National Bank of Canada's shares surged after the lender reported a record profit that beat analyst expectations.
Its earnings rose on higher capital market trading and wealth management fees, which also helped rivals Bank of Montreal and Bank of Nova Scotia post higher third-quarter profits.
National Bank reported profit of $419-million or $2.39 a share for the three months ended July 31, up 12 per cent from a year earlier. The lender's shares rose $1.89 to $81.14, their biggest one-day gain since July 2012 in trading volume that was more than double the daily average for August.
"Some investors were probably underestimating the diversified earnings model of the Canadian banks," chief executive officer Louis Vachon said in an interview. "There was a lot of focus on personal and commercial banking, and maybe not even enough focus on what wealth management and capital markets could do."
National Bank's trading unit led the charge, pushing the bank's financial markets profit to $158-million, up from $111-million in the 2012 quarter. Although bond yields shot higher this spring, creating chaos in the fixed-income market, National Bank's derivatives desk was in high demand as investors clamoured to lock in fixed interest rates amid the volatility, the CEO said.
Mr. Vachon also said that the lower Canadian dollar persuaded a number of exporters to hedge their currency costs.
National Bank has also invested heavily in wealth management, buying Wellington West and the retail brokerage arm of HSBC Bank Canada in the past two years. These acquisitions are now paying off, sending wealth management's profit to $52-million, from $39-million a year earlier, as the bank derives more fee-based revenue stemming from growing assets under management.
Analyst John Aiken at Barclays Capital called the results "very impressive," adding that National Bank put up a "very strong quarter."
"Even if one does not give National Bank a full credit for trading, which the market rarely does, the results still came in well ahead of expectations. We note that National is trading at the lowest multiple of the group and should finally get some respect with these earnings."
Quebec's largest bank maintained its dividend at 87 cents a share.
Despite fears of a slowdown in the Canadian housing market and household borrowing, National Bank's personal and commercial segment's adjusted income rose 2 per cent to $192-million.
Mr. Vachon said he will spend the next year focusing on integrating TD Waterhouse Institutional Services, which the bank bought for $250-million in August, into National's network. The unit provides custody, trading, clearing and settlement for independent portfolio managers and brokers.
National Bank said the deal, which has yet to get regulatory approval, is expected to boost its share earnings by 12 cents next year and again in 2015.
With files from The Canadian Press