TD adjusted EPS C$1.60 vs expected C$1.35
Two more Canadian banks reported surging profits on Thursday, easily surpassing market expectations, and shares climbed as investors bet the sector had put the financial crisis behind it. Toronto-Dominion Bank (TD.TO) said profit spiked in its financial first quarter as revenue rose to a record C$5.04 billion, while Edmonton-based regional lender Canadian Western Bank (CWB.TO) said its profit climbed 56 percent to a record C$40.0 million.
Shares of TD, Canada's second-largest bank, rose 2.2 percent to C$69.84, near its 52-week high, in late afternoon trade on the Toronto Stock Exchange. CWB's shares were up 1.4 percent at C$21.97. The market's financial index was up 0.9 percent in late afternoon trade, with all of the banks higher or flat. The strong profit growth restored investor optimism after earnings at the nation's largest bank, Royal Bank of Canada (RY.TO), came in modestly weaker than expected on Wednesday, interrupting what had been a string of beats by the big lenders.
"After Royal's notional earnings miss yesterday ... we believe the market will be quite pleased with TD being able to reassert the trend of strong earnings beats," Barclays Capital analyst John Aiken said in a note to clients. "With just one bank to go it is looking more like (Royal's) earnings were the anomaly in the quarter," Aiken said. Bank of Nova Scotia (BNS.TO) reports next Tuesday. DOMESTIC OPERATIONS STRONG TD's net income jumped to C$1.30 billion, or C$1.44 a share, in the first quarter ended Jan. 31, double the profit recorded in the same period a year earlier.
Excluding a host of one-time items from restructuring charges to hedging gains and losses, the Toronto-based bank's adjusted income came in at C$1.43 billion, or C$1.60 a share, well above forecasts for C$1.35 a share. Chief Executive Ed Clark said he did not expect C$1.60 to be the per-share run rate for profit in the long term, with robust wholesale banking revenues expected to normalize soon after several quarters of huge growth. But he said TD's Canadian operations would continue to outperform those of its rivals and that its troubled U.S. segment would eventually improve -- contrary to the predictions of skeptics.
"Obviously in some sense people are pricing our stock as if there is catastrophe coming in the U.S.," Clark said in an interview with Reuters. "We don't believe that, but we also don't believe there will be a quick turnaround in the U.S., so we think we're going sideways for 2010." Domestic Canadian banking powered TD's strong quarter, with record earnings of C$720 million, up 23 percent from the same period a year earlier. Canada's hot housing market boosted real-estate secured lending and rising deposits more than offset a rise in loan losses. Overall, the money the bank set aside to cover bad loans fell slightly to C$517 million, a smaller improvement than seen by several rivals.
Businesses and consumers have struggled to repay debts in the recession, and analysts were awaiting the banking sector's first-quarter results to gauge whether losses have peaked. TD's U.S. banking unit, which suffered more in the recession that the Canadian unit and has been slower to recover, saw profits rise 5 percent with provisions for loan losses little changed at $191 million. TD's U.S. operations are mostly concentrated in the northeastern states.
Clark said he expects to see continued impaired loan formations in U.S. banking and provisions remaining near the elevated levels seen in the first quarter. Wholesale banking income surged 40 percent to C$372 million as capital markets activity picked up and credit spreads tightened, but Clark said the momentum would not last. Profit at Canadian Western, which offers personal and commercial banking in Canada's western provinces of Manitoba, Alberta, Saskatchewan and British Columbia, rose 56 percent to C$40 million, or 52 Canadian cents a share, as net interest income surged.
Analysts on average were expecting profit of 39 Canadian cents a share, according to Thomson Reuters I/B/E/S. Chief Executive Larry Pollack said margins recovered more quickly than the bank had expected, while favorable capital market conditions further boosted earnings.