Toronto-Dominion, CIBC Profits Fall on Trading Fees

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, Canada’s second- and fifth-largest banks by assets, reported lower fourth-quarter profits as trading income declined. Shares of both lenders fell.

Toronto-Dominion said net income for the period ended Oct. 31 dropped 1.6 percent to C$994 million ($908 million), or C$1.07 a share. CIBC’s profit fell 22 percent to C$500 million, or C$1.17 a share. Before one-time items, Toronto-Dominion missed analyst estimates, while CIBC topped expectations.

Both Toronto-based lenders today reported lower investment- banking results, as trading and underwriting fees fell from a year ago when banks were rebounding from a recession. Toronto-Dominion’s investment-banking profit was the lowest in two years, while CIBC had a loss from that business.

“The year-over-year comparisons would be very difficult in investment banking,” said Douglas Davis, Chief Executive Officer of Davis-Rea Ltd., which manages about C$400 million including bank stocks. “Last year was a huge year as the banks were bailing themselves out along with everybody else, so there were just a huge number of deals being done.”

Toronto-Dominion fell C$2, or 2.7 percent, to C$73.29 in 4 p.m. trading on the Toronto Stock Exchange, the biggest drop in about five months. CIBC fell C$1.74, or 2.2 percent, to C$79.31.

Higher Expenses

Before one-time items, Toronto-Dominion’s profit was C$1.38 a share, missing the C$1.46-a-share average estimate of 16 analysts surveyed by Bloomberg News. CIBC said it earned C$1.68 a share excluding items, higher than the C$1.63-a-share average estimate of 14 analysts.

Toronto-Dominion missed estimates because of higher expenses, Chief Financial Officer Colleen Johnston said in an interview with Business News Network television. “As we go into 2011, we expect our rate of expense growth to slow down a little bit,” she said.

Toronto-Dominion said non-interest expenses jumped 5.4 percent to C$3.26 billion because of higher rent and marketing. CIBC’s non-interest expenses climbed 11 percent to C$1.86 billion due to advertising, professional fees and some severance costs.

Toronto-Dominion set aside C$404 million for loan-loss provisions, down 22 percent from a year earlier, although higher than the C$369 million estimate of RBC Capital Markets analyst Andre-Philippe Hardy. CIBC set aside C$150 million for bad loans, down 65 percent.

Consumer Banking

Profit at the Toronto-Dominion’s investment-banking unit fell 74 percent to C$95 million in the quarter. Canadian consumer-banking profit climbed 24 percent to C$773 million on higher volumes in banking, financing and real estate lending.

“They focus very, very well on retail banking, and that’s where the margins are,” said Tony Demarin, chief investment officer of BCV Asset Management in Winnipeg, Manitoba, which manages about C$230 million, including Toronto-Dominion shares.

U.S. consumer-banking profit more than doubled to C$265 million. Chief Executive Officer Edmund Clark has said he expects the bank to earn $1.6 billion a year from its U.S. operations within three years. The bank now has more U.S. branches than it does in Canada.

“We’ve moved ourselves into a position where we have a sustainable position,” in the U.S., Clark said in an October interview. “We now have a management team in place, enough presence to say ‘okay, we’ve got a base where we can grow here’.”

Trading Drops

For the full year, Toronto-Dominion earned C$4.64 billion, up from C$3.12 billion a year ago.

CIBC had total trading income of C$86 million in the quarter, down 76 percent from a year earlier. The bank also had a C$45 million reversal on credit loss provisions.

CIBC’s profit was also reduced by C$239 million from losses tied mostly to the structured credit business that it’s exiting, along with costs to return capital from foreign units.

Canadian Imperial was the hardest hit among the country’s banks during the financial crisis, recording C$10.9 billion in debt-related writedowns since the collapse of the U.S. subprime market in 2007. The bank has been unwinding the debt-related securities that led to the charges.

Earnings from CIBC’s consumer-lending business rose 23 percent to C$576 million, while its investment-banking business posted a loss of C$56 million, compared with C$160 million profit a year earlier.

For the full year, the bank earned C$2.45 billion, up from C$1.17 billion in 2009.

National Bank of Canada, based in Montreal, said Nov. 30 that profit beat estimates. Royal Bank of Canada, the country’s largest lender, and Bank of Nova Scotia, the No. 3 bank, report tomorrow. Bank of Montreal, the fourth-biggest Canadian bank, reports results Dec. 7.

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