Nov. 19 (Bloomberg) -- National Bank of Canada, the country's sixth-largest bank, plans to take a C$365 million ($374 million) writedown in the fourth quarter for its investments in Canadian asset-backed commercial paper.

The charge is about C$575 million pretax and before compensation adjustments, the Montreal-based lender said today in a statement. National Bank bought back C$2.1 billion of commercial paper in the quarter ended Oct. 31, mainly from its mutual fund clients.

National Bank's writedown is the largest for any Canadian bank, and is higher than the lender's net income last quarter. The other banks, including Royal Bank of Canada, had combined writedowns of C$807 million on commercial paper, and debt tied to the U.S. subprime mortgage market.

``It seems on the high side,'' said CIBC World Markets analyst Darko Mihelic, who expected a pretax charge of about C$300 million from National Bank. ``It either implies they're being conservative or they have a lot of really junky stuff, or a combo of the two.''

The bank's shares rose 77 cents, or 1.5 percent, to C$51.80 at 4:10 p.m. trading on the Toronto Stock Exchange. The stock is down 21 percent this year, the worst performer among Canadian banks.

The C$34 billion market for commercial paper sold by non- bank dealers in Canada ground to a halt in August after Coventree Inc. and other trusts failed to renew most of their maturing debt because investors were concerned about ties to U.S. subprime lending.

Commercial Paper

National Bank, which had C$150 million in commercial paper before the buyback, first became involved with non-bank asset- backed commercial paper in 2000.

Unlike other Canadian banks, which steered most of their clients to in-house funds, National advised customers to buy commercial paper offered by dealers including Toronto-based Coventree. The bank turned to outside firms because it didn't have a lot of asset-backed products of its own.

Canada's banks have said they'll have combined securities writedowns in the quarter of about C$1.17 billion. By comparison, the world's biggest banks and securities firms in the U.S. and Europe have recorded more than $45 billion of writedowns this year on asset-backed securities.

National Bank is scheduled to report fourth-quarter results on Nov. 29. The bank will probably post a net loss of about C$1 a share with the writedown, said Michael Goldberg, an analyst at Desjardins Securities. The bank had profit of C$220 million, or C$1.31 a share, a year earlier.

Montreal Group

National Bank is among a group of investors led by the pension fund Caisse de Depot et Placement du Quebec that signed the so-called ``Montreal proposal'' on Aug. 16. The group agreed to restructure the commercial paper into floating-rate notes with longer maturities, and aims to finish the plan by Dec. 14.

National Bank's writedown is equal to more than 25 percent of its commercial paper holdings, one of the highest writedowns recorded by Canadian companies. DundeeWealth Inc., the Toronto- based owner of Dynamic Mutual Funds, wrote down the value of its asset-backed commercial paper by about 15 percent. Desjardins Group, the largest credit union in Canada, took an 8 percent writedown last week.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: November 19, 2007 16:19 EST