TD WRAPS UP BULLISH BANK EARNINGS SEASON.
TORONTO • Toronto-Dominion Bank is not ruling out additional acquisitions, its chief executive suggested on Thursday, even after making an $800-million play for a Canadian money manager and completing a $1.5-billion round of share buybacks earlier this year.
“I think we’ve been consistent in saying, in the U.S., we do have good opportunities,” CEO Bharat Masrani said during a conference call with analysts Thursday.
“So if the right opportunity were to present itself, that is strategic and makes financial sense, we will certainly look at it very seriously. In addition, in the U.S., given our loan-deposit ratio, any asset-generating opportunity would be very interesting as well.”
TD put the lid on another earnings season for Canada’s Big Six banks on Thursday, reporting a profit of $3.1 billion for its third quarter ended July 31, a 12-per-cent rise from the previous year.
Of its businesses, TD’s U.S. retail operations saw the greatest rate of growth for the quarter, posting net income of more than $1.1 billion, up 27 per cent from a year ago.
TD’s earnings also included a $225-million contribution from its investment in brokerage TD Ameritrade and a $61-million benefit due to U.S. tax reform.
On the home front, TD’s Canadian retail unit reported earnings of approximately $1.85 billion for the quarter, a seven-per-cent increase year-over-year, which the lender said was aided by growing deposits and loans and the positive effect of rising interest rates.
The Canadian retail segment is set to receive reinforcements. TD announced in July a deal to buy Saskatchewan-based institutional money manager Greystone Managed Investments Inc. for $792 million in stock and cash.
Masrani called Greystone “a significant new growth lever” for TD’s private bank, and one that would also help bolster the lender’s asset management business. That business, TD predicts, will become the largest money manager in Canada when the Greystone transaction closes later this year.
TD had also announced a year-long share buyback program in April, for up to 20 million shares, which has already been completed.
For the three months ended July 31, TD said it bought back 19.4 million common shares, and the full 20 million when the first nine months of 2018 is taken into account. The bank repurchased the shares at an average price of $75.07 apiece for a total price of $1.5 billion.
National Bank Financial analyst Gabriel Dechaine wrote the early fulfilment of the share buyback, along with the fact that the program had not been upsized, raised some questions about TD what plans to do with its “strong capital position.”
“We believe M&A speculation will intensify given recent activity in the U.S. regional banking space and a revival of consolidation potential involving (TD Ameritrade), which has arisen in the wake of JPMorgan’s recent decision to launch a no-fee digital trading platform for retail investors,” he added.
Even with the share buybacks, TD’s common equity Tier 1 capital ratio, a measure of a lender’s financial strength, was 11.7 per cent for the third quarter, which led the other Big Six banks.
“We believe TD’s leading excess capital position remains focused on expanding U.S. retail (i.e. Southeast region), Wealth management, and lending portfolios (i.e. credit cards),” wrote Canaccord Genuity analyst Scott Chan.
Masrani, meanwhile, said the buyback had been “consistent” with TD’s approach to using capital. “When we go through that framework, if we still have a lot of capital flexibility, we have never been shy of using that to buy back our shares,” he said. “We said we’ll buy back 20 million shares, and we did buy back 20 million shares.”
POSITION REMAINS FOCUSED ON EXPANDING U.S. RETAIL.