent Ferreira's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections, or conclusions in these statements. Listeners can find additional details in the public filings of the National Bank of Canada. Laurent, welcome to the stage. Thank you for coming.
Thank you very much for having me. Happy New Year.
You know, most of the day I've been just sort of diving directly into bank-specific things and not touching on too much macro. But I think in this instance, as I did with the very first meeting, I think I want to touch on macro because you do have a particular vantage point, and now that vantage point sort of expanded into Western Canada, so maybe, you know, with you being a dominant player in Quebec and now an emerging player in Western Canada, I thought maybe you could talk on some of the macro, maybe some of the disparities you're seeing, and how we should think about 2026, you know, with the trade uncertainty and even political uncertainty. I'll just leave it wide open and ask you to comment on the macro that you're seeing.
Absolutely. Look, the environment in 2025 brought a lot of uncertainty on, you know, the trade war that our friends in the South just started. You know, GDP potential, labor market that's, you know, definitely more fragile, consumer confidence. I would say the most concerning thing and the theme across the country is really business investments that are on pause and just this hesitation to invest in Canada. So that's, I think, the biggest concern I have right now with the macro environment. Having said that, you know, it has been resilient, and I just heard Daryl talked about it. I think we're all surprised at this point in time to see how the Canadian economy has been resilient.
But the most important thing that we need to do, and, you know, I've said this in the past, is with what's going on in the world, geopolitics are at our doorstep. National security is, I think, one of the most important priorities of our country. You know, I think the priorities that are set right now by Ottawa in terms of nation-building, reindustrialization, defense spending, those things are so important right now for our country. And I think we need to speed up. I think, you know, any kind of opposition, whether it's ideology, whether it's bureaucracy, to that is not a good thing for our country. We are in a state of, you know, the world is, you know, economic war is how I would basically summarize what's going on in the world right now, entwined geopolitics into this. And we're part of this.
And if we want to be part of the new world order, we need to speed this up. Now, looking at Canada and looking at what we have, I'm betting on Canada. I like the fact that Ottawa has shifted. We need to work together, the governments, the business sector, the, you know, indigenous communities also. And we need to speed up our decisions on what we need to do. And we have so much to offer, right? Natural resources, energy, engineering and manufacturing know-how, aerospace, naval, so building, you know, supply chain and critical mineral. We have steel, we have aluminum. So I think we are in a really good spot with what's going on in the world. And we just need to now speed it up. You know, the events this weekend as well, just all these things, I think, should play into our decision process.
So I like where we're going right now. I like what I'm hearing in Ottawa. I like the direction that the budget is taking. The MoU with Alberta is good. We just need to sit down and all work together.
What about trade barriers, interprovincial ones? You know.
That's a good one.
I was thinking about you specifically, you know, in Quebec and now Western Canada. How do you view that?
We need to do more. We need to do more. We need to do more there. We need to, you know, address, and, you know, it takes work, so it's not just, it's really understanding what could help us and trigger more growth. So there was this, you know, spike in May last year where everyone got together and let's work on that. It feels like it's died down a bit, but so we need to go there, but on trade, we obviously need, we need an agreement with our greatest ally quickly as well to resolve all that.
Okay, so let's shift back now the focus to your bank specifically. One of the things that you've been a little bit vocal on, I would say recently, last couple of quarters, is about your ROE target and sort of getting there. I'd love to hear a little bit more about timing of getting there as well as how you get there, and, you know, I had this discussion earlier today. Is there a lot of the denominator effect built into that 17% ROE target?
So 15% approximately for 2026. And our target for 2027 is 17 plus. Now, very high level, roughly half-half, denominator and numerator. So on capital deployment, it's, you know, so CWB, we're going to have the AIRB conversion this year. So that's one thing. We have the Laurentian Bank portfolio that's going to cost us 25 basis points. The, you know, share buybacks are part of it, but we're not dogmatic about share buybacks. It is part of the solution, but we always will favor organic growth. We will always favor strategic tuck-ins that are accretive, like the Laurentian Bank one. You know, on the Q3 call, I was asked about, you know, why aren't you buying back more shares? And we had, obviously, the Laurentian Bank transaction in the back of our mind, 25 basis points. But having said that, we have a very strong capital position.
Our capital generation is greater than our capital consumption in general. We have the benefits of AIRB coming. So we are active in our current NCIB. We have bought back approximately 50% of our eight million shares. So there's a very high probability, and, you know, I think it's fair to assume that we are going to renew and increase that before year-end 2026, given all the benefits in our current capital position. But again, you know, the way we view buybacks is they're a complement. We want to remain agile, flexible, depending on opportunities. How do we, you know, position ourselves? But they are obviously part.
Okay, that's a great answer, I think, to help me understand the sort of denominator effect. Now let's sort of switch our focus to the numerator and think about, you know, improving the ROE. Now, one of the things that we saw from your bank was sort of PCL guidance in 2026. It's more or less the same as 2025.
It is the same.
So is there a lot of PCL improvement built into getting to the 2027?
No. So on the P&L side, first, it's CWB. So you have 270 million of cost and funding synergies that are going to be at target in 2027. You have revenue synergies, so 2026, approximately 50 million, but we expect, you know, 2027 to be a big year. So there's a CWB component. And then there's organic growth. So it's, you know, wealth, capital markets that we see tons of opportunity over the next couple of years to keep growing the franchise at superior returns. P&C beyond CWB synergies will contribute as well. And our growth outside of Quebec is going to accelerate starting second half of 2026 and into 2027. And, you know, we're seeing some credit improvement in 2026, 2027, but it's a bit early. So we're not banking on, you know, PCLs being much lower in our ROE target.
Okay, so let's unpack a little bit of that. That's interesting on the PCL side being a very small component, if any, to the improvement. So let's.
If we go back to our range of 2025, you know, our impaireds were 28. So going back to our range will be, you know, five to eight basis points lower. So it's.
Okay. The revenue synergies at CWB.
Yes.
Very interesting number. They seemed high to me. Can you maybe unpack them a little bit? And what's the more immediate opportunity there?
They seem high. I mean, CWB, the thesis behind CWB was growth, and yes, there are, you know, cost synergies, but, you know, the reason why we acquired CWB is to grow outside of Quebec, and so revenue synergies is a big part of that. So look, 2026, it's mainly going to be fees with commercial clients and second half of the year, and then we see, you know, doing, like CWB has a decent platform now, so much larger balance sheet, capital funding, much more competitive, and so we're able to do a lot more with existing clients. We're able to attract new clients. A lot of products like, you know, cash management, deposit, swaps, foreign exchange, advisory, all these things were not part of the product suite of CWB, so initially, more fees.
Then, you know, 2027, 2028, more NII, I would say, and growth of the balance sheet. That term, you know, 2028, we see about two-thirds coming from commercial clients and two-thirds coming from NII, one-third from fees. In fees, I include fees with commercial clients, growing wealth, and retail.
Okay. I got to think about that and conceptualize it. I mean, I think one of the things that's, I covered CWB for a very long time. And that bank had historically had, I want to say, 10% sort of asset or loan growth aspirations for like as long as I can remember. Now, obviously, the environment matters, but is that something that we should, you know, you say two-thirds of it being NII in 2028. So it's really going to be a lot of growth and maybe a wider spread because of funding. But are you thinking about pushing that region of the country back to like a 10% loan expectation?
My focus is domestic growth. And that's the focus of the teams right now. And whether we go back to exactly that, do I see more growth coming from our Canadian operations going forward? Yes. So do I see more deploying more RWA in Canada? Yes. Do I see deploying or growing faster outside of Quebec? Yes. So yes, I mean, we're, you know, it's hard to predict exactly where the opportunities are going to be. You know, RWA deployment, U.S. credit right now is a bit on pause because of the credit environment, but we could see, you know, if there's a dislocation in the market, that could be an opportunity to grow. Capital markets, you know, volatility comes back, we'll deploy more market risk. But the mindset is to deploy more domestically.
Okay, so maybe we'll touch on that. That's an interesting sort of segue into ABA, but, you know, we have seen National Bank, I mean, we published this yesterday, you have the highest rate of RWA growth of the big six banks in virtually any timeframe I choose pre-pandemic till today. But a big chunk of that came from ABA. There was a lot of RWA growth there. But now you're saying you're switching the focus to domestic. Is it a function of the environment in Cambodia kind of shifting and slowing the growth? Or is it really just we want to go full bore in Canada and we're going to tighten the growth?
It's both. So there is a credit cycle in Cambodia. There is a slowdown in the economy. The, you know, growth perspective for 2026 is around 4% and long-term is roughly 7%. So, and if you look at the past three years, you know, we're growing more deposits in Cambodia. So that's part of it. But there's a shift in focus and to grow more in Canada. So that's part of it.
Okay. And so maybe just, you know, while we're on ABA, maybe you can touch on credit quality in ABA and maybe anything else. I mean, there's a little bit of geopolitical issues going on over there too. So maybe you can just touch on that and let everybody know, like, is this something we should be thinking about?
Yeah, so maybe before I go to ABA, maybe just the economy in general. So we are going through a credit cycle. The economy is trending at lower potential, roughly 4%, like I mentioned. I mean, is it 7% full potential or maybe it should be more 5% or 6%? Now, having said that, you have one of the countries that has, you know, I would say in the region, the greatest perspective in terms of growth. So that's one. Their exports are up 15% this year in the region. We have a trade deal with the U.S. You know, when you go back to Liberation Day, you know, they were front and center with very high tariffs. And the approach of the government was to sit down with Washington, what do you need, what do you want, let's work out a deal.
They have one of the lowest tariffs in the region at 19%, and in 2025, trade in the country is up 20% with the U.S. So very, very pro-business, execution, get things done. You know, I sat down with the Deputy Prime Minister in October. I met with the Prime Minister last year, Central Bank, you know, regular visit. And they're very serious. You know, you talk about geopolitical and some events. You saw the, you know, articles in the New York Times. You saw the articles in the Wall Street about scam centers and, you know, the Prince Group. They took things seriously, right? Sanctions right away. Yes, we're going to fix the problem. So I have great confidence in the current government in Cambodia. So real estate is a little slow. And that's part of the reason why, you know, we're seeing, you know, higher PCL.
You know, what gives me confidence is that, you know, the market is slower, not trading, but we're seeing deposits go up significantly. So people are saving money in Cambodia. Now, in terms of ABA and credit, you know, the approach has been to be as prudent as possible. So we've, you know, we have increased our stage three allowances. We're now at, you know, 20% in terms of coverage for gross impaired loans. And then you look at resolution, if you look at the, you know, past resolution, about 60% of them have been resolved at zero losses. So, you know, we keep on having, you know, net charge-offs very, very, very low. Look, we've seen a bit of a pickup on the resolution process over the past two quarters. But it's still early. It is encouraging, but early.
But I have zero concern on the legal process and the rule of law in Cambodia. So look, given where we are in the cycle, given the growth prospect, we're going to remain conservative. We think that, you know, we're going to see, you know, gross impaired loans, you know, remain elevated. And, you know, we're going to keep managing prudently like we've done in the past. And there's a point in time where I think we're going to get out of this cycle. Lower rates will help. And, you know, we'll see how things go.
Do you see potential for lower interest rates? Is there any signs that maybe?
Yes. A lot of it is driven by U.S. monetary policy. Yes.
Okay, and you know, good segue because the U.S. might be lowering interest rates, and what we saw last year with your business, and in particular with capital markets, there was a lot of, first of all, it was a great year, but there was some good volatility in there too, so I think maybe we can, and what we're hearing, what we've consistently heard from CEOs today is they are expecting a constructive environment for cap markets, but a lot of it out of the U.S. The expectation is for better growth out of the U.S. and cap markets. What's your expectation for your cap markets business and how should we think about 2026? These are 2025.
The markets are constructive. I think opportunities are definitely there. Now let's go back to 2025. Exceptional year for capital markets, CAD 2.2 billion in PTPP. That's a 58% growth over 2024. And, you know, exceptional markets, but also, you know, we took advantage of major dislocation in the market, specifically in Q2. Our execution there was, you know, very good. And so we took advantage of that. So going into 2026, our base case for PTPP in 2026 is a range of CAD 1.8 billion-CAD 2 billion.
So down from 2025. Now, having said that, and I'll, you know, stop my remarks on that with this here is that markets are good. And we are seeing opportunities in the market. So yeah, markets are constructive. And it's on trading and also on the investment banking side. Interest rate markets are conducive. Credit DCM is also very active. Pipeline is strong.
You know, everyone has probably talked about mines and metals and mining and metals. So all of that is definitely buoyant.
And geographically, is there anything you'd point out?
It's always the same for us. So we know where to focus. So it's a Canadian platform, niche in the U.S. So infrastructure in the U.S., investment banking in the U.S. In, you know, infrastructure is definitely a place where we can play. We do a lot more, and I've mentioned this before, structured products in the U.S. We do a lot more securities lending in the U.S. So opportunities in North America are there.
It's interesting when you say that, you know, you took advantage of some dislocation last year in the markets and you had a very good trading result. Does anything change for you? I mean, if we have similar volatility, does anything change for you? Or is that simply, you know what, we'll wade right in there and we'll do what we did last year? Is that how we should think about your business?
So that's a very good question. It is not that simple.
I didn't think it was.
It's not that simple.
I had to ask.
And so you position yourself defensively, but then when chaos happens, you have to manage it. And so there's a lot of decisions that have to be taken on a daily basis and figuring out how to position yourself through a chaotic market. So what I will say, and you can go back to March 2020, April 2020, and you look at our results back then in, you know, time where we saw, you know, significant market dislocation. We took advantage of that. Now, what I will say about this year, 2025, is that we were well positioned, but our execution was pretty good. And so it's not always perfect, our execution, but you have to know when to rebalance, when not to, when to, you know, increase position, when to double down on certain. So experience is a very important part, you know, of the result.
But look, I think, you know, our story on capital markets is we want good markets and we do well in good markets because, you know, we are active with clients. And we position ourselves such that if there's liquidity crunch, volatility, we're going to take advantage of that.
So it's safe to say then that even going into 2026, you're still positioned defensively.
Mm-hmm.
Okay.
Yes.
All right. So, okay. That's great. Maybe now we can just sort of dovetail back to capital. It doesn't sound, obviously you have tons of capital and there's a lot of, you know, capital that could be freed up. But I wanted to go back on what you said earlier, which is Credigy. And for now, there isn't a lot of RWA growth. There isn't very much. Can you maybe touch on what your expectations would be for that in 2026? And what opens that up? What makes it better?
So Credigy is under capital markets now. And the person responsible for Credigy is also responsible for all capital allocation and liquidity within capital markets. I wanted it to be part of that decision process. You know, in capital markets, we've got, you know, short-term to medium-term. We've got a little bit more long-term in Credigy. And so I do think that there's an opportunity there to optimize that and take advantage of trades that are more profitable. So that's the reason why it's there. And so we're starting that work. And so yes, we're going to see a lot of opportunities to increase margins, you know, in our capital allocation in capital markets. Now, in terms of what's going on in the market right now, the market in the U.S. and private credit is too hot right now to deploy capital profitably.
Due diligence, contractual framework, out the door, mispricing. You know, we're going to remain true to our approach, discipline. You know, we have market players that are coming up to us and saying, well, no, you don't need due diligence. Why are you asking for data sets? You know, your other competitors are not asking for that. Well, so it's real. It is extremely frothy. There's too much cash out there. We're going to remain prudent. Where do we see opportunities is, and I don't know when this happens, but maybe we need, you know, equity markets to take a bit of a hit. We need concerns. We need more cockroaches. We need a point in time where, you know, there's going to be a bit of a squeeze and then dislocation and then we'll be there. Right now, it's too hot.
Yeah, and credit spreads are really tight. And how long have you seen this behavior?
Past six months.
Past six months.
It's been really gradual, but the past six months, deals are getting done. So it's not that, you know, deals are getting done. So longer-term players, they're closing their eyes on due dil and we're not going to do that.
Okay. Let's see what we've got here on questions from the audience. I'm going to go to this iPad here. Okay.
You have to dim those lights, by the way. They're very bright. I keep looking.
The question that's been upvoted is, would you be interested in tuck-in wealth acquisitions in Quebec, or would your focus be on diversifying the wealth footprint elsewhere?
I would be definitely interested in tuck-in acquisitions. Now, wealth is tricky. I always use this example. In 2012, we bought the wealth platform of HSBC. And when we did that, we put an initial price on the platform, CAD 250 million. But we put a condition. We said we're going to meet with every single investment advisor and we're going to ask them if they want to join us or not. And we're going to have to, you know, broker a deal with them. And then at close, we will decide, we will know who's joining us and we'll pay for that. And it was CAD 250 million initial bid and we ended up paying only CAD 100 million. So more than half of the people left. So wealth is tricky. You have to make sure that there's a strong cultural fit, that people want to join you.
You know, you're banking advisors. That's what you're banking. And so yes, we are open to tuck-ins across the country. And sometimes you don't want to buy the whole business. And the reason for that is you want skin in the game. You know, our approach with ABA, our approach with Credigy was you buy a portion, you want to make sure that the people who built the business are going to stay there and they're going to keep building that business, but they have to have, you know, skin in the game. So sometimes, you know, so wealth is trickier. It's, and you, and I know everyone wants to buy, I'm sure everyone is interested in buying wealth. So prices are going to go up too. So you have to be careful there.
So I'm going to be inclined to do a trade much faster when someone knocks on my door than me running after deals.
Now you started off answering, you said, yes, I'd be interested in tuck-in, but wealth is tricky. So where would you be interested in?
In wealth?
No, just outside of wealth now. So there's.
Oh, it's you know, P&C and wealth. That's definitely where I'm into. Technology as well. Across the bank could be capital markets as well. Anything that can lower our cost base.
Interesting on technology. You guys had a write-down of software, intangibles, and I always found that to be a bit odd because my impression was always that you worked with, like you outsourced a lot of it, a lot of your tech. You know, unlike some of the bigger banks in Canada that spent in developing their own in-house, I thought you were working with us. I think you work with Flinks now. And so it was interesting that you had that write-down.
We do a lot internally.
Yeah.
We're not perfect. Sometimes we do make mistakes.
Yep.
That was a decision that we took.
Okay. Another question here from the audience. Okay. So NA avoided restructuring charges and expects CWB cost funding synergies to be realized ahead of plan. Where do you see opportunities for cost control in 2026?
The whole bank, P&C, we think P&C is going to be a much better year than 2025 in terms of cost control.
Ex-CWB?
Yes.
Okay.
Now on costs in general, and this is something that we're working on, we see opportunities in P&C, but mainly in P. Our retail business is something that we're going to look at carefully over the next couple of months. We have a new head of retail now, Julie Lévesque, who ran technology and operations for us. She has the mandate to look at our retail business. I'm a big believer that we're going to see a lot of disruption in retail over the next five years, whether it's, you know, fintechs, AI, the willingness of our government to increase competition in banking in Canada, which is specifically retail and SME. It is going to be a big focus for us over the next three years on the cost side. I think we have a lot of opportunities for us to be much more efficient.
I don't want to put words in your mouth, so I'm going to just ask this as a follow-on to that. I'm assuming, but I could be very wrong on this assumption, this has nothing to do with the branch network and everything to do with technology.
It's technology, it's digital onboarding.
Right.
On the branch network side, it is to a certain extent also, yes, it's part of it. I mean, we have been, you know, reducing our footprint. We have a big portion of our branches in Quebec that are, we call them cashless, but what it means is that they're not transactional. So it's advice. You can get cash at the ATM. So it is looking at our branch network and, you know, evolving with it because, you know, people don't use branches as much as they used to. It is, you know, another example, you know, we used to do a lot of multi-channel and development in all the channels. Focus on the channels that we know where the growth is going to be, mobile.
Okay. We've hit the stage in the conversation where I get to put my questions down and just hand the floor over to you and ask you, Laurent, for your key messages that you want investors to take away today.
Well, thank you very much for this. You know, I remember last year we talked about 2025. It's going to be a very big year for us. So we're very proud of what we were able to execute. You know, going back, February 3rd is when, you know, that was our closing date for CWB. And this past November, all the CWB branches are now National Bank branches. So the IT conversion is done. Now we're working with our clients, engaging with them. And so that's going to be part of the work over the next couple of months. You know, very happy also with the Laurentian transaction, which was a very complex transaction when you have three parties working on it. So very proud of what the, you know, our teams were able to execute in 2025. So very big year for us.
2026 is going to be another very big year. That's, you know, consolidation, engaging with our clients, you know, and all the synergies that we talked about. Listen, you know, I want to. That's a big special thank you to our employees because we're doing, in terms of the execution, incredible. To our shareholders, you know, thank you very much for your support and have a happy new year.
Great. Thank you very much. Appreciate it. Thank you.
Thank you.