TD Becomes Fifth Canadian Bank to Top Profit Estimates

Toronto-Dominion Bank (TD) became the fifth Canadian lender to report third-quarter earnings that topped analysts’ estimates even as the country’s biggest lenders warn of a slowdown in consumer lending next year.

Toronto-Dominion said profit for the period ended July 31 climbed 23 percent to C$1.45 billion ($1.48 billion), or C$1.58 a share, from C$1.18 billion, or C$1.29 a year earlier. The bank raised its dividend for the second time in three quarters.

Canadian banks, ranked the world’s soundest by the World Economic Forum for the past three years, are cautioning that profit growth may slow this year and in 2012 along with the global economy. Analysts including Brian Klock at Keefe Bruyette & Woods Inc. and Cheryl Pate at Morgan Stanley Research have reduced 2012 profit estimates at lenders including Royal Bank of Canada and National Bank of Canada. (NA)

“There’s lots of uncertainty in what’s going on in the broader economy as well as in financial markets,” Toronto- Dominion Chief Financial Officer Colleen Johnston said today in a telephone interview.

Royal Bank Chief Executive Officer Gordon Nixon on Aug. 26 warned of “significant headwinds” for banks after his company posted profit that missed analysts’ estimates for the sixth time in seven quarters.

Fragile Markets

“Markets will likely remain fragile and may continue to be volatile,” Nixon said in a conference call with analysts. “Banks around the world are facing other significant headwinds such as a slowdown in consumer lending and the added difficulty of operating in a prolonged low interest rate environment.”

Canadian bank shares have rallied along with earnings, relative to global lenders. Toronto-Dominion rose C$1.13, or 1.5 percent, to C$78.60 in 4 p.m. trading on the Toronto Stock Exchange. TD surpassed Royal Bank of Canada (RY) earlier today as the largest company in Canada by market value. The 10-member S&P/TSX Banks Index was little changed in August, compared a 13 percent drop for the 24-member KBW Bank Index (BKX), whose members include Wells Fargo & Co (WFC) and Bank of America.

Toronto-Dominion, the second biggest bank, joined Canadian Imperial Bank of Commerce, Bank of Montreal (BMO), National Bank and Bank of Nova Scotia (BNS) by topping analysts’ estimates for the quarter. Laurentian Bank of Canada (LB) and Canadian Western Bank (CWB), Canada’s seventh- and eighth-largest lenders, are scheduled to release results tomorrow.

Toronto-Dominion said today in a statement that it could be “some time before the economy strengthens.”

Strength and Stability

Canada’s economy shrank in the second quarter for the first time since 2009 as exports declined the most in two years, Statistics Canada reported yesterday. Domestic strength has helped insulate Canada from weakness in demand coming from other Group of Seven countries since the 2008 financial crisis.

“If the pundits are correct on the slowing U.S. economy and that we’re in a soft period for a while here, that will affect Canada,” said John Kinsey, who helps manage about C$2 billion at Caldwell Securities Ltd., including Canadian banks.

Toronto-Dominion raised its quarterly dividend 3 percent to 68 cents a share, joining Canadian Imperial Bank of Commerce as the only banks to boost payouts this quarter. The bank was expected to increase its dividend to 70 cents a share, according to the Bloomberg Dividend Forecast.

Dominant Franchise

Canada’s second-largest bank earned C$1.72 a share before one-time items, topping the C$1.62-a-share average estimate of 13 analysts surveyed by Bloomberg News.

“TD is demonstrating its superiority as a dominant franchise,” said Bob Decker, a money manager at Aurion Capital Management in Toronto who oversees about C$5.5 billion. “This fact is not lost on investors who are finally fed up with the chronic underperformance of Royal Bank.”

Canadian consumer banking profit climbed 13 percent to a record C$954 million because of increases in business and real estate lending.

Asset-management results, which includes the stake in U.S. online brokerage TD Ameritrade Holding Corp., climbed 8.9 percent to C$195 million. Investment-banking profit fell 40 percent to C$108 million on lower revenue from fixed-income and currency trading.

‘They Keep Buying’

Consumer banking profit in the U.S. climbed 12 percent to C$317 million. Toronto-Dominion has spent more than $25 billion on acquisitions in the U.S. since 2005, including the $6.3 billion purchase of auto lender Chrysler Financial.

“They’re becoming more of a U.S. franchise because they keep buying,” said Todd Johnson, a money manager at BCV Asset Management in Winnipeg, Manitoba, which oversees C$300 million in assets including Toronto-Dominion. “Anybody investing in TD is looking over the next five years of an eventual recovery, and look at the platform and scale they’ve built down there.”

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.