TD Joins CIBC Raising Payouts After Profit Tops Estimates

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce raised their dividends after posting record first-quarter profit that beat analysts’ estimates.

Toronto-Dominion, Canada’s largest lender by assets, said profit advanced 14 percent to C$2.04 billion ($1.83 billion), or C$1.07 a share, for the quarter ended Jan. 31. Canadian Imperial, the No. 5 bank, reported today that net income soared 50 percent to C$1.18 billion, or C$2.88 a share.

The two lenders join Royal Bank of Canada and Montreal-based National Bank of Canada in posting net income that topped estimates as contributions from acquisitions helped lift earnings. Bank of Nova Scotia will report earnings March 4.

“The cycle continues unabated here, it’s a Goldilocks situation,” said Bob Decker of Aurion Capital Management Inc., which oversees about C$6 billion including bank stocks. “It remains to be seen how long these conditions last given the potential for either rising rates or a more competitive landscape in banking as they scramble for a dwindling share of the market.”

Toronto-Dominion raised its dividend 4 cents, or 9.3 percent, to 47 cents and Canadian Imperial boosted its payout 2 percent to 98 cents. Royal Bank announced a 6 percent dividend increase when it reported results yesterday.

More Flexibility

“The 4-cent increase is larger than we have delivered in the past,” Toronto-Dominion’s Chief Executive Officer Ed Clark said in a conference call with investors. “And that is because it may be our only dividend increase this year.”

Clark said the bank is now “much closer” to the midpoint of its dividend payout target of 40 percent to 50 percent. Toronto-Dominion is seeking “more flexibility” on timing of increases instead of following its prior pattern of twice a year boosts, he said.

Toronto-Dominion said it earned C$1.06 a share after excluding some items, beating the C$1.04 average estimate of 10 analysts surveyed by Bloomberg. Canadian Imperial said adjusted earnings were C$2.31 a share, topping by 17 cents the average estimate of 12 analysts.

CIBC rose 1 percent to C$91.47 and Toronto-Dominion gained 0.8 percent to C$49.82 at 4 p.m. in Toronto. The shares have climbed 9.1 percent and 18 percent, respectively, in the past year, compared with the 13 percent advance of the eight-company Standard & Poor’s/TSX Commercial Banks Index.

Target, Epoch

Toronto-Dominion’s profit gains were led by a 44 percent increase in its wholesale banking business, fueled by higher trading revenue. Retail banking earnings in Canada and the U.S. were also higher, as contributions from acquisitions including Target Corp.’s U.S. credit-card portfolio and New York-based money manager Epoch Holding Corp. added to results.

“It was really a great start to the year,” Chief Financial Officer Colleen Johnston, 55, said in a phone interview. “All of our businesses had a great first quarter, and our Canadian retail bank was up 5 percent, despite a weaker insurance quarter.”

Revenue jumped 15 percent to C$7.57 billion, the Toronto-based lender said. The bank set aside C$456 million for bad loans in the quarter, up from C$385 million a year earlier.

Profit from Canadian retail banking, which includes wealth management and insurance, rose 5 percent to C$1.34 billion from a year earlier. U.S. banking earnings, which includes wealth management and the firm’s stake in TD Ameritrade Holding Corp., a discount brokerage, surged 16 percent to C$492 million on a Canadian dollar basis. The Canadian dollar has dropped 7.9 percent against its U.S. counterpart over the past 12 months.

Wholesale Bank

Earnings at Toronto-Dominion’s wholesale banking unit jumped to C$230 million from C$160 million. Trading surged 40 percent to C$408 million from a year earlier, while underwriting and advisory fees were unchanged at C$99 million.

Canadian Imperial’s profit was helped by a C$239 million gain from selling half its Aerogold Visa credit-card portfolio to Toronto-Dominion, as well as record wealth-management earnings and lower loan-loss provisions.

CIBC posted higher earnings across its three main business units compared with a year earlier, when a $150 million payment to settle a lawsuit with Lehman Brothers Holdings Inc.’s estate eroded earnings. Revenue rose 15 percent to C$3.64 billion, while the Toronto-based lender set aside C$218 million for bad loans, down from C$265 million a year ago.

Credit Cards

Consumer and business-banking earnings surged 29 percent to C$746 million, helped by the credit-card sale. Excluding the card gain and other one-time items, earnings from the consumer bank climbed 11 percent, helped in part by lower loan losses, CIBC said.

“Retail banking felt the impact of the Visa card sale to TD, but with only one month included, it will carry over to the second quarter,” John Aiken, an analyst at Barclays Plc, said in a note to investors. “It was a reasonably strong quarter, on the back of lower provisions.”

Wealth-management profit rose 28 percent to C$114 million from a year earlier amid growth in assets under management and contributions from its takeover of Atlantic Trust Private Wealth Management.

CIBC’s investment bank posted profit of C$264 million, up from C$86 million a year earlier when results were hurt by the Lehman settlement. Underwriting and advisory fees fell to C$78 million from C$106 million, while trading revenue slid to C$156 million from C$161 million a year earlier.

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