A US$2.6-billion provision that Toronto-Dominion BankTD-T +0.47%increase recorded to cover expected regulatory fines wiped out the lender’s fiscal third-quarter profits, leaving TD with a small loss as it works to fix lapses in its anti-money laundering program.
The bank lost $181-million, or 14 cents per share, in the quarter that ended July 31. That compared with profit of $2.88-billion, or $1.53 per share, in the same quarter last year.
Adjusted to exclude the massive regulatory provision and other, smaller one-time items, TD said its profit was $3.65-billion. That was effectively unchanged year over year.
On an adjusted basis, the bank earned $2.05 per share, which fell just short of the $2.07 analysts had expected, according to data from the London Stock Exchange Group.
TD kept its quarterly dividend unchanged at $1.02 per share.
TD is the first of Canada’s large banks to report third-quarter earnings, with its five largest rivals set to release results from Aug. 27 to 29.
The bank set aside higher loan loss provisions of nearly $1.1-billion, anticipating that more customers could default on loans as high interest rates and a slowing job market put pressure on households and businesses. That matched analysts’ expectations, but was up 40 per cent from $766-million in the same quarter last year.
TD also recorded a $110-million restructuring charge stemming mostly from employee severance costs and efforts to trim its expenses on real estate.
The bank’s results were “weaker than expected,” said RBC Dominion Securities Inc. analyst Dark Mihelic, “but not that bad.”
“We have a neutral view” of TD’s third-quarter results, he said in a note to clients.
TD has been mired in multiple U.S. regulatory and criminal probes over serious deficiencies in its defences against money laundering. The bank is now bracing for a total fine of more than US$3-billion ($4-billion), and is expecting to reach a combined settlement with multiple regulators, including fines and other penalties, by the end of the calendar year.
Against that backdrop, TD’s U.S. retail banking division reported a loss of $2.28-billion, driven by the large provision against fines. Adjusted profit was $1.29-billion, down $77-million from a year earlier as higher loan loss provisions and costs modestly outpaced rising revenue.
Profit from wealth management was roughly unchanged year over year at $430-million. Revenue rose 13 per cent, but so did costs, which included higher bonus pay for employees.
Retail banking in Canada fared better, with profit up 13 per cent to $1.87-billion, as revenue increased 9 per cent to $5-billion. Loan volumes increased 6 per cent, but profit margins on those loans decreased.
Profit from TD’s wholesale division, which includes its TD Cowen division in the U.S., was $317-million, up $45-million from the third quarter last year. The bank had higher revenue from trading, lending and fees from advisory and underwriting work.
TD’s capital levels declined, with a common equity Tier 1 ratio – an important measure of the bank’s resilience and ability to absorb losses – of 12.8 per cent. After the fiscal fourth quarter began in August, the bank sold shares in The Charles Schwab Corp. worth more than $2-billion to bolster its capital levels, helping offset the effect of its large regulatory provisions.
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