TD CEO sees likely `bumpy' road next year
Toronto-Dominion Bank sounded a cautious note about next year's outlook due to inflation and the end of stimulus measures after better-than-expected earnings, while Canadian Imperial Bank of Commerce missed estimates due to higher expenses and loan-loss provisions.
Both banks joined rivals in announcing share buybacks and raising dividends, after the financial regulator lifted restrictions on capital distributions last month.
TD, Canada's second-biggest bank, surprised with a five-basis-point margin expansion in its U.S. retail business in the fourth quarter ended Oct. 31, compared with the prior quarter. It also released $123 million of reserves previously set aside to cover loan losses.
But its chief executive warned that meeting the bank's medium-term target of seven-percent to 10-per-cent adjusted earnings per-share growth would be challenging in 2022.
“While we have good momentum
entering the year, the road ahead is likely to be bumpy,” CEO Bharat Masrani said on an analyst call.
Executives pointed to a “complex” macroeconomic environment, characterized by high inflation as well as uncertainties over the economic trajectory and consumers' financial health as pandemic-related stimulus payments are withdrawn.
Loan-loss provision releases and trading activity, which helped earnings this year and are set to return to more normal levels, and revenue pressure from the U.S. Paycheck Protection Program's loan forgiveness will also be challenges, Masrani said.
CIBC, the country's fifth-largest bank, reported 10-per-cent revenue growth, but that was clouded by a 13-per-cent increase in expenses.
It also took $78 million of provisions, higher than expected, as a 36-per-cent jump in money set aside in its Canadian banking unit offset releases in other divisions.
The bank said it expects expense growth in fiscal 2022 to rise to the mid-single digits, but aims to deliver positive medium-term operating leverage, with revenue growth outpacing expense expansion.
“While we may have periods of negative operating leverage earlier in the year, we will target positive operating leverage across our business through the course of next year,” chief financial officer Hratch Panossian said on an analyst call.
TD shares closed up almost five per cent at a record high of $96.50 in Toronto, while CIBC fell 2.8 per cent to $137.28, a sixmonth low.
The broader stock benchmark rose 1.45 per cent.