National Bank of Canada

Hélène Baril - Director of IR Louis Vachon - President and CEO Ghislain Parent - CFO and EVP, Finance and Treasury Jean Dagenais - SVP, Finance, Taxation and IR Diane Giard - EVP, P&C Banking Ricardo Pascoe - EVP, Financial Markets Luc Paiement - EVP, Wealth Management

Steve Theriault - Banc of America Merrill Lynch Gabriel Dechaine - Credit Suisse Michael Goldberg - Desjardins Securities John Reucassel - BMO Capital Markets Peter Routledge - National Bank Financial Mario Mendonca - TD Securities Brad Smith - Stonecap Securities

Good afternoon and thank you for joining National Bank's 2013 year-end and fourth quarter results conference call. In a few moments Louis Vachon, President and CEO will start the call with his opening remarks.

Then Ghislain Parent, CFO and Executive Vice President, Finance and Treasury will present the overall Bank performance as well as the capital management review, followed by Bill Bonnell, Executive Vice President, Risk Management who will cover the Bank's risk management section. Following his comments Jean Dagenais, Senior Vice President, Finance, Taxation, and Investor Relations will cover the business unit results.

Then we will take your questions. Please note that Diane Giard, Executive Vice President, P&C Banking; Ricardo Pascoe, Executive Vice President, Financial Markets and Luc Paiement, Executive Vice President, Wealth Management will also be on hand to answer your questions.

Please also note that all documents referred to in today’s conference call can be found on our website at nbc.ca in the Investor Relations section. I would also like to remind you that a caution regarding forward-looking statements applies to our presentation and comments, over to you Mr.

Vachon.

Good afternoon and thank you for joining our call today. On an adjusted basis National Bank posted record net income of $1.5 billion in fiscal 2013, up 7% compared to 2012.

Adjusted EPS amounted to $8.41 from $7.86 in the previous period representing also a 7% increase. In the fourth quarter of 2013, National Bank posted adjusted net income of $2.09 per share, up 8% from the same period last year.

Along with this performance the quality of the loan portfolio remained strong with provision for credit losses at $48 million or 20 basis points. Adjusted ROE was set at 18.4%.

We delivered a good performance in 2013 and remain optimistic for the coming year. In 2014 Canadian growth is expected to accelerate from 1.6% this year to over 2.2% for next year.

Quebec is projected to be a main contributor to this improvement. Real GDP growth for Quebec should pickup from a better performance from business investments and exports.

On a sectoral basis, P&C Banking did well in 2013 with solid loan growth and deposit growth, solid credit quality and as well as very good cost control. In addition, we successfully deployed our mortgage platform which will enable one-meeting approval for 75% of applications across our entire Quebec network.

We expect to continue to gain market share in 2014. The rollout of our mortgage platform outside Quebec over the next 12 months should support mortgage lending growth across the country, increase cross-selling opportunities and bring efficiency gains.

We are also continuing to work on our distribution channels. Online and mobile banking are on the rise and we’re adapting our website, branches, call-centers as well as our mobile sales forces to offer the best service to our clients regardless of the channel they choose.

We are very pleased with the 2013 results of our Wealth Management operations. Strong organic growth and acquisitions have fueled a 26% increase in growth and earnings.

In November, we closed the acquisition of TD Waterhouse Institutional Services which positions our correspondent network as the leading provider of security processing services to independent advisory firms across Canada. This transaction increases our exposure in fee-based managed assets and offers multiple cross-selling opportunities.

Financial Markets also delivered a strong performance in 2013 due to higher financing needs, amount of our clients, diversification of revenue streams and tight cost controls. Going forward, we will continue to focus on serving Canadian-based corporations and client-driven activities.

In addition we will pursue our international initiatives that are in line with our current business and expertise. First, we plan to grow our capacity to sell Canadian products abroad through the opening of a Hong Kong office for National Bank Financial and the consolidation of our presence in London and New York.

Secondly, we expect good progress in the expansion of credit ease activities in new markets and asset classes. Our mid-term objectives are unchanged with EPS growth targeted to be between 5% to 10%; ROE to be between 15% and 20%; core Tier 1 capital ratio under Basel III rules above 8% and dividend payout between 40% and 50%.

We expect to achieve a positive operating leverage for fiscal 2014. At year-end 2013 our capital base remains solid with a common equity Tier 1 ratio on the Basel III at 8.7%.

We are targeting a minimum Basel III ratio of 8.75 before reactivating the common share buyback program. We have increased our quarterly dividend by $0.05 to $0.92 per share in the first quarter of 2014 and announced a two for one stock split.

Also these decisions reflect our confidence in the future of National Bank and our objective to deliver good returns to our shareholders. On that I’ll turn things over to Ghislain for the financial and capital review, Ghislain?

Thank you Louis and good afternoon everyone. I invite you to turn to Slide 6 to review the fourth quarter 2013 results.

On an adjusted basis total revenues amounted to $1.3 billion, up 2% from the same period last year. Operating expenses are up $2 million at $772 million and down 1% on a sequential basis.

Adjusted net income reached $370 million or $2.09 per share, up 8% from Q4 2012, due mainly to revenue growth experienced in each of our business segments, as well as sound risk management and good control over expenses. Adjusted return on shareholders’ equity was solid at 18.4.

On a reported basis net income totaled $337 million, or $1.89 per share compared to 351 million or $1.97 per share in Q4 of last year. In Q4 2013, reported EPS was reduced by net specific items of $0.20 per share, due mainly to leases termination, acquisition related items and severance pay.

You may find more details on the Appendix 1 of this presentation. Moving now to Slide 7 for the review of the financial results for fiscal 2013, excluding specified items, National Bank reached for the first time the 5 billion mark in total revenues, representing a 2% increase from fiscal year 2012 and a 3% increase on a tax equivalent basis.

Revenues are up 6% each for Wealth Management and Financial Markets and 3% for P&C Banking. Total expenses amounted to 301 billion, up 2% from fiscal 2012.

Operating expenses grew by 1% in P&C Banking, were flat in Wealth Management and were down 2% for Financial Markets. These good results were partly offset by higher expenses in technology and lower revenues from treasury after a very strong year in 2012.

Adjusted net earnings totaled 1.5 billion or 7% from 2012. EPS reached $8.41, a 7% increase over last year.

Adjusted return on shareholders’ equity was strong at 19.7%. On a reported basis net income in 2013 was down 5% from last year at $1.6 billion.

For fiscal year 2012, reported net income included a net gain of nearly $200 million following the sale of Natcan Asset Management to Fiera Sceptre. EPS reached $8.80 and return on shareholders’ equity was at 20.6%.

Turning to Slide 8, on a year-over-year basis P&C Banking and Wealth Management represented 74% of total revenues and two-third of net income in Q4 of 2013. Each of the three business lines increased their net income, thanks to revenue growth and tight cost control.

Wealth Management raised its contribution by 50 million, while P&C Banking and Financial Markets, both increased theirs’ by 12 million. The decrease in other segment is due mainly to a $25 million gain recorded in Q4 of 2012 on the sale of our investments in the Alpha Trading Systems and CDS which were part of the TMX transaction.

As shown on Slide 9, on a year-over-year basis, operating expenses amounted to 772 million almost flat from last year. Salaries and tax benefits were down 1% due to lower staff level in variable compensation.

Technology and professional fees were up 10% due in good part to the Bank strategy to improve clients’ experience and efficiency. As targeted operating leverage on a tax equivalent basis for fiscal year 2013 was positive reaching 1.3%.

There has been no important headcounts decrease since Q4 of 2012. Although, we continue to actively improve our efficiency by reviewing our processes, investing in technology and adjusting our staff level and skill set in accordance with customers’ needs.

Over the years the Bank cautiously controlled its operating expenses and is strongly committed to proactively manage its cost. Therefore, we continue to target a positive operating leverage ratio in 2014.

As you are aware, a revised accounting standard will apply to pension accounting beginning in fiscal 2014, which will increase the pension expense by approximately 55 million after-tax. This change will be retroactive and 2013 figures will be re-stated by the same amount.

Therefore, there will be no variance between re-stated 2013 and 2014. Also, in 2013 the effective tax rate was 2% lower than last year due to reversal of provisions for tax contingencies in Q3 of 2013 and higher non-taxable dividends from Canadian corporations which are mainly related to our ETF and index note activities.

Our estimate for 2014 is an effective tax rate at approximately 18% and on a tax equivalent basis at approximately 25%. Turning now on Slide 10 for the balance sheet overview, lending activities continue to show good results with volume up 8% from last year.

P&C and Wealth Management were up 7%, while Commercial Banking and Corporate Business increased by 9%. The Bank has improved its funding position in Q4 and fiscal 2013, funding rose by 10% year-over-year in Q4 2013.

Retail deposits from P&C and Wealth Management rose by 7%, while Commercial and Corporate Deposits increased by 17%. Moving on Slide 11, the Basel III common equity Tier 1 ratio improved to 8.7%.

Net income had 26 basis points to the ratio on a sequential basis, whereas a slight increase in the risk weighted assets decreased the ratio by 5% looking -- 5 basis points I am sorry. Looking forward to next quarter, the phase-in of CVA capital charge is estimated at 20 basis points and the acquisitions of TD Waterhouse Institutional Services closed on November 12th will reduce the ratio by approximately 40 basis points.

We remain confident to reach our target of above 8.75% in 2014, taking into account net income and other internal initiatives. To conclude, the Bank is well capitalized and will continue to manage its capital by keeping a sound and prudent balance between organic growth, acquisitions and retuning capital to shareholders.

On this note, I’ll turn the call over to Bill for the risk review.

And good afternoon everyone, I invite you to turn to Slide 13 and look at our portfolio composition. Overall, the credit portfolios’ mix remained stable from last year with personal banking assets accounting for 67%, while the commercial and corporate books stood at 25% and 8% respectively.

The geographical mix also remained stable in the fourth quarter. 67% of the total credit portfolio was based in Quebec; Ontario accounted for about 20% and 13% is in the other provinces.

Looking now at industry concentrations, you can see that the corporate and commercial book remained well diversified across industrial sectors with no one sector accounting for more than 16%. The retail portfolio of composition chart shows that insured mortgages remained the largest asset in the book accounting for 36% of the portfolio.

HELOCs and non-insured mortgages represented 25% to 19% respectively. The average loan-to-value on the HELOC and uninsured mortgage portfolio was approximately 59% and 57% respectively.

A geographical breakdown of the mortgage portfolio is provided on Page 19 of the supplementary package, where we can see that the largest share of the portfolio is in Quebec. Residential mortgages in Toronto and Vancouver combined represent less than 14%.

Now please turn to Slide 14, credit performance remained strong with PCLs at 48 million or 20 basis points in Q4, compared to 46 million or 21 basis points in the same period last year. Retail banking PCLs were 37 million or 28 bps in line with the last four quarters.

And PCLs in the commercial portfolio were stable at 12 million or 20 bps. The corporate book benefitted from recoveries of $2 million, financial conditions remain supportive of the stable credit environment and we maintain our 20 to 30 basis point estimate for PCLs in the next two quarters.

On Slide 15, we see that gross impairments amounted to 395 million which is up 8 million from the same period last year. Net impairments stood at 183 million, up 4 million over the same period.

Impaired loan formation for the retail book was 21 million in line with the same quarter last year. In commercial banking, impaired loan formations reached 23 million, down 7 million from the same period last year and the corporate book benefited from a small repayment during the quarter.

In the appendices you will find highlights of our market risk exposure, the utilization of our global trading VAR averaged 6.5 million and remained stable through the fourth quarter. We registered one day with net trading losses with no global trading VAR breach.

In summary, we were pleased with the performance of the portfolio this quarter. And on that, I’ll turn things over to Jean Dagenais for the business review.

Thank you very much Bill and good afternoon. I invite you to turn to Slide 17 for the review of the personal and commercial business segment.

Q4 2013 revenues amounted to 659 million, representing a 4% increase compared to the fourth quarter of 2012. Personal banking revenues were at 311 million up 5% due to good growth in loan volume partially offset by lower margin.

Commercial banking revenues at 238 million were up 2% from the same period last year, while our credit card revenues were up 6% on a year-over-year basis mainly from interchange fees. Operating expenses were almost flat compared to Q4 2012 due to good cost management allowing the segment to post a 3% operating leverage.

Therefore, the efficiency ratio was at 55.7% representing 160 basis point improvements from the same period last year. Provision for credit losses amounted to $50 million up 11% from last year due mainly to higher provision for losses on personal loans following the increase in loan balances.

P&C’s net income reached $177 million up 7% from the same period last year due to the combination of higher revenues and tight cost control. For fiscal year 2013, the P&C business segment posted net income of 713 million up 4% on a year-over-year basis.

Looking at the P&C key metrics in Q4 of 2013, average loans and BAs were up 7% from last year due to volume growth in mortgages and secured line of credit, while deposit increased by 7%. Net interest margins stood at 2.26% stable from the previous quarter.

In fiscal 2013, the P&C segment experienced strong volume growth and good expense control. Looking forward, we expect this trend to continue in 2014, as the new mortgage platform in Quebec will help increasing our market share and reducing cost.

As we previously indicated, we will also implement this platform outside Quebec and develop several initiatives to improve our distribution channels to meet our client needs. Please turn now to Slide 18 for the Wealth Management review.

Q4 2013 total revenues amounted to 289 million, up 5% compared to the fourth quarter of 2012, due mainly to higher fee-based activities. Operating expenses were down 2% from Q4 2012, thanks to good cost control.

As a result net income reached $64 million in Q4 of 2013, up 31% from the same period last year. For fiscal year 2013 Wealth Management’s net income was 236 million, up 26% from the previous year.

Looking at key metrics, deposits were up 10% on a year-over-year basis. Assets under administration stood at 217 billion up 11% from last year due to good momentum at correspondent network, NDF wealth management and National Bank direct mortgage.

Asset under management totaled $41 billion from 36 billion on a year-over-year basis, a 16% increase attributable to increase in private wealth asset and continued success of 1859. Finally, I would like to underline that in the fourth quarter of 2013, National Bank discount brokerage has topped the industry and client satisfaction according to J.D.

Power. Now I invite you to turn to Slide 19 for the Financial Markets’ review.

In Q4 2013, Financial Market posted revenues of 331 million, representing a 3% increase from the fourth quarter of 2012. This increase is mainly due to higher banking services and credits.

Prop trading revenues were 146 million while CVA/DVA reduced revenues by 1 million. The efficiency ratio was at 49.2% compared to 51.9% for the corresponding quarter of 2012 due to business mix and expense management.

Overall, the financial markets performed very well with net income of 125 million, up 11% from the same period last year. For fiscal year 2013, net income amounted to 541 million, compared to 461 the previous year, up 17%.

That concludes my remarks. I’ll turn the call to the operator for the question period.

A couple of questions for Louis please. Louis, despite the regular increase over the last couple of years to payout is still sitting at the low-end of the range, so the question I guess is why not be a little more aggressive with the dividend at least to the point you get up to the maybe closer to the midpoint of the range or even higher?

A couple of questions for Louis please. Louis, despite the regular increase over the last couple of years to payout is still sitting at the low-end of the range, so the question I guess is why not be a little more aggressive with the dividend at least to the point you get up to the maybe closer to the midpoint of the range or even higher?

Listen, the theory is here is as follows; I think at end of the day sustainable dividends really follow sustainable earnings. And so just increasing our payout ratio, I’m not sure we would get much of a kick for just increasing the payout ratio, that’s the first thing.

Secondly, when we meet with our shareholders, we’ve had a number of large significant shareholders who talk to us always about being very conservative in terms of dividends, making sure -- they like the fact actually that we’re at the lower part of the band because let’s say well if there is a slowdown or whatever or adverse economic conditions, we get the feeling that your dividend will be more sustainable than others which seem to be operating at the upper part of the band that you’re adjusting. So, instead of reacting to what we perceive is the preference from the market and frankly when we look at the performance of our shares, it’s hard to argue that we suffered from the low payout ratio.

So even though there is bit of a pause in the buyback you are not tempted to be -- okay that’s a good point.

So even though there is bit of a pause in the buyback you are not tempted to be -- okay that’s a good point.

No. The pause in the buyback is the fact that there has been the acquisition and we decided not to issue any shares when we purchased TD Waterhouse Institutional Services.

I think that was the right decision, but it did, we decided to go for accretion, earnings accretion from the acquisition as opposed to accretion from the buyback. And I think again the market I think prefers acquisition-related accretion then just a buyback.

And the other, I wanted to touch on the MAV notes, I'm hearing there's some structuring on the MAV 2 notes going on sort of as we speak, are there any implications for your holdings in the MAV 1 conduits?

And the other, I wanted to touch on the MAV notes, I'm hearing there's some structuring on the MAV 2 notes going on sort of as we speak, are there any implications for your holdings in the MAV 1 conduits?

Well, aside from the fact that the value keeps going up, that there is no direct ones, as you know Steve there is, the market is focused on positive aspect of the MAV story but for our regulatory capital there are two positive aspects. The first one of course is, as the value moves towards par or close to par, we still are sitting on potential valuation gains which will be positive for regulatory capital and that part is relatively well known.

The other part which we have not done a good job at explaining is that the holdings of ABCP right now, the MAVs and the non-MAVs I call it the radioactive waste it is showing up in fair amount of regulatory capital. So as the notes go toward par and they mature not only are we going to have a gain, but also getting the assets and these things off our balance sheet, we're going to gain in fact what we see today is the potential gain from, on the regulatory capital from just getting the assets maturing or off our balance sheet is just as big as the potential gain from valuation upgrades.

So over a period of time that's, we're going to watch carefully what’s happening there but for now the main restructuring is for MAV 2 and MAV 1 participants are not active in that part.

And so can you remind us how much RWA is tied up overall?

And so can you remind us how much RWA is tied up overall?

Jean?

Close to $1.8 billion.

1.8 billion Steve.

My first question is for Diane Giard just on the Canadian margin, we saw it stabilize there and during the quarter some news that you've been taking some pricing action in the broker channel, reducing commissions and things of that nature, I'm just wondering, are we going to notice that, is it big enough to notice that in your results?

My first question is for Diane Giard just on the Canadian margin, we saw it stabilize there and during the quarter some news that you've been taking some pricing action in the broker channel, reducing commissions and things of that nature, I'm just wondering, are we going to notice that, is it big enough to notice that in your results?

The margins will definitely stabilize in the next year, but the brokerage channel we're actually slightly decreasing, we expect to slightly decrease our exposure to the broker channel into the next year but we’ll maintain all three channels.

Can you expand on that decreasing in detail please?

Can you expand on that decreasing in detail please?

Well in terms of the commissioning of the broker channel we did actually work with them and the reception from all of the broker channels was actually quite well received and they're very positive about aiming towards quality rather than just pricing. So that has been done, but we've also expanded our mobile sales force so technically with the launch of our new mortgage platform we’re actually relatively seeing an increase in our branches and through our mobile sales force and thus decreasing relatively the brokerage, the dependency on the broker channel.

Then just Ricardo or Louis, trading and it was a decent number this quarter, I'm just trying to go back to some of the comments that you guys made at your capital markets investor day, I'm just trying to demystify the ETF trading and one of the one liners you gave was that if equity markets were going up the trading numbers would go up and EDF trading would be a big part of that, but we didn't really see that this quarter, I'm just wondering, what my oversimplification is wrong?

Then just Ricardo or Louis, trading and it was a decent number this quarter, I'm just trying to go back to some of the comments that you guys made at your capital markets investor day, I'm just trying to demystify the ETF trading and one of the one liners you gave was that if equity markets were going up the trading numbers would go up and EDF trading would be a big part of that, but we didn't really see that this quarter, I'm just wondering, what my oversimplification is wrong?

No, I think on a relative and absolute basis, we haven't seen all the other Canadian banks, but compared to our U.S. and global counterparts and compared to the one other Canadian bank I've reported so far I would say that our capital markets and our trading is I would give an A to Ricardo and his team on a relative and absolute basis, so clearly there can be fluctuations from quarter-to-quarter but I think Gabriel on a relative basis so far, what we've seen is that the trading platform did perform extremely well, Ricardo anything to add on that?

I'll take the A because of the time of the year.

That's just a letter, that’s not a number.

I think maybe we weren't clear enough because really what drives revenues for us particularly in the ETF activity is volume, so to the extent that increases in the equity market are correlated with large volume that drives it but so far we haven't seen that this quarter.

Then just a bit more of an conceptual question and please bear with me here. On the leverage issue, it comes up pretty frequently or will come up more frequently I guess, something that the banks might have an issue with and the case to make against the Basel committee I guess is potential double counting of assets.

Can you maybe just quantify or ballpark, other than cash in securities is there any of that that's liquid assets that you have to keep as collateral for some of the off balance sheet commitments that you have. So that essentially you are double counting assets where you have the collateral for those off balance sheet commitments plus the commitments themselves accounted in the average asset number?

Then just a bit more of an conceptual question and please bear with me here. On the leverage issue, it comes up pretty frequently or will come up more frequently I guess, something that the banks might have an issue with and the case to make against the Basel committee I guess is potential double counting of assets.

Can you maybe just quantify or ballpark, other than cash in securities is there any of that that's liquid assets that you have to keep as collateral for some of the off balance sheet commitments that you have. So that essentially you are double counting assets where you have the collateral for those off balance sheet commitments plus the commitments themselves accounted in the average asset number?

Yes you are right Gabriel, that's one of the -- I think we're not the only Bank but I think many, and ourselves and other banks have made that argument to the Basel committee. And then there is also what I’ve discussed in the past in terms of the treatment of collateral or our positions on repos which are clear through CCPs.

And I think what we are expecting is that sometimes in 2014 the committee will come back and then at this stage we're just talking hypothetically. So I think we'll let them come back and then we'll shuffle through their definition and determine what the impacts are.

Any timing on when OSVI, or the next statements they are going to take on?

Any timing on when OSVI, or the next statements they are going to take on?

I think what we hear is first half of 2014 but I don't have any special insight.

Can I assume that your high level of year-end cash will go towards the repurchase and redemption of the sub-debt and preferreds? And do lower cost deposits replace this capital?

And I have some follow-ups on this.

Can I assume that your high level of year-end cash will go towards the repurchase and redemption of the sub-debt and preferreds? And do lower cost deposits replace this capital?

And I have some follow-ups on this.

The only thing I could say Michael, this is Jean it's only timing because October 21st being October 21st it doesn't mean it changes the after so I don't think you have to consider that cash as for special purpose. It's part of all the funding and it fluctuates between cash and deposit with financial institutions.

So there is no particular reason for the increase at the end of the year.

So do lower cost deposits replace the capital? And how much should those capital transactions add to quarterly earnings in terms of savings and interest in dividends?

So do lower cost deposits replace the capital? And how much should those capital transactions add to quarterly earnings in terms of savings and interest in dividends?

You mean in terms of the buyback of the preferred share, it’s about…?

The redemption of the sub-debt and the reversal of these…

The redemption of the sub-debt and the reversal of these…

On the sub-debt a smaller amount but I know for the share it's about $10 million less of dividend in 2014 and 2013.

Michael it is Louis keep in mind that at some point we would like to issue NVCC capital. So I wouldn't count on that 10 million to be a recurring number.

As we're going to replace with and some form of NVCC capital, right?

Yes, well I was actually going to follow-up on that, because it seems like right now you and other banks are shut out of the sub-debt market missing out on the low rates that are out there. How and when do you think these issues will be resolved?

Yes, well I was actually going to follow-up on that, because it seems like right now you and other banks are shut out of the sub-debt market missing out on the low rates that are out there. How and when do you think these issues will be resolved?

Hopefully, sometime in the first half of 2014.

And do you think that the billing issue is a hurdle that has to be overcome also?

And do you think that the billing issue is a hurdle that has to be overcome also?

I think all these aspects have to be resolved at the same time yes.

And one last one on this, how will the repurchases of the debt and preferreds impact your asset to capital multiple? And is this any kind of issue to be concerned about?

And one last one on this, how will the repurchases of the debt and preferreds impact your asset to capital multiple? And is this any kind of issue to be concerned about?

No I think, at this stage I think I have mentioned that the previous call Michael, we’re comfortable that with minimum of issuance of NVCC capital and some relatively friendly definitions and treatment in terms of netting an NCCP asset that even an increase in -- a reasonable increase in the leverage ratio will not have a strategic impact on our growth. And I’d say that at the same time I am not necessarily and know whether there will be a change in our leverage ratio, I just follow some of the comments coming from government officials recently.

I get the sense that there is less momentum right now for an increase in the leverage ratio, at least from Canadians but that's -- again that's my perception or maybe my wishes but that's where it's at. But even if it does occur I think we'll be able to manage without strategic impact on our growth profile.

So it sounds like though you are accounting on the issue of NVCC capital in fairly short order. Is that a fair conclusion?

So it sounds like though you are accounting on the issue of NVCC capital in fairly short order. Is that a fair conclusion?

Fairly short, I mean some times in 2014, I mean it's not a question of a month or a thing but ideally of we could do an issue sometimes in 2014 that would be -- I think that would be a plus.

Just a clarification for Ghislain, the 55 million of pension expense, did you say that was after-tax and is that in ’14 or is it spread out through retroactively through ’13 and ’14?

Just a clarification for Ghislain, the 55 million of pension expense, did you say that was after-tax and is that in ’14 or is it spread out through retroactively through ’13 and ’14?

No, John this is only for 2014 and it’s a 55 million after-tax.

$0.33…

$0.33…

But we’re going to restate 2013. [Multiple Speakers]

For a lack of a better way to permanent increase in the pension expense.

That’s correct because the way it works now with the new regulation, you use the same rate for discounting of the liability than the rate for the return on the asset.

Sorry I just wanted to make sure. And then what is the size of your mortgage mobile sales force, and where is it today and what do you hope to get it to?

Sorry I just wanted to make sure. And then what is the size of your mortgage mobile sales force, and where is it today and what do you hope to get it to?

It’s in the 300 range and we’re looking to increase it to somewhere closer to 400 down the road but it obviously depends on market opportunity. So, we’re going where the markets are and we’re actually basing our staffing strategy on what market expectations are.

And you may have ran through this so I apologize, is that mainly outside of Quebec or in Quebec?

And you may have ran through this so I apologize, is that mainly outside of Quebec or in Quebec?

It’s both.

Okay, will be evenly divided?

Okay, will be evenly divided?

Not necessarily, depends on market opportunity.

And then last question is just on the in the -- on Slide 18, as far as the Wealth Management. Your revenues were flat particularly in the fee-based businesses.

I would have thought given the markets and what not you would have had better growth, but it was all because of cost containment, or could you just educate me what happened there, I thought revenues would have been stronger, why weren’t they and what am I missing?

And then last question is just on the in the -- on Slide 18, as far as the Wealth Management. Your revenues were flat particularly in the fee-based businesses.

I would have thought given the markets and what not you would have had better growth, but it was all because of cost containment, or could you just educate me what happened there, I thought revenues would have been stronger, why weren’t they and what am I missing?

Basically, what we saw is that the fixed income market wasn’t that great in Q3 and we got hurt in Q4 because of asset went down a little bit, keep in mind that we of all the banks we are the one with the most fixed income component in our big portfolio that’s mainly what happened. But October we recovered, we had a great -- the best month of the quarter was October, so it was a loss of momentum, it was hiccup for a very specific period of time.

And then the commissions, the securities commission at the National Bank Financial. It looked like it was flat to down, is that just because the fall was a tough time, I would have thought those transactions would have been up too.

And then the commissions, the securities commission at the National Bank Financial. It looked like it was flat to down, is that just because the fall was a tough time, I would have thought those transactions would have been up too.

No, they were down, the new issue were down a bit less -- first part of the quarter wasn’t that good, the last part of the quarter was good but it was less no issue, if you look for one item in particular.

Just a follow-up for Luc, the 64 million in net income, is that -- leave aside the TD Waterhouse Institutional Services acquisition, is that 64 a good starting point for 2014, will your 2014 performance be as good or better in each of those quarters just where you sit today?

Just a follow-up for Luc, the 64 million in net income, is that -- leave aside the TD Waterhouse Institutional Services acquisition, is that 64 a good starting point for 2014, will your 2014 performance be as good or better in each of those quarters just where you sit today?

First, the 64, there is no TD Waterhouse in that number. Second, we see the trend continuing, the momentum continuing in the core business.

Well I can take a first crack at it and then Louis may add something on this but essentially we think that 2014 will be a better year based on the fact that in the economy in Quebec should improve in 201. So, we think that organic growth will improve and will be good and in all our business segments.

So, with improvement in the economy with good organic growth we’ll be able to maintain positive operating leverage.

So Peter, the argument is whether we -- the way we see it, the glass full or half empty, we prefer to look at the glass half full in the sense that we did manage this year to do about 7% increase in both EPS and net profit on an adjusted basis and that's with the Quebec economy growing at 1%. So okay we have, we have a 2% forecast.

Even if we have 1.5, 1.75 as opposed to 1, I think we’ll and also as you know we're getting some share on the mortgage side because of the new platform and mobile sales force, so volumes should be okay on the retail side and hopefully we’ll, I think a stronger Quebec economy will mean that commercial lending in 2014 will be a little stronger than what we saw in 2013.

Just one follow-up on the MAV question, you alluded to maybe some RWA relief, would we see that in 2014 or is that further off?

Just one follow-up on the MAV question, you alluded to maybe some RWA relief, would we see that in 2014 or is that further off?

I don’t know I think it would require a massive unwind of that one and it's not in the cards right now, so I think you should probably expect more in '15 and '16 as opposed to '14. Valuations, it will depend on what happens with the market obviously.

Just to revisit quickly the MAV discussion, you have referred to in the past to a $200 million potential gain over the fullness of time, is that still a reasonable number to work with?

Just to revisit quickly the MAV discussion, you have referred to in the past to a $200 million potential gain over the fullness of time, is that still a reasonable number to work with?

Yes.

And when you said and Louis when you were saying the RWA benefit would be similar is that what you mean, not necessarily a $200 million gain, but the equivalent in terms of an RWA release?

And when you said and Louis when you were saying the RWA benefit would be similar is that what you mean, not necessarily a $200 million gain, but the equivalent in terms of an RWA release?

That is correct, that's what I meant Mario.

And then just going back to this pension just for a moment, I appreciate that you're doing the restatement for 2013, so from a year over year perspective, it's not going to show up but just to be clear we're still talking about $55 million higher expenses 2014, all absolutely goes out that's a fair statement?

And then just going back to this pension just for a moment, I appreciate that you're doing the restatement for 2013, so from a year over year perspective, it's not going to show up but just to be clear we're still talking about $55 million higher expenses 2014, all absolutely goes out that's a fair statement?

35 million more after-tax expenses.

Right after-tax, and with that in mind do you still feel good about your operating leverage discussion the 2% operating leverage.

Right after-tax, and with that in mind do you still feel good about your operating leverage discussion the 2% operating leverage.

Yes because it’s the growth of our revenue and growth of expenses…

Right, I keep back going back to just the idea that I haven't made that adjustment yet to 2013, but I appreciate what you're saying. The final question just on the overall Bank margin, you can see that Financial Markets look pretty good from a NIM perspective, domestic looked okay as well, but was there anything that going on in the corporate segment, either treasury or ALM that would have been beneficial this quarter?

Right, I keep back going back to just the idea that I haven't made that adjustment yet to 2013, but I appreciate what you're saying. The final question just on the overall Bank margin, you can see that Financial Markets look pretty good from a NIM perspective, domestic looked okay as well, but was there anything that going on in the corporate segment, either treasury or ALM that would have been beneficial this quarter?

No there's no particular revenue these sometime fluctuate between net interest income and other revenue depending on the product used in asset liability management but there's nothing in particular.

And I had two very quick questions, one related to the deposits, on your balance sheet there was a reclassification between personal and business and government deposits about 3 billion, I was just curious as to what would have prompted that change? And then on your derivatives disclosure in your package, I note there is a new inclusion of about 15 billion notional relating to swaps under your credits, I was just wondering why that change took place?

Thank you.

And I had two very quick questions, one related to the deposits, on your balance sheet there was a reclassification between personal and business and government deposits about 3 billion, I was just curious as to what would have prompted that change? And then on your derivatives disclosure in your package, I note there is a new inclusion of about 15 billion notional relating to swaps under your credits, I was just wondering why that change took place?

Thank you.

The first one is because we noticed during some analysis for the SGR that some product were sold to corporation, to businesses but they were classified in a retail type of product, so the balance sheet it was reported as retail because it was supposed to be only a retail product. And since we noticed it was sold to businesses we classified and we readjusted previous quarter figures so it’s all comparable.

In the disclosure for swap and derivatives because we need to make more disclosure now with EDTF and other information providers, so we have detailed something that was buried with something else before, so it's only more granular information.

Well actually I mean it's an addition to it, because the notional amount has gone up by that amount, so…

Well actually I mean it's an addition to it, because the notional amount has gone up by that amount, so…

You're looking on Page 49 of the supplemental?

Yes.

Yes.

The movement here is, could change anytime when they will use or will not use the derivatives.

Right, but I mean if you look at the 3s, it's 517 billion of notional amount.

Right, but I mean if you look at the 3s, it's 517 billion of notional amount.

And now we got 511.

That's $14 billion higher than it was last, when you actually reported it last quarter, so I'm just curious, why the increase has occurred?

That's $14 billion higher than it was last, when you actually reported it last quarter, so I'm just curious, why the increase has occurred?

Don't forget that this is all the Basel definition so we have adjusted it with Basel definition, so I guess the big one that we will have probably is the swap with CHT, the CHT being the mortgage bond securities with the Canadian Housing Corporation, which is there on the for the purpose of Basel and it's not there on accounting purpose, we don’t account for that swap.

Right, so then I guess just to be very clear about this, there was a change in the Basel definition in the quarter?

Right, so then I guess just to be very clear about this, there was a change in the Basel definition in the quarter?

No, no, it’s the change in what we present we presented according to the Basel definition.

But was it not presented that way last quarter?

But was it not presented that way last quarter?

No, it was presented under the accounting definition.

I see, so that’s the change in the quarter.

I see, so that’s the change in the quarter.

That’s correct.

Okay, thank you very much, and we'll talk to you next quarter. Thank you.

Have a good day.