TD, CIBC Earnings Weather Downturn on Capital-Markets Gains

  • The two lenders join RBC, BMO in beating profit expectations
  • Banks set aside less for bad loans than in second quarter

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce reported earnings that topped analysts’ estimates as gains from capital-markets operations helped them weather the nation’s economic downturn.

Toronto-Dominion, Canada’s second-largest lender by assets, said net income for the fiscal third quarter ended July 31 rose 4 percent to C$2.36 billion ($1.83 billion), from a year earlier, led by wholesale banking and its U.S. retail operations. CIBC, the nation’s fifth-biggest bank, said net income jumped 47 percent, boosted by a C$383 million gain from selling its minority stake in U.S. money manager American Century Investments.

The two Toronto-based banks joined Royal Bank of Canada and Bank of Montreal in beating estimates despite the sluggish economy, a struggling oil-and-gas industry and concerns that consumers have too much debt. The economy probably contracted 1.5 percent in the April-to-June period, according to estimates by economists. 

“The industry is very resilient here and, by and large, what we were expecting in terms of what the potential impact of the oil-price reduction would be has not nearly played out as much as it could have,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in a phone interview. “The oil-impacted areas are showing some weaknesses, but other parts of Canada are continuing to perform very well. It also speaks to the diversity of Canada’s economy."

‘Wall of Worry’

Toronto-Dominion shares fell 0.3 percent to C$57.39 at 9:43 a.m. in Toronto trading, while CIBC rose 1.8 percent to C$103.78, its biggest intraday increase in two months.

“CIBC is always climbing such a wall of worry that when it does better than people expect it gets more of a boost,” said David Baskin, who helps manage about C$1 billion for Baskin Wealth Management in Toronto. “When it does well, they get the benefit of the doubt more than TD does.”

Both banks that reported results Thursday set aside more money for soured loans from a year earlier, though less than some analysts expected. Their credit provisions were down from the second quarter.

“Credit performance in this quarter was particularly good, but it may tick up a bit from here,” CIBC CFO Kevin Glass said in a phone interview. “We don’t want to be blasé about this: oil is certainly not back up to $100, so we need to keep an eye on it.”

Beating Estimates

Toronto-Dominion’s profit excluding some items was C$1.27 a share, topping the C$1.21 average estimate of 14 analysts surveyed by Bloomberg, while CIBC’s adjusted profit was C$2.67 a share, beating the C$2.34 average estimate.

Toronto-Dominion posted a 26 percent increase in its wholesale-banking business to C$302 million, driven by higher investment-banking fees and fixed-income and foreign-exchange trading income, while profit from its U.S. retail operations rose 17 percent when including its stake in the TD Ameritrade Holding Corp. brokerage. Those gains helped offset a 3 percent decline in Canadian retail-banking operations, where revenue was hurt by a higher tax rate and insurance claims related to Alberta’s Fort McMurray wildfire.

“It was broad-based strength in capital-markets related revenues” that accounted for the earnings beat at Toronto-Dominion, Robert Sedran, an analyst at CIBC Capital Markets, said in a note, adding that retail banking was also strong. “A good quarter, in our view.”

CIBC’s profit excluding the gain from selling American Century and other items was C$1.07 billion, up 8.3 percent from a year earlier, the bank said. The lender’s Canadian retail and business banking division posted a 5.7 percent profit increase to C$666 million, while earnings in the capital-markets unit jumped 15 percent to C$304 million.

“We’ve got very good, well-balanced growth and all of our businesses are performing well,” Glass said. “We are doing what we said we would do, and it’s paying off.”

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