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National Bank profit rises as shares fall

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Narrow lending margins and weak trading revenues in the third quarter pressured National Bank of Canada's (NA-T) shares on Thursday, even as it reported strong loan volumes that allowed it to meet profit forecasts.

Montreal-based National Bank earned $312 million, or $1.84 a share, in its third quarter ended July 31, up 15 percent from $271 million, or $1.56, in the year-before quarter.

Excluding one-time items, National earned $1.72 a share, just ahead of analysts' expectations of a profit of $1.71 a share, according to Thomson Reuters I/B/E/S."

A little bit troubling is the softness in the net interest income line and the trading line versus what we had been expecting and versus what they did last quarter," said Robert Sedran of CIBC World Markets.

Narrow interest margins -- the gap between the interest earned on loans and the cost of funding the loans -- have emerged as a big issue for Canadian banks over the past two quarters, as low central bank rates have given them little wiggle room on pricing.

Narrow margins during the quarter muted the impact of strong growth in loan volume, analysts said. 

On the whole, retail bank profits rose 6 percent to $168 million.

Income from National's financial markets segment -- which represents a relatively large proportion of its total results compared with other Canadian banks -- climbed 7 percent to $101 million, although that figure compares with what was a very weak third quarter in 2010.

"Financial markets disappointed for the first time in recent memory," Barclays Capital analyst John Aiken said in a note.

Provisions for bad loans fell to $11 million during the quarter, down from C$28 million a year ago.

The bank's wealth management segment saw profits rise 28 percent to $37 million.

EYEING ACQUISITIONS

Chief Executive Louis Vachon said the bank has targeted foreign-based lenders with Canadian assets as an avenue for rapid growth.

"Some foreign financial institutions are exiting segments of the Canadian financial services industry," Vachon said on a conference call with analysts.

He said the bank has recently picked up three domestic mortgage portfolios from foreign lenders and expected to see more deals like that.

Officials said such opportunities were likely to materialize from European banks.

The bank will also continue to seek acquisitions in the domestic wealth management segment, said Vachon.

National, the country's No. 6 bank, recently closed its $273 million deal for the 82 percent of wealth management firm Wellington West that it did not already own.

National Bank's results followed a stronger-than-expected profit reported by Bank of Montreal (BMO-T) on Tuesday, which raised expectations for the rest or the sector's earnings season. Royal Bank of Canada (RY.T), the country's largest lender, will report on Friday.

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