National Bank of Canada

IThe business

National Bank takes deposits, lends, and keeps the difference, like any bank. What is unusual is the shape. It calls itself a leading bank in Quebec, but only 45% of its revenue comes from the province, and a fifth comes from outside Canada.³ At 31 July 2026 it had C$635.2B of assets, C$324.5B of loans after allowances, C$464.7B of deposits and C$31.5B of common equity, of which C$26.7B is tangible, meaning what is left after C$3.1B of goodwill and C$1.6B of other intangible assets C (calculated).⁵ Its fiscal year ends on 31 October. As I write, the fourth quarter has closed but not been reported; results and a strategic update are due on 4 December 2026.¹¹

The bank reports in four segments. Here is what each earned.

Three facts in that table matter more than the rest. First, Capital Markets earned C$1,684M in fiscal 2025, 38% of the four operating segments’ net income, on 26% of their revenue, and C$1,373M in nine months of 2026 C (calculated).³⁴ The profit leans on a business that earned C$1,254M in 2024, so it is the part I trust least. Second, Wealth Management is the best business in the bank, with a return on equity of 64% in the third quarter, because it uses little capital.⁸ Third, Personal and Commercial, the retail core, earned a return of 11.8% in the third quarter, below the bank’s 16.1%, so it is not what lifts the average.⁸

What it sells

Revenue was C$13,980M in fiscal 2025, of which net interest income was C$4,518M and non-interest income C$9,462M.³ That split looks odd for a bank, and the reason is accounting: the cost of funding the trading book sits in net interest income, while most of the gains sit in non-interest income. Capital Markets alone shows net interest income of −C$1,635M in nine months of 2026 against non-interest income of C$4,740M.⁴ So I do not use net interest income or the net interest margin to compare this bank across years or with its rivals. I use total revenue and pre-provision profit.

In the nine months to July 2026 revenue was C$11,853M, up 15%; adjusted pre-provision profit was C$5,945M, up 17%.⁴ In the third quarter alone revenue rose 18%, with Capital Markets up 34% and Wealth Management up 18%.⁴ Global Markets, the trading and structured products desk, earned C$578M that quarter against C$369M a year earlier, up 57%.⁸ That is the number I would not extrapolate. I set it against the bank’s own history in Section V.

Revenue grew 10.2% a year from fiscal 2016 to 2025, from C$5.8B to C$14.0B C (calculated).³ Part of that is purchase, not growth. Canadian Western Bank added C$878M of revenue in fiscal 2025 for the 8.9 months it was owned, and the bank would have reported C$14,284M had the deal closed on 1 November 2024.³

Quebec

The home market is the first thing to understand and the first risk to price. Quebec supplied 45% of fiscal 2025 revenue, other provinces 36% and the world outside Canada 19%.³ In the retail mortgage and home equity book, which was C$123.5B at 31 July 2026, Quebec is 54%, Ontario 29%, Alberta 7%, British Columbia 6% and the rest 4%.⁸ The bank says most of its branches are in Quebec.³

This is a concentration with two sides. Quebec households save twice the national rate and carry less debt, and uninsured Quebec mortgages and home equity lines have an average loan-to-value of 54%, level with British Columbia and below Ontario’s 63%, though 80% of the Quebec book is uninsured or a home equity line, against 73% in Ontario.⁵⁸ But the province’s output has shrunk while the country’s grew, exports to the US are a smaller share of GDP in Quebec than nationally, but the tariffs that apply to what it sells are higher, and the same analysts expect only 0.8% growth in 2026.⁵³ A mortgage lender sees that through credit losses, and so far there are none worth mentioning in retail: the personal banking provision was C$71M in the third quarter, the same as the second.⁸ Quebec is where this bank’s moat is, and where it can be hurt.

The Canadian Western Bank deal

On 3 February 2025 the bank bought Canadian Western Bank, based in Edmonton, a bank based in Edmonton, Alberta. The total consideration was C$6.8B, of which C$5.3B was National Bank shares at 0.450 of a share for each CWB share, valued at C$128.99 each, and C$1.4B was the settlement of existing relationships; including the 5.9% stake it already owned and C$0.6B of CWB’s preferred shares and notes, the purchase consideration was C$7.7B.³ It issued 50,272,878 new shares, including 9,262,500 from subscription receipts sold at C$112.30, of which an affiliate of the Caisse de dépôt et placement du Québec took 4,631,250, or about C$520M.³ The deal brought C$10.0B of residential mortgages and C$27.3B of business and government loans, and C$1.6B of goodwill.³

The point of buying it was a national presence. The test is whether it earns its cost. At the third quarter of fiscal 2026 the bank had captured C$238M of cost and funding savings against a target of about C$270M by the end of the year, about C$300M a year once annualized, and C$52M of revenue gains against a target of C$200M to C$250M by the end of fiscal 2028.⁸⁶ The legacy CWB loan book was roughly flat in the third quarter, while loans the bank itself originates in commercial banking grew 10%.⁶ And the first year cost reserves: fiscal 2025 carried C$350M of provisions on the CWB book, of which C$230M were day-one reserves on loans that had not yet defaulted.³ The bank also deferred its application to move the CWB loans to its own internal risk models, citing higher default rates, into fiscal 2027; the capital benefit is now expected at the low end of 35 to 55 basis points of CET1, from late 2027, subject to approval.⁶ I count none of that benefit in my base.

Laurentian Bank

The second purchase is smaller and not finished. On 2 December 2025 the bank agreed to take Laurentian Bank’s retail and small-business portfolios and mutual fund distribution agreement, with the price set by liabilities assumed less assets acquired at closing, which is expected in late 2026 and depends on Fairstone Bank’s purchase of Laurentian Bank; the Minister of Finance has approved that.⁵⁶ It already closed the purchase of Laurentian’s syndicated loan book on 17 February 2026 for C$647M in cash.⁵ On 5 August 2026 it bought 80% of G5 Holdings, owner of the Toronto wealth manager GFI Investment Counsel.⁵ I could not confirm from the bank’s releases whether the retail portfolios have closed since the third-quarter report, and I do not include them in my numbers.

Wealth Management

Wealth earned C$976M in fiscal 2025 and C$842M in nine months of 2026, up from C$837M in 2024.³⁴ Fee-based revenue was C$575M of the C$955M the segment earned in the third quarter, up 19% on a year earlier; assets under administration were C$989B, up 13% since October 2025, and assets under management C$217B, up 19% in a year.⁸⁵ The bank says it has the largest network of wealth advisers in Quebec, about 950 advisers in all, and its independent-dealer custody arm, NBIN, serves other firms.³ Fees on market-linked assets mean this segment rises and falls with stock prices. In the third quarter, market gains and net sales each added to the 19% rise in assets under management.⁸

Capital Markets

The segment trades equities, rates and currencies for clients, runs structured products, lends to corporations and advises on deals. It calls itself the Canadian leader in government debt underwriting, in corporate high-yield debt underwriting, and in ETF market-making by volume.³ Fiscal 2025 revenue was C$3,662M, up 38%, as equities trading revenue nearly doubled to C$1,395M; the segment’s efficiency ratio fell to 39.4%.³ In the third quarter of 2026 revenue was above C$1B again, with Global Markets at C$578M and corporate and investment banking at C$463M.⁸ The bank’s own explanation is rising equity markets feeding structured product origination and attractive funding for securities finance.⁶ That is a market-condition explanation, not a structural one.

Credigy and ABA Bank

The USSF&I segment earned C$704M in fiscal 2025, 18% of the bank’s net income on 12% of its revenue.³ Two businesses sit in it.

Credigy, founded in 2001 and based in Atlanta, buys and finances pools of consumer loans, mostly secured, with US$32B invested across more than 390 deals. It earned C$235M in fiscal 2025 and US$39M in the third quarter of 2026 on average assets of US$9.1B, a return on equity of 18.4%.³⁸ Its credit costs sit inside the segment: US$17M in the third quarter on impaired loans, which management put down to the normal seasoning of mortgages and consumer loans.⁸⁶ Credigy’s reserves moved in the third quarter on a macroeconomic scenario update with higher long-term rates, and the bank says it stays selective in a competitive market.⁶ Credigy’s own revenue includes a US$14M gain on the sale of a portfolio, so its third-quarter profit is flattered by a one-off.⁸

ABA Bank, in Phnom Penh, is wholly owned: the bank’s subsidiary list shows 100% of the voting rights and a carrying value of C$1,241M.³ It is the largest commercial bank by assets in Cambodia, with 103 branches, 1,894 ATMs and 5.3 million clients at the third quarter of 2026, up 33% in a year, and earned C$455M in fiscal 2025 and US$88M in the third quarter, a return on equity of 31.8%.³⁸ Loans are 98% secured by property or other collateral, at an average loan-to-value in the 50s, but provisions are rising, from C$68M in fiscal 2024 to C$118M in 2025, and impaired-loan formations reached 47 basis points in the third quarter.³⁸ Third-quarter net income was up only 1% on a year earlier, and deposits fell 4% in the quarter, because of slower economic conditions, in management’s words.⁸⁶ The bank has a moratorium on any new significant investments in emerging markets.³ Cambodia is a small, young economy that grew 4.4% in 2025 on the bank’s numbers, and the tariff deal the bank describes cut a threatened 49% US rate to 19%.³ ABA is the most profitable part of the bank on its equity, and the part where I know least about what could go wrong.

The balance sheet

Loans grew 11% in a year to C$324.5B at 31 July 2026, with personal banking up 13%, wealth up 28%, corporate banking up 11% and commercial up 5%, or 10% without CWB.⁸ The mortgage book is large and recent: C$55.4B of it, 45%, is uninsured; uninsured mortgages and home equity loans in Toronto and Vancouver are under 15% of the retail real-estate book at an average loan-to-value of 63%; condominiums in those two cities are 3%, at 71%; about 1% of the book is high-risk and investor mortgages are 11%.⁸ Deposits were C$464.7B, of which C$337B excluding wholesale funding grew 11% in a year, and average personal deposits fell 3% as clients moved to investments.⁵⁸ I note the deposit mix, not the interest margin, as the thing to watch: the bank said the benefit of better deposit margins is being offset by commercial deposit mix, with the all-bank margin guided as stable.⁶

IIThe moat

What I am looking for is a reason a bank keeps earning more than its cost of equity for longer than the average competitor can. For a bank, there are three candidates. Cheap, sticky deposits. A client base that does not shop around. And scale in costs. National Bank has a case for the first two in Quebec and a smaller case for the third.

Evidence it is widening

The return numbers are real. Over the ten years to October 2025, the bank’s shareholder return was 18% a year, the best of the six large Canadian banks, against 13% for the group and 12% for the TSX, by the bank’s own table using Nasdaq IR Insight data.³ Its annual dividend per share rose from C$2.04 in fiscal 2015 to C$4.64 in 2025, 8.6% a year, with a pause in 2020 and 2021 when the regulator barred increases for the whole sector.³ Adjusted diluted earnings per share rose 9% in fiscal 2025, and the bank met all its medium-term targets that year.¹⁶ The adjusted cost ratio has fallen from 53.7% in fiscal 2024 to 49.8% in nine months of 2026, and operating leverage was positive in every segment in the third quarter.⁸¹⁶

Evidence it is narrowing

Three things argue the other way. First, scale. Royal Bank’s tangible equity at 31 July 2026 was about C$107B against C$26.7B here C (calculated), and the bigger bank earns more on it.⁷⁵ Second, the retail core earns only 11.8% on its equity, about two points above my 9.5% cost of equity, so the deposit franchise is not producing a premium return in personal and commercial banking.⁸ Third, the profit growth of 2025 and 2026 came mostly from Capital Markets and Wealth Management, both of which depend on markets and neither of which is protected by a branch network. The bank’s own text for Capital Markets credits rising equity markets.⁶ I treat the protection as real in Quebec retail and in wealth, thin in commercial banking outside Quebec, and unproven in trading.

IIIThe competitive advantage

The advantage I can measure is return on the owner’s money. The bank does not publish a return on tangible equity, so I calculate it as return on equity times the ratio of common equity to tangible equity, 1.178 at 31 July 2026 C (calculated).⁵ That gives 19.0% for the third quarter and 19.8% on an adjusted basis. Here is the same arithmetic for Royal Bank, the biggest Canadian bank, on its filing for the same quarter, and my page on the best large US bank for comparison. My Royal Bank page was written at the same time as this one.

The second half of that note is the honest finding. The market is not treating National Bank as a cheaper Royal Bank. It is paying about the same per unit of return, on a smaller and more market-exposed earnings base. The first column of the table is therefore a statement about quality that the price already agrees with. I cover what that implies in the Valuation section.

The price comparison also puts the bank in a different position from its own history. Price over tangible book was 1.7 to 2.7 at each fiscal year end from 2016 to 2025; it is 3.08 now.³¹ The price to earnings multiple on reported earnings was 9.3 to 14.6 until 2024, and 15.6 at the end of 2025.³ The bank earned more and the market now pays much more for each dollar.

Efficiency is the other measure. The adjusted ratio of expenses to revenue was 49.8% in the nine months to July 2026, with positive operating leverage in every segment in the third quarter.⁸⁶ Management expects positive operating leverage for the full year, and a return on equity of 17% or more in fiscal 2027, assuming the CET1 ratio drifts to about 13% by the end of that year.⁶ Those are the targets the price needs to see met.

IVManagement

Management matters in a bank more than in most businesses, because the same people decide how much risk to take and how much of the profit to keep. I look at how they are paid, what they own, and what they did with capital over a full cycle.

Pay, and what it pays them to do

Laurent Ferreira has been president and chief executive since 1 November 2021, after 27 years at the bank; he holds a master’s in finance from HEC Montréal.¹⁰ The board set his target pay at C$11.0M in May 2025 and paid C$12,650,084 for fiscal 2025, up from C$11,425,050.¹⁰ Of that, C$1,111,764 was salary, C$2,307,647 was a cash bonus, and C$9,230,673, or 80% of the variable pay, was deferred: C$6,922,942 in performance share units, C$2,307,731 in options and none in plain restricted units.¹⁰ The circular says 90% of his target pay is at risk, awards are capped at 150% of target, and at least 70% of variable pay is deferred, over three years for share units and up to ten for options.¹⁰

The units pay out on two measures with equal weight: the bank’s total shareholder return and its return on equity, each against only the five other large Canadian banks, on a scale from 0% to 200%. The board added the return-on-equity test and narrowed the peer group in 2025.¹⁰ I read that as a fair design with one weakness. It pays for return on total equity, which includes goodwill, so a stock-funded deal like Canadian Western Bank lowers the number the chief executive is paid on, which is a brake on large deals. It does not pay for credit quality, for the CET1 ratio, or for the quality of the earnings, and Capital Markets profit counts like any other.

The circular also tells you what the pay has done. Of every C$100 granted to the chief executive over five years, C$197 was actually worth at 31 December 2025, against C$218 for every C$100 invested in the shares, so he has done a little worse than a holder.¹⁰ The ratio of actual to granted pay moves with the share price.

Their own money

At the 31 October 2025 close of C$156.70, Ferreira held C$22.6M in shares and deferred units he owns outright, 2.26 times his three-year average target pay, and C$20.1M of units not yet vested, in total C$42.8M or 4.28 times that average. The requirement is three times in total and one time directly, kept for two years after he leaves.¹⁰ It was raised in February 2025. Those units have gained value with the share price since then. I could not find his holdings in plain share counts, only in dollars, and I did not look for insider sales in the Canadian insider register.

An affiliate of the Caisse de dépôt et placement du Québec bought C$520M of subscription receipts in 2024 to keep its stake as the Canadian Western Bank deal added shares, which is the one named outside holder I can verify from the bank’s filings.³ National Bank is not listed in the United States, so there are no 13F holdings to read; I do not name any other holder.

What they did with the money, over a full cycle

Between fiscal 2016 and 2024 the share count barely moved, from 338.1M to 340.7M R (reported), so management neither shrank the company much by buybacks nor diluted it.³ It paid out 42% of income to common as dividends and spent only C$1.35B on buybacks over the ten years C (calculated). The dividend grew 8.6% a year over ten years, with a stop in 2020 and 2021 on the regulator’s order.³ Tangible book per share grew 13.6% a year to fiscal 2025.

Then in 2025 came the large deal, paid mostly in shares valued at C$128.99, about 1.9 times book, and in 2026 the bank began buying shares back at around C$189.³⁵ A bank that takes a cheap currency to buy a business is exposed to the price paid, and one that then repurchases at a higher price shows the cost. I do not want to overread it: the share price rose with earnings, and the deal can claim some of that rise. But I note that a big acquisition at the stock’s earlier prices has been followed by a large buyback near the stock’s peak. The buyback is also the reason the CET1 ratio fell from 13.8% to 13.5%.⁵

Reported earnings and owner cash

The number I want is cash an owner could take out and still leave the bank as strong as it was. For a bank it is net income to common holders, less the capital needed to keep the ratio of equity to risk-weighted assets constant as the balance sheet grows. Stock pay is already inside expenses, since the bank expenses its share-based awards.³ The proper question is how far that is from reported earnings.

Reading 2026

Fiscal 2026 is a good year, and I do not want to value the bank on one. The adjusted figures are above what I would call normal in two places, trading revenue and credit costs.

The result is a normal year about 8% below the adjusted figure, with a return on tangible equity of 17.6% against 19.6% on the adjusted nine months. The gap is the thing to keep in mind when the price is compared with this year’s earnings. At C$12.48 a share, normalized, the price to earnings is 17.2 times, against 16.9 on the adjusted last twelve months C (calculated).⁴¹⁶ My base case starts from the normal year, not the adjusted one: in 2027 it takes Capital Markets back to about C$3.4B while the rest of revenue grows about 6%, so total revenue is flat. Its 2027 return on tangible equity of 18.7% is above the 17.6% because the rest of the bank grows and the capital ratio steps down to 13.0%.

VFinancials

Ten years of reported figures follow, with the share price and the return I calculate. Three accounting breaks matter when reading across the columns. Canadian Western Bank is in only from 3 February 2025. Results for fiscal 2023 were restated for the new insurance standard, IFRS 17, and those for fiscal 2017 to 2021 for a change in the treatment of cloud computing costs. Loans include customers’ liability under acceptances up to 2023.³ The bank also stopped reporting revenue and taxes on a taxable-equivalent basis in 2025.¹⁶

Growth

Revenue grew 10.2% a year, diluted earnings per share 13.2% and tangible book per share 13.6%, from fiscal 2016 to 2025 C (calculated). Fiscal 2016 was a weak base: the provision was C$484M and return on equity was 11.7%.³ Diluted earnings per share rose 3.1 times and revenue 2.4 times, because expenses fell from 66% of revenue to 54% in the reported figures.³ Reported figures for fiscal 2025 look worse than the year was: specified items related to Canadian Western Bank cost C$462M after tax.¹⁶

The return on tangible equity averaged 21% over the ten years C (calculated). That is an unusually high figure for a bank, and part of it is the way the bank is built. It has a large wealth and trading business that uses little capital, and its intangible assets, including software, were small before the deal. Tangible equity per share was C$20.97 in 2016 and C$65.99 in 2025. The return on common equity, which the bank publishes, averaged 16.7% in the same years, with a low of 11.7% in 2016 and a high of 20.7% in 2021.³ The bank’s medium-term objective is 15% to 20%, and it got to 15.3% adjusted in fiscal 2025.¹⁶

Credit

The credit record is good, not spotless. The provision peaked at C$846M in the pandemic year of fiscal 2020, 0.53% of average loans C (calculated), and C$2M in fiscal 2021. Fiscal 2025 was C$1,246M, but C$230M of it was day-one reserves on the bought loans, and provisions on impaired loans were 0.28% of average loans, against 0.20% in 2024.³ Gross impaired loans were C$3,736M at 31 July 2026, 114 basis points of loans, against 102 basis points a year before and 82 basis points without USSF&I.⁸ In the four quarters to July 2026 the provision ran at 31 to 33 basis points, and management guides to 25 to 35 basis points on impaired loans for the year, with the nine-month figure at 27.⁸⁶ Reserves were C$2.7B, 5.3 times net charge-offs, after 17 quarters of building them.⁸ What I cannot judge from outside is how the book behaves in a recession it has not seen: loans grew 11% in a year on record mortgage originations and a 11% rise in corporate banking. Management itself says wholesale books are subject to periodic lumpiness.⁶

Capital

The CET1 ratio was 13.51% at 31 July 2026 on C$198.7B of risk-weighted assets, about C$26.9B of common equity Tier 1 capital C (calculated).⁶⁸ OSFI’s requirement was 11.0% after it cut the domestic stability buffer from 3.5% to 3.0% on 19 June 2026 and narrowed its range.⁵ The cushion is 2.5 points, about C$5.0B C (calculated). Management intends the ratio to drift towards 13% by the end of fiscal 2027, by growth, buybacks, a capital benefit of about 20 basis points in the fourth quarter from refinements, and the model approval for the CWB loans that I do not count.⁶ The leverage ratio was 4.2% against 3.5% required.⁴⁵ In the third quarter, the bank generated 41 basis points of capital, used 19 basis points for loan growth and 26 for buybacks.⁶ Of the 41 basis points generated after dividends, 19 went to growth and 26 to buybacks, so the ratio slipped.

VIValuation

Start with what would go wrong

Before any numbers, I ask what would most likely make this a poor purchase from here, and work back from that. The bank is good. These are the three ways it goes badly wrong, in the order I think most likely.

1. The multiple goes back to where it has been. The market pays 3.08 times tangible book. At the nine fiscal year-ends from 2016 to 2024 it paid 1.7 to 2.7 times, 2.3 on average C (calculated).^312131415 If the bank does what I expect and the market pays 2.0 times tangible book in fiscal 2036, the return from C$214.21 is about 5.6% a year with the cash paid out on the way, which is 1.8 points above the 3.78% a ten-year Canadian government bond pays E (estimate).¹⁹ Nothing in the business has to break for that to happen.
2. A Canadian downturn lands on Quebec while trading profit falls back. The province’s output has shrunk since early 2025 and its tariff burden is the highest in the country.⁵ If that turned into a recession, with the retail provision rising, the commercial book of the bought bank showing losses, and Capital Markets reverting from C$4.1B of revenue to C$3.4B, earnings would fall together. My bear case is that: revenue down 4% in 2028, credit costs at 0.95% of loans, which is above the 0.53% of 2020, and a return on tangible equity of 10% that year E (estimate). After that it never gets back above 15%, and the 2027 revenue is already down 1.5% as trading cools. The value in that case is C$105.
3. The capital goes into more purchases, or the new ones disappoint. The bank has just spent C$7.7B on one bank and is taking the retail and small-business book of another.³⁵ The Canadian Western Bank legacy loans have been flat, a model approval has been pushed back a year, and the bank says higher default rates were the reason.⁶ A second stock-funded deal at a high price, with a return on equity below the bank’s own, would drag the average. I cannot put a number on this, and I do not try.

I can show what the first does, and do below. The second is my bear case. The third I flag and leave.

What the price implies

Over the ten years to November 2026 the price rose 4.47 times, from C$47.90, while tangible book per share rose 3.32 times from the end of fiscal 2016 to July 2026 C (calculated).²¹⁵⁵ The multiple supplied the rest, about 1.35 times of it. The stock is 10% under its 52-week high of C$237.13, and its price to tangible book is the highest of the eleven points I have.¹

Why a bank is not valued on free cash flow

For most businesses on this site I discount free cash flow. A bank cannot be valued that way, for two reasons. Deposits and loans are raw material and product at once, so the cash flow statement moves with the size of the balance sheet: when National Bank’s deposits grew C$94B in fiscal 2025, C$33B of it from the bought bank, that looked like a cash inflow with no meaning for the owner.³ And the constraint that matters is regulatory capital, not cash. What an owner can take out is what is left after the bank keeps its capital ratio, and the regulator sets that ratio. So I work on tangible equity. The right question is how much a shareholder can take out and still leave the bank as strong.

The idea is simple. A dollar of tangible equity that earns exactly the cost of equity is worth a dollar. One that earns more is worth more, and the more it earns above the cost and the longer it can, the more it is worth. The value of the shares is tangible book plus the present value of the profit above what equity costs. That gives the same number as discounting the cash the owner can take out each year after keeping the capital ratio at a target. I do both, and they agree, which checks my arithmetic.

About 55% of the value sits beyond 2036. That is common for a business expected to last, but it means the value depends on what I assume the bank earns in ten years, and I show that sensitivity below.

Reverse the question: what return does the price need?

I take my base growth and capital ratios and ask a different question. What return on tangible equity, kept for ten years and for ever after, makes the shares worth C$214.21? I solve it.

The answer is a return on tangible equity of 21.0% every year C (calculated). With the faster growth of my bull case it is 19.6%, and with the slower growth of the bear, 22.9% C (calculated). There is a shorter route. If the bank keeps a return R for ever and grows at g, the multiple of tangible book is (R minus g) over (cost of equity minus g). At 3.08 times, R must be 20.9% if growth is 4%, 23.0% if it is 3% and 18.8% if it is 5% C (calculated). Either way the price needs a return near the bank’s ten-year average of 21% for a decade or more, not the 15% to 20% on common equity it describes as its medium-term objective, which is about 18% to 24% on tangible equity.¹⁶

I find it useful to put this beside the history. A flat 21% is level with the ten-year average and above the adjusted 9M figure of 19.6%. So the price is not crazy. It treats the bank’s own average as the norm for a decade, from a larger base that now contains a stock-funded purchase and a trading business at a high. I cannot say it will not happen. That is what I mean when I say the honest range is wide.

The discount rate

I discount at 9.5%. The build starts with the 3.78% yield on the ten-year Government of Canada bond on 30 October 2026 and adds an equity risk premium of 5.0%, which is my assumption, times the bank’s beta against the TSX Composite.¹⁹ That beta is 1.14 over 119 months of monthly returns, 1.17 over 60 months and 1.42 over 36 months, which gives 9.5%, 9.6% and 10.9% C (calculated).²⁰ I take the first two. The 36-month figure covers a stretch in which the bank’s shares rose faster than the index, and I do not want one rally to set the rate. The betas use price returns, without dividends. A premium of 5.5% would move the first two to 10.1% and 10.2%, which is why I show 10.0% and 10.5% below.

At 9.0% the base is C$184, and at 8.5% C$202 E (estimate). The price equals my base value at a cost of equity of about 8.2%, or at 9.0% with a terminal return above 18.5%. At 10.0% the base is C$156.

Three cases

The base case is the bank doing roughly what it says, with trading revenue paid for out of the total: Capital Markets falls back toward C$3.4B in 2027 while the rest of the bank grows about 6%, so total revenue is flat, and the return on tangible equity is near 19% that eases to about 18% as the overhead ratio drifts from 49.8% to 52%, and credit costs at 0.34% of loans, just above this year. It gives no credit for the 17%-plus return on equity target beyond what the overhead assumption allows, and none for the model approval.⁶ The bull case is the bank doing what it says and more: a ratio of 12.2% as the approval comes, revenue growth of 6% to 7%, and the return on tangible equity staying above 20% E (estimate). The bear case is the downturn described above.

The price against the range

The price of C$214.21 is 27% above my base value of C$169, 1% below my bull value, and 104% above my bear. The same facts as a yearly return: for someone paying C$214.21, if my base case happens, the cash paid out plus a terminal value earns 8.2% a year, under the 9.5% I require; the bull case earns 9.6%, just over it E (estimate). So the price is the bull case. It is not a price at which the base case earns the required return, and it is not a price at which the bear case loses money for ten years: the bear case still returns 6.0% a year, because the dividends and a terminal value remain.

Quality and price are two questions

How good the business is and how good the price is are separate questions. The business scores well: a ten-year average return on tangible equity near 21%, a dividend that has grown 8.6% a year, a record of credit losses that stayed under 0.55% of loans even in 2020, and a shareholder return the best among the big six over ten years.³ The price is the harder part. At 3.08 times tangible book against a history of 1.7 to 2.7, the bank is a high-quality business at a price that already pays for its record. That is the pattern I would call a good company, at a price that gives little room. It does not say the shares will fall, and I do not know what the market will pay in a year.

The alternatives for the same dollar

The simplest alternative is the ten-year Government of Canada bond at 3.78%.¹⁹ The bank’s dividend yield of 2.46% is lower than that, so the bond pays more today and the bank’s yield has to grow. My base case gives about 8.2% a year from the price, about 4.4 points over the bond for taking equity risk. A comparison inside the site is the Royal Bank of Canada, in my Royal Bank page: on the filings above it is priced at 3.70 times tangible book for a return near 22%, against 3.08 for 20%, so the two are close on price per unit of return. I leave that page’s values to that page. The other bank on the site, JPMorgan Chase, is priced at 3.0 times tangible book for a 20% return, with a base-case return from its price of about 8.7% a year on the same method, against 8.2% here.¹⁸ And Couche-Tard, a Canadian business valued on cash, is priced 11% above my base value, against 27% here.²¹ Seen that way, the question for National Bank is not whether it is a good bank. It is whether there is anywhere on the site where the same dollar has a wider gap between price and value.

Multiply it out

I try to avoid a case that needs many things to go right at once. Here is what the price needs, as I see it, with my guesses at the odds.

1. Return on tangible equity averaging 21% or more for ten years 25% E (estimate)
2. Capital rules and the CWB model approval go the bank’s way, with a 13% CET1 ratio enough 70% E (estimate)
3. Credit losses stay inside a normal cycle, with no recession in Canada hitting Quebec harder 65% E (estimate)
4. The market still pays about 3 times tangible book in 2036 30% E (estimate)

Multiplied, that is 3.4%. The four are not independent: a strong economy helps all of them. So I treat the figure as a reminder that the price needs a lot to go right together, not as a probability. At the margin-of-safety price of C$110 the case does not need all four.

What I can’t judge

I cannot judge four things from outside. First, how much of this year’s Capital Markets profit is repeatable. The bank describes the drivers as market conditions, and the history I have for the segment is two years of data. Second, how the retail and small-business book from Laurentian Bank will fit and what it will cost, since the price is set at closing and I could not confirm its status after the third-quarter report. Third, how ABA Bank’s credit will behave in a Cambodian downturn. Fourth, how much of the 54% Quebec concentration in mortgages is a safety, for the low loan-to-value, and how much a risk, for the lack of other markets. I show a range for each in the three cases, not a single number.

The margin of safety

My margin-of-safety price is C$110, 35% below my base value. I choose 35% because of what I cannot judge: with that cushion my bear case returns 9.2% a year, close to my 9.5% hurdle, and my base case 12.8% E (estimate). The stock last closed below C$110 in April 2025, and is now 95% above it.² That says the price has not been in the margin-of-safety zone for years, not that it will not return.

VIIThe case for the price

What most people miss

First, a good part of the profit needs little capital. Wealth Management earned C$842M in nine months of fiscal 2026 on a return on equity of 64%, and ABA Bank earned C$455M in fiscal 2025 while the subsidiary list carries it at C$1,241M; together they were 36% of fiscal 2025 net income C (calculated).⁸³ Second, OSFI cut the domestic stability buffer from 3.5% to 3.0% on 19 June 2026, which lowers the requirement by about C$1.0B C (calculated).⁵ Third, where the book is biggest it is careful: in Quebec, 54% of the mortgage book, uninsured and home equity loans average a loan-to-value of 54%.⁸

The bull case

The bull case is the bank’s own. On the call of 26 August 2026 Laurent Ferreira pointed to strong earnings, positive operating leverage and robust capital, and chief financial officer Marie Chantal Gingras said the bank was on track for a return on equity of 17% or more in fiscal 2027, assuming a CET1 ratio drifting to about 13%, with C$238M of savings captured and revenue gains of C$200M to C$250M targeted by fiscal 2028.⁴⁶ The pieces are Capital Markets revenue above C$1B a quarter, Wealth Management revenue up 18%, Quebec credit holding and capital freed by lower buffers. An affiliate of the Caisse de dépôt et placement du Québec put about C$520M into the Canadian Western Bank financing in 2024, which shows interest in the deal and says nothing about today’s price.³ I found no published view from Gerstner, Baker, Wood, Gurley, Palihapitiya, Sacks or Ackman. The bank is not listed in the United States, so there are no 13F holdings, and I did not use aggregator targets.

Against reality

Much of it is true today: return on equity of 16.8% adjusted, an adjusted efficiency ratio of 49.8%, provisions inside guidance and capital above the requirement.⁸⁶ A return on equity of 17% or more in fiscal 2027, kept up, is about 20% on tangible equity. That is my bull case, worth C$216, and if the bank does it, C$214.21 is a fair price, about 1% below that value E (estimate). The price needs about 21% held for ten years. The distance is in two places. One is how much of today’s return is trading: with Capital Markets revenue back at C$3.4B the return is about 18% on my arithmetic E (estimate). The other is the multiple: a bull case that comes true still earns 9.6% a year from this price, level with my hurdle.

What a 10x would take. Ten times C$214.21 is C$2,142 a share, about C$1B of market value, more than twice the C$396B that Royal Bank is worth C (calculated).¹⁷⁷ At 15 times earnings it needs about C$55B of net income to common, 10.5 times this year’s adjusted figure; at 3.1 times tangible book, ten times today’s tangible equity. The stock rose 4.5 times in ten years, 16% a year, and 1.35 times of that was a higher multiple that cannot repeat.² A tenfold move in ten years needs 26% a year. It is close to impossible, and I would not build a case on it.

Where I come down

The wealth business and the lower buffer moved me: the first earns well on little capital, and the second supports the 13% capital ratio in my base. The trading profit did not move me, since the bank itself puts it down to market conditions, and neither did the price, which sits at my bull value. What would raise my values is a 17% return on equity with Capital Markets falling back toward C$3.4B and the Canadian Western Bank loans moving to the bank’s own models on schedule. What would lower them is a return that rests on trading profit that does not repeat while Quebec credit turns.

VIIIRisks, and what would change my view

The three ways this goes badly wrong are at the start of Valuation. These are the rest.

• The Canadian and Quebec economy. The bank’s economists forecast Canadian growth of 0.8% in 2026 and Quebec’s at the same rate, after two quarters of contraction in Canada earlier in the year and a review of the North American trade agreement on 1 July 2026 that did not reduce the uncertainty.⁵ Quebec is 45% of revenue and 54% of mortgages. A deeper downturn would reach both.³⁸
• Mortgages and consumer credit. Uninsured mortgages are C$55.4B, 45% of the book, with 40 basis points of them 90 days past due; investor mortgages are 11%, and 2.7% of the book has a remaining amortization of 30 years or more. High-risk borrowers are about 1%.⁸ The stress would come in renewals at higher rates and in unemployment, which the bank says drives retail provisions.⁶
• Trading and fees. Capital Markets and Wealth Management were 56% of the four segments’ net income in nine months of 2026, and both depend on markets. Equity structured products and securities finance drove the quarter.⁸⁶ A flat or falling market would lower both at once, and variable pay would absorb some of it, as it did in the other direction, when variable compensation rose C$89M from a year earlier in the third quarter.⁸
• Integration and deals. Canadian Western Bank’s legacy loans were flat in the third quarter, the move to the bank’s own risk models slipped a year, and the bank has C$7.7B of consideration to earn back.⁶³ The Laurentian retail and small-business portfolios are expected to close in late 2026 on conditions I could not check.⁵ A further deal would add another set of integration costs.
• ABA Bank and Cambodia. It earned 11% of the bank’s net income in fiscal 2025 in one small country, whose bank-credit growth, real estate prices, Thai border conflict, US tariff rate of 19% and remittances all bear on it; provisions rose C$50M in fiscal 2025 and formations were 47 basis points in the third quarter.³⁸ The bank has a moratorium on any new significant emerging-market investments.³ I cannot judge the legal and anti-money-laundering exposure of a bank in that market from public documents.
• Credigy and US consumers. Credigy has US$9.1B of assets, 93% secured, in a US credit market where the bank’s own annual report says card and auto delinquencies have reached levels like 2008 and 2009.⁸³ The bank reported a US$14M gain on a portfolio sale in the third quarter, which will not repeat.⁸
• Regulation and capital. The domestic stability buffer was cut by half a point, but can go back to 3.5% only if OSFI widens the range again; the capital rules are the single biggest lever on what an owner can take out. The Basel measure that sets a floor on risk-weighted assets is at 67.5%.⁵
• Interest rates. The Bank of Canada rate is 2.50%, and the bank expects it to stay put to the end of 2026.¹⁹⁵ The all-bank margin is guided as stable for the fourth quarter, with deposit mix offsetting better deposit margins.⁶
• Technology and competition. The bank’s own risk list names open banking, artificial intelligence, new competitors and cyber attack.⁶ I cannot judge how much of the efficiency is structural.

What would raise my base value: a fourth-quarter result showing a return on equity near 17% with credit inside guidance and a fiscal 2027 outlook that treats Capital Markets as lower. What would lower it: a return that holds only because trading stays high, retail credit costs rising in Quebec, or another large purchase.⁶