Laurent
Hey, Mike. How are you?
Nice to see you.
Nice to see you.
Thanks for joining us.
Thank you.
Laurent, I always love to start with your perspectives on the economy. You obviously have a very interesting dynamic with the Quebec focus. Maybe start with the broader Canadian dynamic in terms of what you're seeing, whether CUSMA-related or anything else that's on your mind. Then maybe sort of dovetail that into Quebec specifically, just given the importance of the Quebec market for-
Absolutely. First of all, thank you very much for having me. Great conference. We always love this time of the year. I'm sure you've heard it all. Obviously, just in general, Canadian economy tailwinds should be good for the next couple of years with the focus of our government reindustrialization. You've heard defense spending and nation-building and all that. That's all good. The current situation with the U.S. is not good, and we can't be in a trade war for too long. It is definitely putting a lot of anxiety. It's not good for investment. It's not good conditions for the labor market as well. But overall, we are obviously very constructive. Looking ahead with what's going on. The shift in Ottawa has been fantastic over the past year.
The way they're engaging with the business community, I think is going to be a good thing for us and a good thing for the country, a good thing for banks. Now, you asked specifically for Quebec. Consumer resilient. Balance sheet is strong for consumers. The debt level to the ratio of debt to income also is lowest versus the Canadian average and lower than most provinces. Saving rates double versus the Canadian average. You saw our growth in- I'm sure we're going to talk about mortgages, but our growth in mortgages, more than 70% was in Quebec last quarter. Overall, good. Businesses, tariffs are an issue. My concern are really the smaller businesses, the one that 75% of their production is tied to selling to U.S. or in the supply chain.
If you are a copper wire business, even if you get through this, and we will get through this at some point, you do not want to go through this again. You are going to seriously think about reinventing yourself or selling your business. So, concerns there longer term. This is not just Trump, or it is longer term, I think it is a concern. I think the government is doing the right thing. Let us focus on reindustrializing and high-level manufacturing, aerospace defense. Anything tied to that, I think is great nation-building. All the projects announced, I think is also good. Good for Quebec, also good for Ontario. I will tell you what Quebec and Ontario, what they have to work on is inter-provincial barriers. They are the worst.
Quebec is not good there and not a good partner. If there is one thing we should work on is labor mobility. You are a professional, I am a professional. We are all professionals. You can work in Montreal, Toronto, Calgary. But if you are an electrician, you are a welder, you are a plumber, you cannot, which is ridiculous. We have all these projects. We have Churchill Falls, Gull Island, that was announced by Hydro-Québec. We have this train that we want to build between Quebec and Toronto. How are we going to get workers to work between Gatineau and Ottawa? It is ridiculous, all this thing. So, should work on labor mobility. The other thing I think we should be working on, and this is Quebec and Ontario, but it is also the federal government, is tax competitiveness for businesses.
Regulation, we talk about it often, and we are over-regulated. But if we attack tax, that is a strong signal. I think the one thing we should do is be more competitive than the U.S. for businesses. I think we should recycle capital gains in Canada. So if you are selling an asset, you are selling a business, and you are reinvesting in Canada within the first 12 months, you should not pay taxes. I think that could help us in the mindset of investors. So overall, obviously, very uncertain times with what is going on in the U.S. and between the U.S. and Canada. But I am very happy with the level of discussions and where the country is heading. The summit next week is a good thing as well.
Yeah. Awesome. Thank you for that color. Speaking on that nation-building dynamic that you alluded to, can you sort of talk about what that means for National Bank? You are obviously more of a commercial lender-focused bank.
It's our business.
Not sure if you can scale it, but just in terms of like.
Yeah, no.
Move the needle.
A couple of things. Our business mix is such that we're going to benefit from that obviously. And we've been preparing for this as well. If you look at the last three quarters, our performance, record performance every quarter in Capital Markets. But we didn't see market volatility or aberration or the typical quarter where, oh, yeah, National Bank of Canada again. You made a lot of money because it was liberation week. It was balanced revenues across all of our businesses. We've been saying for a long time, we are building our Corporate Investment Banking team. It's very simple. Mining, energy, infrastructure, its power and utilities, both on the lending side and also advisory. If you look at the return side, we've been delivering. We are well-prepared for that nation-building, and we're also well-prepared for market volatility as well.
We've been doing this and delivering. We started disclosing our ROE in our Capital Market business. We didn't go out and spend a ton of money and say, "We're building and hopefully the revenues are going to come." We did this profitably, and we're very happy where we are, and you're absolutely right. I think these are going to be tailwinds for a long period of time, because I really don't see a change in the mindset of our government anytime soon. And I think that even though I complain about inter-provincial barriers and Quebec and Ontario not getting along on certain things, I think that, the more we talk about it, the more we're going to resolve things.
Okay. I'd love to ask for your thoughts on AI, only because National Bank of Canada being the smallest of the Big Six banks, I guess we haven't maybe heard as much on the AI dynamic. I'd love to get maybe some thoughts on-
Absolutely
how you're deploying it and where it's impacting your efficiency.
Absolutely. My pleasure. You can't ignore it. It is transformational. What's important is that you have to embed it in the business. The ideas have to come from there. It has to start with a business idea and lead to a business outcome. That's very important. So discipline around that. Étienne Dubuc, who runs our Capital Markets business, and you have Julie Lévesque on the other side, who runs our retail banking. They have technology backgrounds, and they're also responsible for technology within their sector. So Étienne, Capital Markets, wealth. Julie has P&C. So it starts there. We see it as, obviously, an accelerator of a lot of things that we do internally and with clients. The first thing is how do we improve client experience? So call center, we reduced in the past year with technology.
The amount of calls that we receive at our call center is by 43%. Advisors in our wealth division or Capital Markets professionals today have information and analysis at crazy speed. I'm from Capital Markets. It took me a day or two before I can call up a client and say, "Here's an idea for you," because I had to do all the work. Now, the information is pushed on our employees. What I love the most is really bottlenecks. So getting AI to solve problems about data extraction, some processes. We've cut time by 90% in some of those areas. What I will tell you that we're going to put up guardrails that are made of reinforced concrete is around AI taking pricing decisions. That's not going to happen. AI allocating capital. That's not going to happen either.
Or AI advising clients on very important decisions without a human. I think that's very important. So, you can automate. We do electronic trading. But everything is set by judgment. Everything is set by a human. Then you can use artificial intelligence to speed up things. But I never want to hear that we have AI now taking over some of the way we price things, and so that's going to be very important. We have 3,500 technologists, coders that are equipped with agentic AI right now, and it is speeding up development across the bank. Yeah. It's an accelerator. You can't ignore it. You can't go crazy with it either. So I'm using that word because you're never going to hear me say AI is a strategy. AI is a competitive advantage. It's not. Everyone has it. It's how do you use it.
Right.
How do you deploy capital? What do you focus on? The strengths that you're building, those are your competitive advantage. AI is a tool, and we're using it.
I have to ask, but should investors expect that at some point in the future you may have some level of quantification on that benefit or
No.
No?
No. I am not going to give you a number. What I will give you, this is a great question. It will be embedded in our EPS targets and our ROE. You will see that. But on that, it is a great question. What we are going to do on December 4th is going to be our Q4 call. We are going to do an extended call, Q4, where we are going to provide a strategic update on the bank with a particular focus on retail. You have heard me talk about retail in the past. We will talk about AI there. But we are going to provide an update on the bank, retail, and we are going to provide also medium-term objectives beyond 2027. Not an investor day, but an extended Q4 call that will provide more on where we are going.
It is more fun on an earnings day. Why not?
There you go. We moved it. We moved it because Q4 we are all bunched up in two days, so we actually moved it to Friday.
Okay.
We're going to be on our own. There's a question right there.
Yep.
Just while you're on the subject of AI. All the banks today have been talking about how they're using AI. What's the cost of using AI? Have you disclosed what that is?
We have not disclosed. It is in our numbers, right? Because we get billed per license, per usage. That's a great question, and it starts with Capital Markets because they're lovers of technology. But we have processes to follow everything and cap. The other thing is, you don't need to use the latest model or the latest frontier model to solve a lot of the problems. You can use models that are going to cost a lot less as well.
Are you doing that?
Absolutely. Yes.
When did that start? When did that process of matching the right model to the right process, when did that start?
Well, we've been using forms of AI and machine learning for a very long time, especially in our trading businesses. But in the past two, three years, we've been very active. Obviously, frontier model now and what has happened in the past six months, we've been very active. So we have access to Mythos. Do we want to use it?
Right.
Can you get to the same level with other models? Yes. That's a great question because you can explode costs if you just let it go.
Right.
Yes.
That's helpful. Thanks for that color. I wanted to switch over to capital. I know Laurent, in the past, you've been, I guess fair to say, on the more conservative side in terms of where you wanted the CET1 ratio to be. Now you're targeting getting to that roughly 13% level by the end of next fiscal year. When you think about the DSB buffer coming down, like that range of the buffer, the Domestic Stability Buffer coming down, do you tie that into a longer-term trajectory where maybe 13 could go down to 12? I'm saying this in the context of if the macroeconomic environment is conducive to that, things are stable, the tariff negotiations resolve in a positive way, maybe Ontario and Quebec become more friendly in terms of that inter-provincial transfer.
If all of those things sort of happen, if it's conducive, would National, would you consider running that below that 13 and maybe heading down toward that 12?
Below 13, yes, probably, but not 12. First of all, 13 is our target for end of 2027.
Yep.
We have a target ROE for 2027 of 17 plus. That remains unchanged. I like to operate with a strong capital level. I like the flexibility it provides. I never want excuses. I don't want to be managing capital. I want to be using tools to do more business, but not reducing tools because I have to manage capital. I like the position we're in. I want to be strong capital, not middle of the pack, and deliver premium ROE at the same time. I'm not going to take it down to 12 to manufacture an ROE at 21%. Right? I'm not going to do that. I don't think that today that I should be talking about 12 given everything we've talked about, reindustrialization, CapEx and all that. I want to use our capital to support our economy. Does it go below 13 at some point?
Possibly. The DSB that went down by 50 basis points, my messaging on that is growth. It is not buybacks. We are, obviously, buyback is, in terms of priority, it is not the number one as you know it. I do not like buying back shares. I want to grow the bank and I want to grow it profitably. I think that that is, in the end, what shareholders would prefer as well.
Fair enough. Okay. Would love to talk about some of the business lines, starting with Canadian P&C Banking. I think there were a lot of questions around the margin coming off as much as it did. Then I would love to throw these numbers at you. Because I am a numbers guy. Just in terms of that mortgage divergence, your growth was so much better than your peers. One thing that you can point to is even on the insured side, most of your peers are flat to down, maybe slightly up.
It was.
I think National Bank was up 9% quarter-over-quarter in insured mortgages in Ontario, +6% in Quebec, +8% overall in the insured book. That is a dynamic that I have not seen in terms of just the level of divergence and beyond just the Quebec market. What else is driving that? It just does not.
The growth in Yeah, absolutely. Growth, CAD 5.2 billion of growth in the quarter. More than 70% came from Quebec.
Quebec. Okay.
Of the CAD 5.2 billion, CAD 450 million came from CWB . We now have branches. CWB have become National Bank branches, and that is a new proprietary channel. Canadian Western Bank did not really have a retail focus. Now we have more and more retail bankers. Close to 10% of the growth came from Alberta and B.C. But it is a Quebec story. It is CAD 3.7 billion just in Quebec. The market is good. We are gaining market share. We are not changing our pricing, our risk. Margins were down slightly overall. I think the impact on our P&C margin was about 1 basis point from pricing. Look, there is an opportunity for us in our strategy going after high-quality clients. It is a strategy where our goal is bringing clients to the balance sheet, and cross-sell.
Within a one-year period with these clients, they have a deposit with us, they have an investment account with us, they have a card with us. Really, Quebec story, and it is where we have a strong presence, and we are able to take advantage of the market. On the home front, the Quebec market is doing a little bit better than the rest of the country as well.
Yeah.
Good. I suspect that a lot of the mortgage renewal coming from other Quebec players came on towards National Bank. Broker market as well. We did a little bit more of that First National relationship. The reason why we went with First National is to simplify onboarding, reducing costs, and brokers come through that now. With them as well, specifically in Quebec, our chances of cross-selling are very, very good as well. We see an opportunity to grow, we go for it, and my focus is NIMS is part of the growth, or sorry, of our profitability, but it's really about NII growth and profitable NII growth that we're focused on. It's a lot of focus on NIMS, but what we're focused on is pricing, risk management, onboarding the right clients, and growing the balance sheet.
What would you say to maybe some investors that might be skeptical that other competitors have, in the past, maybe gone toward the volume side and moved back to the value side, whereas you seem to be focused on the volume side for now, and then you'll get that cross-sell over time.
Yeah, I don't see it as a volume side because I do see an opportunity for us to grow. We captured it. The thing about the NIM, though, is the dynamic of our book. You grow faster for a period of time, your mortgages faster than your deposit. It obviously has an impact on NIM. The other thing that we had during the quarter is we had a spike in government deposits, which impacted NIM as well. You have to look at why that happened during that period of time and is your NII growth good, and are you going after the right client. That's very important. It's not a strategy that, let's get some volume in. No, it's we know what our pricing is, here's our risk box, and here are the clients that we want to acquire.
Okay. It's not all monoline clients being acquired. You are, I'm guessing, getting some cross-sell initially. What about those clients-
It takes a period.
Takes a period.
A period of time.
Is that you are more confident because it is being originated in Quebec? You are just better at cross-selling in Quebec, or?
We are faster in Quebec.
Got it.
We are going to be much faster in Quebec, for sure.
Okay. Okay, that is helpful.
And out west now.
Oh, right. Right. I'd love to talk about the Capital Markets business, just because it's been so strong. Financial markets, the segment. It's been so strong for National for a long time now. I think there's been some pretty clear messaging on how you strategically allocate capital to areas that you could win. This is not just in Canada, but outside of Canada and the U.S. Maybe give us an update on that sort of next leg of growth, because it sounds like the market is still very constructive right now, and there's no reason to believe that we're going to get any meaningful deceleration. Even if the market does turn, maybe this earnings base is stickier in terms of holding on because it's much more diversified today versus what it might have been in past years.
You just said it. You're answering my question.
Not to answer your. Not to get ahead of myself here. Apologies. But any thoughts on how your business has developed, and what's that sort of next leg for financial markets?
If you look, and you are absolutely right, 10 years ago versus today, diversified, balance. We have talked about growing our corporate investment banking group, and we did this in a profitable way, as I just said, and focused on the areas we know we can make a difference, the areas we know we can build relationships with clients. We understand pricing. We are going to be relevant, the risk. Very disciplined, and a great balance to our trading businesses, our corporate derivative business as well. Again, first of all, I think our performance over time in Capital Markets has been pretty good, stable. This, I think, will bring even more resilience to our performance, given what you just mentioned. The tailwinds are so strong and should be strong for a very long period of time. We are going to participate in that.
We are also very good at taking advantage of market aberrations when they come in. That is there as well. You could see more international from us. Again, supporting Canadian clients and in areas that we have expertise. We are not going to deploy credit where we do not feel comfortable. We are going to deploy credit with people we know, with relationships that we have, and we are going to do more advisory than we did in the past. We are going to probably do also more securities lending, trading across different platforms in the world. We are expanding in niches, in areas we understand, and that if you make a mistake or you are going a little too far here, it is very easy to roll back. That is the mindset and the attitude that we have in our Capital Markets business. We always target 5%-10% growth annually.
We are obviously beating that now, but we think that we have built a very strong team and the culture is strong and we are in a really good position to take advantage of the tailwinds. I think that with that, we could also keep investing. As this becomes a segment that is going to be very profitable over the next couple of years for the industry in general, it is going to allow us to invest even more.
The U.S. opportunity, I think there is maybe not as much clarity for a lot of investors in terms of how you actually win in the U.S. What does your platform look like today versus where you might want it to be in three-five years, let us just say, high level?
Project finance and project finance and energy is the focus, renewable, as well as traditional conventional energy. One thing that we have added over the past couple of years is we did really well on the corporate lending side, but we did not do advisory. Now we are there. We have a team that advises those clients as well. We have beefed up the capacity, the tools that we can bring to them. I see ourselves do more on the trading side as well, and it is going to be aligned with our operation that is in Montreal and Toronto. It is products, it is specialized products, it is products that have a certain complexity to them. It is not just trading equity, but it is ETF, leveraged ETF, futures, options, market making.
When we look at our trading stats and where we are competing here in Canada, our competitors are Jane Street, Citadel Securities. We do believe that we have expertise, technology that allows us to do more and to be able to trade also in the U.S. and supporting also our clients that are doing acquisitions across the world and in the U.S. as well. A focus, again, we are not building out. I am not going to try and build and compete with Wall Street.
Yeah.
That is not part of the strategy. But I could be a complement and a partner with relationships that we have.
Awesome. That is super helpful. Would love to ask you maybe one final question before I turn it back over to you, just on the wealth business and the strategy, and maybe talk about the opportunity out West. Obviously, the 40-plus banking, commercial banking centers you picked up with Canadian Western Bank, which did not really have a large wealth offering, and now you could sort of dovetail that into your own business, and sounds like there is a pretty sizable cross-sell opportunity there. Maybe talk about that out West opportunity and then maybe what else you are doing in the business more broadly.
Out West, the first thing is putting financial advisors in the center. That's something we're going to do. In terms of cross-selling with financial advisors, that's a tougher one. The financial advisor is what we want to acquire because the relationship of a client is with the financial advisor and not with the commercial banker or the private banker. You still need to invest, but what the Canadian Western Bank platform does is visibility. Now we're in the mind of everyone else that's out there and saying, "Okay, well, that could be an alternative for us if we're thinking of moving or joining the National Bank platform." But in general, wealth, markets are really, really good. An area that we're going to spend a little bit more time on is direct brokerage. We think we underinvested over the years.
One thing we did right was zero commission five years ago. But one thing we didn't do enough of is invest on our platform over that period of time. That's something that we're looking at right now because trends are such that people are doing things by themselves more and more.
Awesome. Thanks for that. Maybe I'll just turn it back over to you. Any key messages for investors as we wrap this up?
Yes. Thank you very much for all your support. Great. You can count on us, even though it's a little crazy right now what's going on, to keep executing on our strategy. Nothing changes. We're still on track. Looking forward to speaking with you and giving you an update on our strategy Q4 call.
On the Friday.
Thank you. On the Friday. You are happy about that?
Thank you very much, Laurent.
Thank you.
Pleasure. Thanks for the insights.
Thanks so much. Appreciate it. Thank you.