TD warns on ‘tepid’ economy creating headwinds in coming quarter – Financial Post

TD warns on ‘tepid’ economy creating headwinds in coming quarter  Financial Post

The Toronto-Dominion Bank on Thursday said its profit increased about five per cent for the third quarter, but that uncertainty continues to loom over the economy, leaving the lender facing challenging conditions as it tries to hit its earnings growth target.

TD reported net income of nearly $3.25 billion for the three months ended July 31, up from approximately $3.1 billion a year earlier. Adjusted earnings per share were $1.79, up from $1.66 a year ago, and just shy of what analysts had been expecting.

TD chief executive Bharat Masrani said the bank’s earnings-per-share growth for its fiscal year is now up to six per cent, one percentage point below its medium-term target range of seven to 10 per cent.

Masrani said it was a “good result” given the current economic environment and the investment-banking unit’s tough start to the year.

“As you know, macroeconomic uncertainties persist,” he said during a conference call with analysts Thursday afternoon. “Trade and geopolitical tensions continue to escalate. Central banks are cutting rates, and yield curves have declined and remain inverted for long periods.”

According to TD’s current economic outlook, global real gross domestic product is expected to grow 2.9 per cent in 2019, “a tepid pace” and a drop from the 3.6-per-cent growth seen in 2018.

“However, our diversified, retail-focused model has demonstrated its resilience in a variety of operating environments,” Masrani said.

Macroeconomic factors can still affect the bank “in a variety of ways,” said Riaz Ahmed, TD’s chief financial officer. For example, interest rate cuts can improve credit performance and increase loan volumes, but also weigh on margins. The state of the economy is also making it tougher to forecast those rates.

“Clearly, there are macroeconomic uncertainties that are kind of driving rate considerations and expectations that, at some point, perhaps, we may see the economy slow,” Ahmed said during the conference call. “It’s difficult really to give you any particular outlook on the rates, because if it turns out that we might see trade uncertainties dissipate, we may see a return to greater macro confidence, which would also help the underlying business conditions.”

TD’s results still fell within the bank’s target range for earnings per share, which grew by approximately eight per cent year over year for the third quarter.

“We continue to feel good about the performance and continue to look to position the bank to earn through that medium-term target that we have for ourselves,” Ahmed said in a phone interview.

Eight Capital analyst Steve Theriault noted Masrani had said last quarter that the bank was capable of hitting its earnings target this year despite growth of just four per cent at that point.

He added that TD is “within striking distance” of its target range with the “stronger” growth in the third quarter.

TD’s U.S. retail division led the way for the bank in the third quarter, recording a profit of nearly $1.29 billion, up 13 per cent from a year ago. TD Ameritrade Holding Corp., the U.S.-based retail brokerage, contributed $294 million in earnings, a 31 per cent increase. TD owns more than 40 per cent of TD Ameritrade.

In Canada, TD’s retail division reported a third-quarter profit of $1.89 billion, up two per cent. Its wholesale unit reported net income of $244 million, an increase of nine per cent compared to the same quarter in 2018.

TD’s provisions for credit losses, which can be affected by the economic outlook, were $655 million for the quarter, an increase from the $561 million reported for the same three months a year ago.

• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

Source: business.financialpost.com

Leave a Comment