Toronto-Dominion Bank’s Earnings Disappoint Amid US Banking Woes
The Canadian banking giant, Toronto-Dominion Bank, has reported a disappointing fourth-quarter earnings result, citing weak performance in its US banking operations. The bank’s adjusted earnings per share came in at C$1.72, missing the average estimate of C$1.83.
US Retail Unit Struggles
The bank’s US retail unit was a major contributor to the earnings miss, with net income totaling C$863 million, a 32% decline from the previous year. This weakness was attributed to a “challenging quarter” for the business. Analysts had expected a stronger performance from this segment.
Capital Markets Division Falls Short
The bank’s capital-markets division also failed to impress, with adjusted net income totaling C$299 million, missing the average estimate of C$379 million.
Strategic Review Underway
Toronto-Dominion is currently undertaking a strategic review of its business priorities, productivity initiatives, and capital allocation alternatives. As part of this review, the bank is suspending its medium-term financial targets for earnings growth, return on equity, and operating leverage.
Provisions for Credit Losses In Line
The bank’s provisions for credit losses totaled C$1.11 billion, in line with analysts’ forecasts. This is a positive development, given the current economic uncertainty.
Legacy of Money-Laundering Settlement
The bank has been operating under the shadow of a historic money-laundering settlement with US authorities, which was resolved in October. As part of the settlement, Toronto-Dominion agreed to pay almost $3.1 billion in fines and penalties and faces a cap on its American assets.
Leadership Transition
The bank is also undergoing a leadership transition, with CEO Bharat Masrani set to retire next April. He will be replaced by Raymond Chun, who has spent three decades across the bank’s operations. Analysts believe that Chun has a tough task ahead, restoring morale and revamping the bank’s strategy.
Valuation Discount
The US asset cap has resulted in Toronto-Dominion’s stock trading at a steep valuation discount to its peers. This is likely to continue until the cap is lifted by American banking regulators.
Insurance Business Challenges
The bank’s insurance business has been facing challenges, with higher-than-normal catastrophe-loss claims expected to total C$388 million after reinsurance and before taxes in the quarter. This follows a similar trend in the previous quarter, where insurance claims were impacted by extreme weather and wildfires.
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