National Bank Says Maple Investment at Risk of Substantial Loss

National Bank of Canada will take a C$64 million ($48 million) restructuring charge in the fourth quarter and said its investment in Maple Financial Group Inc., which is being probed by German regulators, may be at risk of a “substantial loss.”

National Bank holds a 25 percent stake in Maple Financial, with a carrying value of C$165 million, the Montreal-based company said Thursday in a statement. Maple Financial’s German unit was raided last week as part of an investigation by Frankfurt prosecutors into transactions that took advantage of tax refunds linked to dividend payments.

“Given the seriousness of the reported allegations and the actions which may be taken by German regulatory authorities to address risks as to the continued viability of Maple Bank GmbH, National Bank considers its investment at risk of substantial loss,” the bank said.

A full write down of the Maple investment would affect National Bank’s common equity Tier 1 ratio by about 13 basis points, the lender said.

National Bank said the restructuring costs, which it will take in the fourth quarter, are tied to employee severances, “premises optimization” and professional fees.

“In an environment of low economic growth and high technological transformation, we feel that additional efforts to improve efficiency and processes, as well as adding to our excess capital cushion, are the right steps to take,” Chief Executive Officer Louis Vachon said in the statement.

Share Sale

National Bank also said it will sell 7.16 million shares at C$41.90 around Oct. 9 to raise C$300 million, according to the statement. Vachon said the bank wants to have a buffer of 20 to 25 basis points above its required Tier 1 capital ratio of 9.5 percent. The lender anticipates the ratio will be 9.8 percent after the share sale and restructuring costs.

“We expected, and our hope was, that we were going to do that by using excess capital generated by our profits, but market volatility is now forcing us to take the decision of issuing shares.” Vachon said on a call with analysts. “We do not like diluting our shareholders, but in the circumstances we feel it is the right thing to do.”

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