Acquisition of the Canadian Western Bank | The National Bank project arouses caution despite support

Acquisition of the Canadian Western Bank | The National Bank project arouses caution despite support
Acquisition of the Canadian Western Bank | The National Bank project arouses caution despite support

The major acquisition project of the National Bank in Western Canada continues to give rise to caution as evidenced by the decline in the stock which has reached approximately 10% since its announcement a week ago.


Posted at 4:27 p.m.

National Bank shares fell again during the first trading session of the week. The stock of Quebec’s largest bank ended in negative territory for a fourth session in a row since management revealed an agreement to purchase the Canadian Western Bank.

The slide continued on Monday despite the National Bank gaining further support at the start of the day. Analyst Nigel Dsouza, from the Veritas firm, told his clients this morning that he now recommends the purchase of National Bank shares, describing the acquisition project as a “strategic victory”, because it allows to diversify and extend the franchise of banking services to individuals and businesses outside Quebec.

His colleague Meny Grauman, from Scotia, for his part considers the reaction of investors too severe.

This expert says he has a “very positive” view of the proposed transaction and considers it “low risk”. It’s a winning strategic operation,” he underlines in a note sent to his clients on Monday.

“As with all transactions, execution will be key,” he says.

This transaction, valued at five billion dollars and intended to be carried out by exchange of shares, is certainly a high price in the eyes of portfolio manager Alain Chung, of the Claret firm.

This investment professional believes, however, that it is probably the only bank that the Quebec financial institution can buy without overlap.

There is no other Canadian bank that can do this without significant overlap with its activities. And if the National Bank wants to grow in the country, it doesn’t have many other choices. It makes a lot of geographical sense.

Alain Chung, portfolio manager at Claret

“The quality of loans at Canadian Western Bank is not as good as the average quality of loans at large banks,” adds Alain Chung. “It is not for nothing that the shares of the Western Bank were trading at a price lower than their book value. The market is not stupid after all. »

The 110% bonus offered by the National Bank has continued to fuel discussions. If the premium paid is so high, it is in particular to prevent any competing offer, affirms Meny Grauman.

In this regard, only CIBC is able to challenge National Bank, according to TD analyst Mario Mendoca, because the other banks are either managing transactions on their own or processing transactions. other questions that would make it difficult to submit an offer.

Meny Grauman also notes that the transaction contributes to further diluting the National Bank’s exposure to Cambodia. This situation reinforces his opinion that the National Bank could decide to sell the banking institution it owns in Southeast Asia and which he values ​​at more than 2.7 billion dollars. “The gain realized could certainly be used to offset a significant portion of the dilution resulting from the purchase of the Canadian Western Bank. »

He notes that the addition of Canadian Western Bank will increase National Bank’s Canadian loan portfolio outside Quebec by 37% and its national business banking portfolio by 52%.

“The transaction will also diversify National Bank’s revenue stream and provide significant growth opportunities in the financial markets and wealth management segments. »

There are now five analysts out of 12 suggesting the purchase of National Bank shares, according to information collected by the financial data firm Refinitiv.

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