TD, RBC Top Estimates on Consumer Banking, Wealth Gains

Toronto-Dominion Bank and Royal Bank of Canada, the country’s largest lenders, reached record highs after posting second-quarter profit that beat analysts’ estimates on gains from consumer banking and wealth management.

“It’s good news, and people had high expectations,” said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier Inc. in Toronto, which manages about C$4.7 billion ($4.3 billion) including bank stocks. “These are the two leaders and I don’t see any kinks in their armor.”

Canada’s banks, ranked as the world’s soundest by the World Economic Forum for six straight years, have continued to post profit growth despite a slowdown in domestic consumer lending. The earnings have been driven by contributions from wealth management and low credit provisions even as some global banks including New York-based JPMorgan Chase & Co. saw a slump in profit in most divisions.

Royal Bank’s net income for the three months ended April 30 climbed 15 percent to C$2.2 billion, or C$1.47 a share, from a year earlier, bolstered by trading fees and record earnings from wealth management. Toronto-Dominion’s profit rose 16 percent to C$1.99 billion, or C$1.04 a share, as credit-card acquisitions helped lift retail banking earnings in Canada and the U.S.

“This is just a quarter where everything went our way,” Toronto-Dominion Chief Financial Officer Colleen Johnston, 55, said in a phone interview after results were released. “It was a great quarter and all of our businesses performed really well.”

Wealth Management

Toronto-Dominion rose 2.6 percent, the most since Aug. 29, to C$53.25 at 4 p.m. in Toronto. Royal Bank gained 1.6 percent to C$75.46.

Royal Bank’s results were aided by a 25 percent jump in wealth-management earnings, higher trading revenue and lower provisions for credit losses. The Toronto-based bank said adjusted profit, which excludes some items, was C$1.49 a share. The average estimate of 11 analysts surveyed by Bloomberg was C$1.43.

Royal Bank set aside C$244 million for bad loans in the quarter, down from C$287 million a year earlier, the company said.

“While some may have issue with the contribution of lower provisions to income, it is hard to deny that Royal Bank continues to perform admirably and we would expect the second-quarter’s earnings to be well received by the market,” John Aiken, an analyst at Barclays Plc, said in a note to clients.

Insurance Slips

Profit from personal and commercial banking at Royal Bank rose 7 percent to C$1.12 billion from a year earlier on higher mutual-fund sales and lower provisions for credit losses, the company said in a statement.

The bank’s RBC Capital Markets investment-banking unit had profit of C$507 million, a 32 percent increase from a year earlier, according to the statement. Fees from arranging stock sales and advising on takeovers climbed 6.7 percent to C$428 million. Trading revenue across the bank jumped 41 percent to C$798 million, the company said.

Royal Bank is seeking to expand in the U.S. to build on existing operations including its asset manager and Internet bank, though nothing is “imminent,” President David McKay, 50, said in a conference call with investors.

Aeroplan Boost

“We would be interested in opportunities that complement our existing businesses, including areas such as wealth or asset management, credit, payments, private banking for high-net-worth clients or other financial services,” said McKay, who takes over as chief executive officer when Gordon Nixon, 57, retires Aug. 1. “We are not interested in mass-market banking through a bricks-and-mortar model.”

Toronto-Dominion’s domestic retail bank earnings were bolstered by the company’s purchase of a C$3.3 billion Aeroplan Visa card portfolio from Canadian Imperial Bank of Commerce in December. Last year’s acquisitions of Target Corp.’s U.S. credit-card portfolio and New York-based money manager Epoch Holding Corp. aided U.S. results.

“Definitely our M&A activity was a positive in the quarter,” TD’s Johnston said. “The new Aeroplan card has been a really nice addition to profit.”

Retail Banking

CIBC sold half its Aerogold Visa receivables after loyalty-program company Aimia Inc. ended its 22-year exclusive partnership with the bank in August and chose Toronto-Dominion as its primary partner. Toronto-Dominion started its own reward-card program in January after striking a 10-year deal to become Aimia’s primary partner for the Aeroplan reward program.

Toronto-Dominion set aside C$392 million for bad loans in the quarter, down from C$417 million a year earlier, the company said.

Canadian retail banking profit, which includes wealth management and insurance, rose 12 percent to C$1.35 billion from C$1.2 billion. Earnings from U.S. banking, which includes wealth management and the firm’s stake in discount brokerage TD Ameritrade Holding Corp., surged 26 percent to C$548 million.

Toronto-Dominion’s wholesale banking unit’s earnings fell 5.9 percent to C$207 million.

Investors shouldn’t expect any dividend increases during the remainder of his tenure, Toronto-Dominion CEO Ed Clark, who retires on Nov. 1, said on a conference call. Today’s results show “the enormous resilience” of the bank’s conservative franchise-driven model, Clark said, adding he doesn’t see improvement in what remains a “tough, difficult” operating environment for banking.

Bank of Nova Scotia, National Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce report results next week.

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