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National Bank says healthier business conditions in Quebec should drive momentum

MONTREAL - National Bank of Canada says healthier business conditions and the election of a majority Liberal government in Quebec should help the bank maintain its momentum in the second half of the year.

Although its second-quarter results lagged its Toronto-based peers, the bank conveyed an optimistic outlook Wednesday citing a double-digit growth in exports to the U.S. in the first three months of the year.

"With a majority government in Quebec, better weather conditions in Canada and the U.S., and our constant efforts related to (the) one-plan-one-bank initiative, we are confident to see our business maintain momentum in the second half of fiscal 2014," CEO Louis Vachon said during a conference call, a day after releasing its results.

Quebec elected a Liberal majority on April 7, as voters turfed the Parti Quebecois minority government.

Premier Philippe Couillard's new government is expected to unveil an austerity budget next Wednesday designed to put the province on the path of balancing the budget by 2015, while also boosting economic growth.

Vachon recently told shareholders at the bank's annual meeting in Calgary that Quebec's new Liberal government must restore a "climate of trust"' to reverse two years of lagging confidence that has hurt the province's economic growth.

He said investor confidence in Quebec has taken a beating since 2012 from the investigation into the construction industry, student strikes, the debate on mining royalties and the charter of values.

After the close of markets Tuesday, Quebec's largest bank (TSX:NA) raised its dividend by two cents to 48 cents per share and reported a second-quarter profit of $362 million or $1.01 per diluted share.

The results were down from a profit of $417 million or $1.20 per share in the second quarter of 2013 that included a rise in the fair value of restructured notes.

However, excluding certain items, National Bank said it earned $375 million or $1.05 per share in its latest quarter, up from $352 million or $1 per share a year earlier. Analysts had expected a profit of $1.04 per share.

Revenues fell eight per cent year-over-year to $1.276 billion from $1.383 billion in the second quarter of 2013.

Barclays analyst John Aiken said the bank won't be viewed as positively as its peers even though it managed in the quarter to overcome a sizable decline in trading revenues through reasonably strong loan growth and the further expansion of its wealth management segment.

"However, a modest decline in net interest margins and essentially flat provisions do not compare well against the earnings reported to date, despite National likely being one of the few banks to announce a dividend increase this quarter," he wrote in a report.

Aiken expects National should be able to meet or beat the revenue and earnings growth of other Canadian banks because of its above average loan growth and growing wealthier management franchise.

On the Toronto Stock Exchange, National's shares closed down $1.17 at $45.86 on Wednesday.

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