On Monday, National Bank of Canada (NA:CN) (OTC:NTIOF) stock rating was downgraded from Buy to Hold by Jefferies, with the firm also lowering the price target to Cdn$126.00 from Cdn$147.00. The downgrade was driven by concerns over potential credit weakness in both personal and commercial lending sectors.
Jefferies analysts pointed to the recent acquisition of CWB by National Bank as a factor increasing the bank’s exposure to commercial lending, which is expected to weaken. This increased exposure, combined with an underperforming CWB book, is likely to necessitate higher provisions than previously forecasted, especially in light of impending tariffs.
The analysts also noted that National Bank has significant exposure to the Canadian market, which is projected to experience slower economic growth. While there is potential upside from the integration and synergies following the acquisition of CWB, Jefferies believes that the most substantial benefits to the bank’s bottom line will not materialize until 2026.
The statement from Jefferies highlighted the dual impact of the acquisition and market conditions: "Although we anticipate credit weakness to be more pronounced on the personal side, commercial lending is anticipated to weaken as well. With the acquisition of CWB, National’s commercial exposure has increased significantly and incremental weakness (on top of an already underperforming CWB book) will likely need relatively higher provisions than we had originally forecast ahead of tariffs. Further, National is also over indexed in its exposure to Canada and its expected weaker economic growth. Upside still exists from the integration and synergies from CWB, but we believe that the bulk of the lift to the bottom line is likely to occur in 2026."
Investors are now observing National Bank with a more cautious outlook as reflected in the revised rating and price target. The bank’s stock performance in the coming months will likely be influenced by its ability to navigate the anticipated credit challenges and capitalize on the long-term benefits of its CWB acquisition.
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