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

The Toronto-Dominion Bank said Thursday that profit increased about five per cent for the third quarter, but that economic conditions have “become less supportive,” leaving the lender facing a bit more of an uphill climb to hit its earnings target.

TD reported net income of nearly $3.25 billion for the three months ended July 31, up from around $3.1 billion a year earlier.

Adjusted earnings per share for TD’s third quarter were $1.79, up from $1.66 a year ago, yet just shy of what analysts had been expecting.

“As we head into the final quarter of the year, the macroeconomic environment has become less supportive,” said Bharat Masrani, president and CEO of TD Bank, in a press release. “With the strength of our franchise and the investments we’ve been making in our capabilities, I am confident in our ability to continue meeting our customers’ needs while delivering value for shareholders.”

TD’s latest results come as global trade turmoil has dealt a blow to economic growth and central banks around the world have begun lowering interest rates in the face of persistent uncertainty. 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.

Macroeconomic factors can have an effect on the bank “in a variety of ways,” according to Riaz Ahmed, TD’s chief financial officer. Interest rate cuts improve credit quality (a positive) but weigh on margins (a negative).

While Ahmed said the bank does not manage its business on a “quarter-to-quarter basis,” TD previously set a medium-term target for itself of earnings growth between seven and 10 per cent. Thursday’s results fell within that range on an adjusted basis, with earnings per share for the third quarter growing year-over-year by approximately eight per cent.

“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 told the Financial Post in an interview.

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

“With the stronger Q3 growth TD now stands at 6 per cent (year-to-date), within striking distance,” Theriault wrote.

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 profit of $1.89 billion for the third quarter, up two per cent. Its wholesale unit reported net income of $244 million, an increase of nine per cent compared to the same quarter of 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 of 2018.

“This is an in-line set of results and we do not expect material changes to consensus earnings,” said Citi analyst Maria Semikhatova in a note.

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

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