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The results were in line with the trends we had covered in August 2025 , i.e., a more moderate expansion of the loan book (with callouts for SMEs andLong-only investment, evaluating companies from an operational, buy-and-hold perspective.Quipus Capital does not focus on market-driven dynamics and future price action. Instead, our articles focus on operational aspects, understanding the long-term earnings power of companies, the competitive dynamics of the industries where they participate, and buying compan ...

Summary of National Bank of Canada Conference Call Company Overview - **Company**: National Bank of Canada (OTCPK:NBCD.F) - **Date**: January 06, 2026 Key Points Macro Environment - The macroeconomic environment in 2025 was characterized by uncertainty due to trade wars and a fragile labor market, leading to a pause in business investments in Canada, which is a major concern for the bank [4][5] - Despite these challenges, the Canadian economy has shown resilience, surprising many observers [4] - National security and geopolitical issues are highlighted as critical priorities for Canada, with a call for faster decision-making in nation-building and reindustrialization efforts [5][6] Trade and Interprovincial Barriers - There is a need for more collaboration to address trade barriers, particularly between provinces, and to expedite agreements with key allies [11][12] Financial Performance and ROE Targets - The bank targets a Return on Equity (ROE) of approximately 15% for 2026 and over 17% for 2027, with improvements expected from both capital deployment and organic growth [12][13] - The bank's capital generation is outpacing consumption, allowing for share buybacks and strategic acquisitions [13][14] Growth Strategies - The bank anticipates significant revenue synergies from the acquisition of CWB, particularly in commercial client fees and organic growth in wealth and capital markets [16][22] - There is a focus on domestic growth, with plans to accelerate growth outside Quebec starting in the second half of 2026 [25][26] Credit Quality and ABA - The bank is maintaining a conservative approach to credit quality in its Cambodian operations (ABA), with increased allowances for impaired loans and a focus on prudent management [31][32] - The Cambodian economy is expected to grow at around 4% in 2026, with a long-term potential of 7% [28][30] Capital Markets Outlook - The capital markets business had a strong performance in 2025, with a 58% growth in PTPP to CAD 2.2 billion, but a decline is expected in 2026 to a range of CAD 1.8 billion to CAD 2 billion [35] - The bank is well-positioned to take advantage of market opportunities, particularly in trading and investment banking [36][37] Cost Control and Efficiency - The bank is focusing on cost control, particularly in its retail business, and is exploring technology and digital onboarding to improve efficiency [71][74] - There is an emphasis on adapting the branch network to changing customer behaviors, with a shift towards cashless branches [76] Key Messages for Investors - The bank is proud of its execution in 2025 and is optimistic about 2026, focusing on client engagement and realizing synergies from recent acquisitions [78][79] - Acknowledgment of employee contributions and shareholder support is emphasized as crucial for future success [79] Additional Insights - The bank is open to tuck-in acquisitions, particularly in wealth management, but recognizes the complexities involved [57][58] - The current market environment is viewed as frothy, with a cautious approach to capital deployment in private credit [51][52]

Economic Growth - The US economy expanded at a rate of 4.3% in the third quarter, driven primarily by consumer spending, which increased by 3.5% [2][3][5] - The growth rate exceeded expectations by a full percentage point, with significant contributions from healthcare spending and trade [3][5] - Business investment grew by over 5%, while exports rose nearly 8%, indicating a robust economic environment [5][6] Consumer Spending - Consumer goods spending in real terms increased by over 3%, with recreation and transportation spending both up around 7% [4][5] - Anecdotal evidence from the holiday shopping season suggests strong consumer spending trends [4] Business Investment - Capital expenditures (capex) grew over 5%, although investment in non-residential structures contracted at a pace of 6.3% [5][6] - The slowdown in business investment is attributed to high interest rates, which are impacting both residential and non-residential investments [9][10] Federal Reserve and Interest Rates - The Federal Reserve may have the capacity to lower interest rates if the economy sustains a growth rate of around 3%, as this would indicate lower inflation [12][13] - The current yield curve is flat, suggesting that monetary policy remains somewhat restrictive despite strong economic growth [13][14] Labor Market - There is a noted decoupling between GDP growth and job growth, with some analysts suggesting that the labor market may take time to catch up with economic recovery [14][16] - The private sector is expected to see job growth as the economy continues to expand, with a three-month moving average of private employment trending upward [17][18] Consumer Sentiment - Despite strong GDP growth, consumer sentiment has declined to levels not seen since April, indicating concerns over affordability and living standards [20][21] - Policies aimed at increasing after-tax wages are expected to improve consumer sentiment over time [19][20] Market Outlook - The stock market is anticipated to continue its upward trajectory, with a target of 8,500 for the S&P 500 in 2026, supported by earnings growth [24][25] - Investors are advised to prepare for potential volatility and consider opportunities in sectors that may be undervalued [26][27] International Relations and Trade - The US-China relationship is expected to evolve, with potential for improved relations and targeted stimulus measures in China to support domestic consumption [50][51] - Chinese technology companies listed in Hong Kong are viewed as undervalued compared to their US counterparts, presenting investment opportunities [45][46] Manufacturing Sector - The manufacturing sector is projected to improve in 2026, driven by increased certainty and advancements in smart manufacturing technologies [102][103] - Smart manufacturing is characterized by the integration of AI, automation, and improved operational efficiencies, which are expected to enhance product quality and reduce costs for consumers [107][110]

Group 1: IBM and Confluent Acquisition - IBM is set to acquire Confluent for $9.3 billion, marking a significant investment in enterprise software and data streaming capabilities [1][106]. - This acquisition builds on a five-year partnership between IBM and Confluent, indicating a strategic alignment in their business objectives [107]. - IBM's rationale for the acquisition is driven by the anticipated growth in generative AI applications, which are projected to require robust data platforms for real-time data processing [109]. Group 2: Market Trends and Economic Indicators - The Federal Reserve is preparing to announce a rate decision, with markets pricing in an 89% chance of a rate cut this week [37]. - Analysts are closely watching the guidance and potential dissents from Fed members, which could indicate future monetary policy directions [39][40]. - Current economic sentiment remains low despite stable GDP growth and asset market performance, with consumer sentiment metrics at all-time lows [10][11][12]. Group 3: Company Earnings and Market Performance - Earnings reports from Oracle and Broadcom are anticipated this week, with Oracle facing scrutiny over its debt and AI strategy [89]. - Broadcom's role in Google's AI initiatives is expected to provide a boost, highlighting the interconnectedness of tech companies in the AI space [98]. - Netflix shares have been downgraded due to concerns over a bidding war for Warner Brothers, which may force Netflix to increase its offer [57]. Group 4: Sector Performance and Investment Outlook - The S&P 500 shows mixed sector performance, with technology stocks generally performing well, while utilities and healthcare sectors are under pressure [4][5]. - Analysts suggest that quality stocks with consistent earnings growth are crucial for investors, especially in the current economic climate [28][31]. - There is a growing interest in sectors like industrials and healthcare, with expectations for potential upside as the market adjusts to economic conditions [34].

Market Overview - The stock market is experiencing significant gains, with the NASDAQ up 21% in 2025, and major banks are raising their S&P 500 price targets for 2026, predicting a potential 14% surge due to strong earnings growth, possible Fed rate cuts, deregulation, and advancements in artificial intelligence [2][3]. Investment Strategies - There is a debate on portfolio allocation, with traditional rules suggesting a mix of equities and bonds based on age. However, some analysts express caution about current market valuations, particularly with the NASDAQ trading at approximately 30 times earnings, indicating a potential overvaluation [4][5]. - The concept of a balanced portfolio is being challenged, as many investors consider holding the "MAG 7" stocks as sufficient diversification, which may not be adequate if the bull market continues [7][8]. Economic Indicators - The market has seen 46 all-time highs, and Black Friday recorded the largest online sales ever, reflecting strong consumer spending and employment levels [3]. - Concerns are raised about the sustainability of the current market rally, with some analysts predicting a potential market correction due to over-exuberance and the influx of retail investors [11][12]. Bond Market Insights - The bond market is viewed as a critical indicator of economic health, with corporate bonds becoming more prevalent. Analysts suggest that while high yield bonds present opportunities, caution is warranted regarding the overall credit cycle and potential economic disparities [16][17]. - There is a focus on the implications of rising interest rates, which could negatively impact stock valuations. The discussion highlights the importance of monitoring government spending and inflation trends [20][25]. AI and Future Growth - The impact of artificial intelligence on productivity and economic growth is emphasized, with some experts suggesting that AI investments could outpace concerns about national debt. However, there is skepticism about whether these advancements will lead to sustainable long-term growth [22][24].

Core Insights - The article highlights the expertise of Michael Del Monte as a buy-side equity analyst specializing in technology, energy, industrials, and materials sectors [1] Group 1: Analyst Background - Michael Del Monte has over a decade of experience in professional services across various industries including Oil & Gas, Oilfield Services, Midstream, Industrials, Information Technology, EPC Services, and consumer discretionary [1]

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the global credit market outlook for 2026, focusing on the US and EU credit markets, private credit, and the impact of AI on debt financing [2][3][4][6][39]. Core Insights and Arguments 1. **Credit Spread Projections**: - US investment grade (IG) and high yield (HY) spreads are expected to widen to 100 basis points (bp) and 350bp respectively by Q1 2026, before narrowing to 85bp and 300bp by year-end 2026 [5][42]. - EU IG and HY spreads are projected at 80bp and 275bp by the end of 2026, with expectations of outperformance during widening phases [5][8]. 2. **Default Rate Expectations**: - Default rates are anticipated to rise, particularly in private credit, which is in a more advanced stage of the credit cycle. A rise of 200-300bp in private credit defaults is forecasted, while US leveraged loans and high yield are expected to increase by 50-100bp through mid-2026 [5][22][68]. 3. **Economic Conditions**: - The US faces late-cycle stress with a 36% probability of recession by late 2026, driven by weakening corporate profits, higher interest costs, and rising non-performing loans [5][39][60]. - Labor market softness is expected to persist into 2026, with declining consumer sentiment and durable goods sales [5][39]. 4. **Sector Concentration Risks**: - Private credit markets show high sector concentration, particularly in services, technology, and healthcare, increasing vulnerability to sector-specific shocks [5][40][87]. 5. **Global Credit Issuance**: - An increase in global credit issuance is expected in 2026, led by US IG and HY markets, driven by hyperscaler capital expenditures and increased M&A activity [5][26][41]. 6. **AI Impact on Credit Markets**: - The emergence of AI is seen as a double-edged sword, with potential for both disruption and growth. A bust in AI could negatively impact 20-30% of newer firms in private credit, while a boom could drive productivity gains [5][40][43]. 7. **Investment Strategies**: - Recommended trades include long positions in EU IG vs. US IG, long US equities vs. credit, and long put spreads on dividend futures [5][16][42]. Additional Important Insights 1. **Credit Fundamentals**: - US corporate balance sheet health is deteriorating, with IG scores below median levels, while European metrics appear healthier [5][28][65]. - The private credit sector's exposure to AI presents systemic risks, particularly among US mega-cap banks and private equity-owned firms [5][40]. 2. **Market Sentiment and Technicals**: - Weaker US credit technicals are anticipated in H1 2026 due to increased issuance and reduced overseas demand, although demand may improve later in the year [5][41]. 3. **Consumer Credit Cycle**: - The consumer credit cycle is showing signs of deterioration, with weaker sentiment reflected in housing and auto sales data [5][70]. 4. **Historical Context**: - Current exposure to public and private credit markets is significantly higher than during previous crises, indicating increased systemic importance [5][75]. 5. **Risks and Scenarios**: - Downside risks include an AI bust and a bond market shock, while upside risks are associated with an AI boom driving productivity gains [5][43]. This summary encapsulates the critical insights and projections discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the credit markets.

Financial Data and Key Metrics Changes - For Q4 2025, adjusted net investment income (NII) per share was $0.39, with an adjusted NII return on equity (ROE) of 10.4% [4] - Adjusted net income per share was $0.36, resulting in an adjusted ROE of 9.6% [4] - Cumulative distributions for fiscal year 2025 totaled $1.65 per share, representing 10.9% of end-of-year net asset value per share [4] - The net asset value (NAV) per share at the end of fiscal year 2025 was $14.97, which is 34 cents above the IPO NAV in 2010 [5] Business Line Data and Key Metrics Changes - Approximately 90% of GBDC's investment portfolio remains in the highest-performing internal rating categories [11] - The investment income yield was 10.4%, a sequential decline of 20 basis points [12] - The weighted average rate on new investments was 8.9%, a decline of 30 basis points from the prior quarter [18] - The investment portfolio decreased to just under $8.8 billion at fair value, with $371 million in repayments and exits [13] Market Data and Key Metrics Changes - The private credit direct lending market is facing headwinds, including narrowed spreads and a credit cycle with elevated defaults [6][26] - The default rate in the broadly syndicated market is currently about two and a half times historical average levels [26] - GBDC's effective borrowing costs decreased to 5.6% annualized, which is considered industry-leading [13] Company Strategy and Development Direction - GBDC's investment strategy focuses on providing first-lien senior-secured loans to middle-market companies backed by strong private equity sponsors [3] - The company aims to maintain a stable NAV per share, minimize excise taxes, and adjust its base distribution level infrequently [9] - GBDC plans to revisit its dividend policy early next year based on the outlook for rates and asset spreads [8] Management's Comments on Operating Environment and Future Outlook - The U.S. economy shows resilience, but there are signs of weakness, particularly among lower-end consumers [25] - Elevated credit stress is expected to persist, impacting different BDCs in varying ways [26] - The company believes that the current environment may allow private credit specialists to outperform [10] Other Important Information - GBDC's liquidity position remains strong, ending the quarter with approximately $1.2 billion in liquidity [24] - The company repurchased 368,000 shares during the quarter, totaling 2.9 million shares for the fiscal year [16] Q&A Session Summary Question: Availability of co-invest - GBDC has not seen any meaningful change in the availability or quality of equity co-invest opportunities over the past years [31][32] Question: Themes in the economy - There is optimism regarding capital spending due to tax provisions, but concerns exist about the subprime consumer facing stress [39] Question: Spread compression risks - The compression of spreads is widespread across various debt categories, and a change in investor sentiment would be necessary for spreads to move higher [40][41]

What we are now seeing is a deterioration between more respected in the credit cycle in any of our portfolio. So I think that's credit remains solid for on credit cards in the US all the way to corporates, but we will see how it plays and continues once the economy. I don't think that the economy will go into recession.It's likely to slow down and the credit cycle will continue to normalize. But I don't think that in the credit cycle we see that the duration beyond what we were expecting if the economy slow ...