CWB Financial says National Bank deal remains on track, reports $62M profit

CWB Financial said a takeover by National Bank is on track even as it faces a legal claim that forced it to delay the release of its fourth-quarter results.

“We remain focused on completing the final step in the regulatory approval process, and are confident we can close the transaction within previously announced timelines,” said chief executive Chris Fowler on an earnings call Wednesday.

National Bank said in June when it announced the $5 billion deal to buy CWB that it expects to close it by the end of 2025.

The takeover has shareholder and Competition Bureau approval, but still requires the go-ahead from Canada’s banking regulator and the finance minister.

CWB created some concern about the deal when it delayed its fourth-quarter results shortly before it was set to release them on Dec. 6.

The bank later clarified that it was a legal claim that caused the delay, but said Wednesday that the issue has no impact on its financial statements, and it has found no internal control issues on its financial reporting.

“On the evening before the scheduled release of our fourth quarter financial results, new information came to light that necessitated we take additional steps to confirm that there was no material impact on our financial statements,” said Fowler.

The legal claim against a subsidiary of the bank is seeking $18 million, as well as general and punitive damages, related to loans that are being resolved through a receivership process. The claim also contains several allegations including of unethical conduct against a sales agent.

Fowler said the agent’s contract has been terminated, but that the individual had no lending approval authority.

“The specified loans were all processed through a rigorous credit approval framework, which includes a thorough review by an independent credit risk management function,” he said.

The bank declined to provide more details on the lawsuit given it’s an ongoing legal matter.

The results released Wednesday showed CWB made $62.2 million in common shareholders’ net income, or 63 cents per diluted share for the quarter ended Oct. 31, down from $76.8 million, or 80 cents per diluted share, in the same quarter last year.

Profits fell as the bank’s provision for credit losses amounted to $40 million, up from $9.8 million a year earlier, while revenue totalled $309.5 million, up from $291.8 million a year ago.

On an adjusted basis, the bank says it earned 67 cents per share in its latest quarter compared with an adjusted profit of 94 cents per share in the same quarter last year.

While the results were a substantial miss on expectations, the update on the National Bank deal was the bigger news, said Scotiabank analyst Meny Grauman.

“More important is guidance that the bank’s combination with (National Bank) is on track, important words after the drama tied to the delay in reporting.”

The miss on expectations was driven by taxes, expenses and credit, he said, while the guidance that provisions will moderate next year is a positive.

While CWB reassured the deal is on track, the sudden resignation of Chrystia Freeland from the Finance Minister position on Monday raised questions about its timeline, said Jeffries analyst John Aiken in a note Tuesday.

If the government were to fall in a no-confidence vote, it could delay approval to the second half of the year, he said. However, he expects it’s more likely the status quo of the government will be maintained, and the deal could get approval in the first half of 2025.

This report by The Canadian Press was first published Dec. 18, 2024.

Companies in this story: (TSX:CWB)

Ian Bickis, The Canadian Press