CIBC, TD set aside record $10.9B for loan losses

Toronto-dominion Bank and Canadian Imperial Bank of Commerce set aside record amounts for soured loans in the fiscal second quarter, bringing total provisions for Canada’s six-biggest banks to $10.9 billion as they brace for the coronavirus pandemic’s economic aftermath.

Toronto-dominion reported the biggest set-asides among the country’s large lenders, earmarking $3.22 billion, while CIBC’S figure was $1.41 billion. The higher provisions for credit losses eroded net income in the three months through April, with both companies missing analysts’ earnings estimates.

The Canadian banks, like their U.S. counterparts, are building up reserves in anticipation of expected stresses to consumers and companies from the outbreak, which brought the North American economy to a virtual standstill and boosted unemployment on both sides of the border. Loan-loss provisions topped analysts’ expectations of $8.9 billion for Canada’s six biggest banks.

“What we’re living through here is an unprecedented shutdown of large segments of the economy, which is impacting consumers and businesses and customer activity in unprecedented ways,” Toronto-dominion Chief Financial Officer Riaz Ahmed said in an interview Thursday. “We’ve looked at our provisions and applied a good measure of prudence to make sure that we are prepared to weather this pandemic.”

Shares of Toronto-dominion fell 3.1 per cent at 9:40 a.m. in Toronto, and CIBC was down 1.7 per cent. Both lenders have dropped 17 per cent this year, compared with an 18 per cent decrease for the eight-company S&P/TSX Commercial Banks Index.

Toronto-dominion, which has a U.S. branch network that stretches from Maine to Florida, set aside $1.14 billion for souring loans in the country, compared with $1.15 billion for its Canadian operations. The higher provisions contributed to a 52 per cent drop in net income, to $1.52 billion, led by a decline in its U.S. retail division.

“TD’S larger-than-expected provision is something most investors want/expect to see at this point,” National Bank of Canada analyst Gabriel Dechaine said in a note to investors Thursday.