TD Expects Bigger Losses From Loans in Canada Than in the U.S.

(Bloomberg) -- Toronto-Dominion Bank is bracing for a bigger Covid-19 impact on consumer loans in Canada than in the U.S.

• The Canadian lender, which has a U.S. bank-branch network that stretches from Maine to Florida, set aside C$951 million ($723 million) for souring loans in its domestic retail division, compared with C$897 for its U.S. operation. Higher provisions eroded profit in the fiscal third quarter, with results beating analysts’ estimates.

Key Insights

• Toronto-Dominion set aside a record C$3.22 billion in the second quarter to brace for a wave of impaired loans from the pandemic. That appeared to be a peak, with provisions in the fiscal third quarter totaling C$2.19 billion, more than triple the amount a year earlier.
• Canada’s second-largest lender by assets has been facing shrinking net interest margins -- the difference between what a bank charges for loans and pays for deposits -- as central banks cut rates to shore up economies amid the Covid-19 pandemic. Overall net interest margins were 1.73% in the fiscal third quarter, compared with 1.91% in the prior three months and 1.93% a year earlier -- shrinking to the lowest in at least 18 years.
• Toronto-Dominion had a record contribution from its investment in the U.S. online brokerage TD Ameritrade, thanks to a retail trading boom during the pandemic. That showed up in the lender’s U.S. retail business, which nevertheless saw a 48% earnings decline to C$673 million as loan-loss provisions surged from a year earlier.
• Canadian personal and commercial banking is Toronto-Dominion’s largest business, accounting for almost half the bank’s overall earnings. The domestic division had earnings of C$721 million in the quarter, down 49% from a year earlier amid higher loan-loss provisions.
• A flurry of trading activity and dealmaking has helped the investment-banking businesses of Canada’s banks through the third quarter. Toronto-Dominion followed the trend, with its TD Securities capital-markets division posting quarterly earnings of C$442 million, compared with C$244 million a year earlier.

Market Reaction

• Shares of Toronto-Dominion have fallen 8.9% this year through Wednesday, compared with a 9.6% decline for the eight-company S&P/TSX Commercial Banks Index.

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• Third-quarter net income fell 31% to C$2.25 billion, or C$1.21 a share. Adjusted per-share earnings totaled C$1.25, beating the C$1.23 average estimate of 11 analysts in a Bloomberg survey.
• Read more about Toronto-Dominion’s quarterly results here.

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