TD Bank Earnings Slide Due to Remediation Costs, Rise in Credit-Loss Provisions
By Robb M. Stewart
Toronto-Dominion Bank's earnings were squeezed in the latest quarter by remediation efforts for its anti-money laundering program and a rise in provisions for possible soured loans.
Net income fell to 2.79 billion Canadian dollars (US$1.95 billion), or C$1.05 a share, for the fiscal first quarter from C$2.82 billion, or C$1.02, a year earlier.
Stripping out items the bank doesn't believe reflect the underlying performance of its business, per-share earnings came in at C$2.02, ahead of the C$1.96 mean estimate of analysts polled by FactSet.
TD booked a C$696 million after-tax hit for the restructuring of its U.S. balance sheet.
Overall revenue was 2.4% higher for the three months to Jan. 31 at C$14.05 billion, beating the C$13.22 billion expected by analysts.
Across its business, revenue from Canadian personal and commercial banking was up 5.4% to C$5.15 billion for the quarter thanks to loan growth, but U.S. retail revenue was down 21% at C$2.78 billion as TD restructured the operations balance sheet and invested in its remediation program in the country. The wealth management and insurance division saw record revenue, boosted by strong insurance premium growth.
Just after the fiscal quarter ended, TD offloaded its roughly 10% stake in Charles Schwab for C$21 billion. The move bolsters its capital in the near term, though the bank earmarked C$8 billion of the proceeds for a share buyback program and said the remainder would be invested in its business. TD forecast a net gain on the sale of C$8.6 billion for the fiscal second quarter.
The exit from the brokerage and money-management firm was the first big move under new Chief Executive Raymond Chun, who has been running a strategic review as the bank looks to rebuild investor trust and invests in remediation efforts to fix its compliance and risk procedures. TD reached a historic settlement with U.S. authorities in October in which the bank pleaded guilty to multiple charges for failings in its anti-money-laundering controls and agreed to pay $3.09 billion in fines and accept limits on its growth in the U.S.
Chun took the helm this month from Bharat Masrani, who had been CEO since 2014. Chairman Alan MacGibbon plans to step down by the end of the year.
TD, Canada's second largest bank by market value, recorded a credit loss provision of C$1.21 billion, C$103 million higher than for the prior quarter and C$211 million above the same period last year. Analyst had penciled in credit-loss provisions of C$1.29 billion for the latest quarter.
The country's big lenders face an uncertain few years with the change in the U.S. administration and have pointed to uncertainty among clients in the face of pending tariffs on U.S. imports from Canada. That comes even as Canadian households have seen pressures ease as inflation has cooled and the Bank of Canada has cut its benchmark interest rate at each of its last six policy meetings.
TD's common equity Tier 1 capital ratio stood at 13.1% at the end of January. Canada's banking regulator requires the big lenders to maintain a capital ratio of at least 11.5% of risk-weighted assets.
Write to Robb M. Stewart at robb.stewart@wsj.com
-0-