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Bank of Nova ScotiaBNS-T -0.79%decrease reported second-quarter profit that beat analyst expectations but fell from the same period last year as the lender set aside more money for loans that could default, offsetting a boost from its capital markets and wealth divisions.

Scotiabank earned $2.09-billion, or $1.57 per share, in the three months that ended April 30. That compared with $2.15-billion, or $1.68 per share, in the same quarter last year.

Adjusted to exclude certain items, including income tax expenses from the Canada Recovery Dividend, Scotiabank earned $1.58 per share. That edged out the $1.55 per share analysts expected, according to S&P Capital IQ.

“The bank delivered solid results this quarter against a backdrop of ongoing macroeconomic uncertainty, reporting positive operating leverage driven by revenue growth and continued expense discipline. We are executing on our commitment to balanced growth as our deposit momentum continues, while maintaining strong capital and liquidity metrics,” Scotiabank chief executive officer Scott Thomson said in a statement. “I am proud to see Scotiabankers across our global footprint rallying behind our new strategy and coming together to drive our key strategic initiatives forward.”

In December, Scotiabank launched its new strategic plan aimed at growing its deposit base to reduce its funding costs and target businesses in North America, where it believes it can boost growth.

The bank kept its quarterly dividend unchanged at $1.06 per share.

Scotiabank is the second major Canadian bank to report earnings for the second quarter. Toronto-Dominion Bank posted second-quarter results Thursday that beat analysts’ estimates. Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada release earnings result later this week.

In the quarter, Scotiabank set aside $1.01-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That included $975-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, Scotiabank set aside $621-millions in provisions.

Total revenue rose 5 per cent in the quarter, to $8.35-billion on higher margins, wealth revenues, underwriting and advisory fees and banking fees. Expenses increased 3 per cent to $4.71-billion, which the bank said was driven higher technology and staffing costs.

Profit from Canadian banking was $1.01-billion, down 4 per cent from a year earlier as higher provision for credit losses and non-interest expenses offset higher revenues.

Profit from the bank’s international division was up 6 per cent at $671-million as higher net interest income and the positive impact of foreign currency exchange offset a climb in provision for credit losses, non-interest expenses, provision for income taxes and lower non-interest income.

The global wealth management division generated $380-million of profit, up 8 per cent on higher brokerage revenues in Canada and higher mutual fund fees in the international wealth segment, particularly in Mexico.

And capital markets profit rose 7 per cent to $428-million as higher non-interest income and lower provision for credit losses and provision for income taxes offset by higher expenses and lower net interest income.

The Canada Revenue Agency (CRA) will get expanded powers to force taxpayers to provide information under oath during an audit, a new legal weight experts say is overreaching and will add costs and stress to the review process.

In 2022, the CRA got the go-ahead to require taxpayers to meet with its auditors in person or by video conference to answer questions during the audit process. The proposed amendments to the Income Tax Act included in the latest federal budget go even further. Under the new measures, a requirement or notice sent or served on a taxpayer “may require that the person provide any answers to questions, information or documents sought by the Minister under those sections orally, under oath or affirmation, or by affidavit.” (Oaths and affirmations are vows to tell the truth; an affidavit is a sworn written statement).

Legal experts believe the change is extreme and say the Finance Department has provided little guidance on how the new rules will be applied and what penalties could be imposed. There are also worries the new powers could be used in a way disproportionate to the intended purpose, which could lead to unfair or unequal treatment of taxpayers.

“For Canadian taxpayers, the implications of this proposal are significant. The requirement to provide information under oath or affirmation adds a layer of legal gravity to the audit process, potentially increasing the consequences of providing false or incomplete information,” states a recent article from three lawyers at Davies Ward Phillips & Vineberg LLP, adding that “it is unclear why Finance proposed such expansive and draconian powers.”

The budget says amendments to the information-gathering provisions in the Income Tax Act, which also include steeper penalties for non-compliance, will “enhance the efficiency and effectiveness of tax audits” and speed up tax collection.

CRA auditors are ‘not judges’

Élisabeth Robichaud, a partner in the tax and tax disputes practices at Davies Ward Phillips & Vineberg LLP in Montreal, says forcing taxpayers to provide information under oath or affirmation, or by affidavit, is a major change that goes beyond the scope of CRA audits. She likens it to giving testimony in a courtroom.

“The risk of the interview turning into a cross-examination is a legitimate concern because an audit isn’t an investigation. The tax authorities aren’t there to put taxpayers into a corner,” she says. “An audit is supposed to be a collaborative process, and they’re there to make sure they obtain all of the correct and accurate information, not to trick taxpayers.”

Ms. Robichaud says the CRA appears to want to use interviews to assess a taxpayer’s credibility, which she argues isn’t its role.

“They’re not judges; their job is not to evaluate whether or not the taxpayer is a good witness when pressed to answer questions orally,” she says.

“We’re concerned that without clear guidelines, the interviews will be used as a tool to attack taxpayers and collect improper information … by bullying taxpayers into answering certain questions that they shouldn’t have to, or because they’re just nervous when meeting with tax officials,” Ms. Robichaud adds. “The proposed use of oaths now goes a step further in turning the administrative civil audit process into one that resembles an investigation or trial preparation.”

Michael Friedman, partner at McMillan LLP in Toronto, says the requirement to provide the CRA information under oath in an audit seems excessive and will force affected taxpayers to pay extra legal and accounting fees to have the proper paperwork drawn up.

“The vast majority of taxpayers want to answer questions, so it seems like an exceptional cost to deal with what may be a narrow problem,” he says. “It will be interesting to see how extensively the CRA uses the provision.”

Mr. Friedman says the changes could also have the opposite effect, creating more non-compliance, especially if taxpayers don’t have a legal or tax advisor to help them and choose to deal directly with the CRA.

“You could have taxpayers throwing up their hands and saying, ‘I don’t know what an affidavit is, so I’m just going to ignore it,’ which will make matters worse,” Mr. Friedman says.

Tougher penalties for non-compliance

The budget also includes new and steep penalties for taxpayers not complying with CRA audit requests.

One provision includes a new 10-per-cent penalty for taxpayers who have received a CRA compliance order if they owe more than $50,000 in a relevant tax year. The budget says the proposed penalty “would create an incentive for taxpayers to comply with the original request for information or assistance.”

The budget also includes a measure to enable the CRA to issue a new “notice of non-compliance” to taxpayers who haven’t responded to previous requests for information, including a $50 penalty for each day the notice of non-compliance is outstanding to a maximum of $25,000.

“The rules are exceptionally broadly crafted, without sufficient thought to their scope and how they may apply in unintended circumstances,” Mr. Friedman says.

The budget also proposes to “stop the clock” on the three-year reassessment period when a taxpayer seeks judicial review of any CRA requirement or notice related to an audit. The new rules suspend the running of the reassessment period until the judicial review of the information request or issuance of a notice of non-compliance is complete, which Mr. Friedman says can take years.

“It runs counter to and in the face of what a limitation period is intended to do, which is to give taxpayers comfort that tax years are eventually closed and also impose some burden on the government to act with reasonable diligence,” he says. “It’s not a tax-efficient change.”

How advisors can help clients prepare

Matthew Pollock, an associate lawyer at Rosen and Associates Tax Law in Toronto, says the CRA’s expanding powers will make it more important for advisors to ensure their clients’ tax information is detailed and up to date in case they’re audited.

“Lawyers and accountants will need to be even more meticulous with their clients,” he says.

If there’s an audit, advisors should also help taxpayers understand their rights, legal position and options, Mr. Pollock says, especially given the proposed new rules.

Advisors can also prepare clients for potential oral interviews by ensuring they know how to respond to the CRA’s inquiries accurately without providing unnecessary or irrelevant information.

“And if you don’t know the answer, just tell them you don’t know and will get back to them. You want to ensure the information is accurate,” Mr. Pollock says.

For more f

Oil prices rose by more than $1 per barrel in muted trade owing to public holidays in Britain and the United States after a downbeat week characterized by the outlook for U.S. interest rates in the face of sticky inflation.

The Brent crude July contract was up 99 cents at $83.11 a barrel by 12:10 p.m. ET (1610 GMT). The more active August contract rose $1.08 to $82.92.

U.S. West Texas Intermediate (WTI) crude futures were up $1.06 at $78.77.

Brent lost about 2% last week and WTI nearly 3% after Federal Reserve minutes showed some officials would be willing to raise interest rates further if it were deemed necessary to control stubbornly high inflation.

“Sentiment in the oil complex … has been skittish as investors are constantly recalibrating expectations for the Federal Reserve’s monetary policy trajectory,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Recent data emanating from Western economies has shifted rate cut expectations depending on geography.

On Monday, key European Central Bank (ECB) policy-makers said the bank has room to cut interest rates as inflation slows but must take its time in easing policy.

Figures for inflation in the euro zone are due on Friday and economists believe an expected tick up to 2.5% should not stop the ECB from easing policy next week.

The U.S. personal consumption expenditures index expected this week will be in the spotlight for further signals about interest rate policy. The index, due to be released on May 31, is viewed as the U.S. Federal Reserve’s preferred measure of inflation.

German inflation data on Wednesday and euro zone readings on Friday will also be watched for signs of a European rate cut that traders have pencilled in for next week.

Eyes will also be trained on the coming meeting of the OPEC+ group of oil producers comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia. The meeting is to take place online on June 2.

An extension to output cuts of 2.2 million barrels per day is the likely outcome, OPEC+ sources have said this month.

Goldman Sachs raised its global oil demand forecast for 2030 on Monday and expects consumption to peak by 2034 on a potential slowdown in electric vehicle adoption, keeping refineries running at higher-than-average rates till the end of this decade.

Monday May 27

U.S. markets closed (Memorial Day)

China industrial profits

Germany business climate

(8:30 a.m. ET) Canadian wholesale trade for April.

—

Tuesday May 28

ECB 3-year CPI expectations

(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for April. Estimates are month-over-month increases of 0.5 per cent and 4.5 per cent, respectively.

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for March. The Street is expecting and increase of 0.3 per cent from February and 7.3 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for March. Consensus is a month-over-month rise of 0.5 per cent and year-over-year jump of 7.0 per cent.

(10 a.m. ET) U.S. Conference Board Consumer Confidence for May.

(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for May.

Earnings include: Bank of Nova Scotia

—

Wednesday May 29

Japan consumer confidence

Germany CPI and consumer confidence

(10 a.m. ET) U.S. Richmond Fed Manufacturing Index for May.

(2 p.m. ET) U.S. Beige Book released.

Earnings include: Bank of Montreal; Descartes Systems Group Inc.; EQB Inc.; HP Inc.; National Bank of Canada; Patriot Battery Metals Inc.; Salesforce Inc.

—

Thursday May 30

Euro zone economic and consumer confidence and jobless rate.

(8:30 a.m. ET) Canada’s current account balance for Q1.

(8:30 a.m. ET) Canada’s payroll survey: job vacancy rate for March.

(8:30 a.m. ET) U.S. initial jobless claims for week of May 25. Estimate is 219,000, up 4,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP and GDP price index for Q1. The Street expects annualized rate increases of 1.3 per cent and 3.1 per cent, respectively.

(8:30 a.m. ET) U.S. goods trade deficit for April.

(8:30 a.m. ET) U.S. wholesale and retail inventories for April.

(10 a.m. ET) U.S. pending home sales for April. Consensus is a month-over-month decline of 0.6 per cent.

Earnings include: Canadian Imperial Bank of Commerce; Champion Iron Ltd.; Costco Wholesale Corp.; Dell Technologies Inc.; Laurentian Bank of Canada; Lululemon Athletica Inc.

—

Friday May 31

China PMI

Japan jobless rate, industrial production and retail sales

Euro zone CPI

(8:30 a.m. ET) Canada’s real GDP and chain prices for Q1. Estimates are annualized rate rises of 2.3 per cent and 0.1 per cent, respectively.

(8:30 a.m. ET) Canada’s monthly real GDP for March. Consensus is flat month-over-month.

(8:30 a.m. ET) U.S. personal spending and income for April. The Street expects 0.3-per-cent increases from March for both.

(8:30 a.m. ET) U.S. core PCE Price Index for April. Consensus is a rise of 0.3 per cent from March and up 2.8 per cent from the same period a year ago.

(9:45 a.m. ET) U.S. Chicago PMI for May.

Also: Ottawa’s budget balance for March.

Earnings include: BRP Inc.; Canadian Western Bank

Shares of Shopify (TSX:SHOP)(NYSE:SHOP) fell last week after the e-commerce company reported its latest earnings numbers. Despite generating strong overall results, investors weren’t thrilled with the company’s outlook.

For the three-month period ending March 31, Shopify reported revenue of $1.9 billion, which grew at a rate of 23%. And that growth rate is 29% after adjusting for the sale of its logistics business. Shopify also posted an operating profit of $86 million compared with a loss of $193 million in the prior-year period.

But for the current quarter, the company expects a slower growth rate that it says will be in the high teens, and when adjusting for its logistics business, it will be in the low-to-mid twenties. It’s a slower growth rate than in the first quarter, and that has raised concerns for investors, sending the stock down after the press release.

While Shopify isn’t at a new 52-week low, it is trading around the levels it was at in October of last year. The stock is still struggling to rebound after a massive selloff in 2022 when inflation and rising interest rates made investors bearish on tech stocks like Shopify. While the e-commerce company has been demonstrating good growth over the years, consistent profitability remains a problem for the business and it has been slashing costs in order to improve its financials; it’s currently trading at a forward price-to-earnings multiple of more than 60.

The selloff, however, could make for an intriguing buying opportunity for long-term investors. E-commerce is likely to continue growing for years and with Shopify a big name in the industry, buying the stock at a reduced price could set investors up for some good gains in the long run.

Canada’s banking regulator has ordered Toronto-Dominion Bank TD-T -1.58%decrease to repair the nerve centre for its risk controls as the lender works to resolve money-laundering investigations that have raised the ire of American officials and thwarted TD’s plans for expansion in the United States.

The Office of the Superintendent of Financial Institutions, or OSFI, identified deficiencies with TD’s regulatory compliance management program during a recent assessment, according to two people familiar with the matter.

The RCM framework is a set of controls that banks must have in place to avoid running afoul of the various laws and regulations governing their operations in Canada, the U.S. and other countries. It is considered by OSFI to be a crucial element of a financial institution’s overall risk-management program and includes technology, processes and other oversight functions.

Anti-money-laundering is just one of the regulatory compliance risks that banks are required to manage through an effective RCM program. Some of the weaknesses detected in OSFI’s evaluation of TD involve the bank’s anti-money-laundering controls, the two sources added.

Findings from a separate compliance examination conducted by the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), the federal financial-crime watchdog, informed part of OSFI’s work, according to a third source.

The Globe and Mail is not identifying the sources because they were not authorized to speak to the media about confidential regulatory matters.

RCM functions as a safety net that helps TD mitigate regulatory compliance risks on an enterprise-wide basis.

“We continuously invest in our RCM program to address changing market dynamics, regulatory feedback and any potential findings. As the operating environment’s complexity intensifies, banks must always be focused on enhancing their programs. That work is ongoing at TD,” bank spokeswoman Lisa Hodgins said in an e-mailed statement.

“In the U.S., as we’ve previously communicated, we are executing a comprehensive effort to strengthen our AML program given the serious incidents in some locations. These investments will help to thwart illegal activity from bad actors, and will also benefit our global capabilities.”

Tim Kiladze: TD Bank’s $20-billion question: Was a giant expansion bet on the United States worth it?

TD, which reports its fiscal second-quarter earnings on Thursday, is under increasing pressure to disclose details about the U.S. probe into its anti-money-laundering weaknesses.

“Our U.S. AML program shortcomings are not as a result of our RCM program. It is important not to confuse normal course interactions with Canadian regulators with our ongoing discussion with U.S. regulators and authorities,” Ms. Hodgins added.

OSFI’s review of TD’s RCM program adds to the regulatory scrutiny of Canada’s second-largest bank on both sides of the border. TD is taking an initial provision of US$450-million to cover financial penalties that it faces because of probes by three regulators and law enforcement in the U.S. Those investigations are tied to a US$653-million money-laundering and drug-trafficking case, The Globe confirmed this month.

The final tally of the bank’s U.S. penalties is still not known, but some analysts estimate it could be as high as US$2-billion. TD also faces other potential consequences from U.S. regulators that could constrain its expansion south of the border, its main growth market. The U.S. probes have already led to last year’s collapse of TD’s proposed US$13.4-billion acquisition of Tennessee-based First Horizon Corp.

In Canada, meanwhile, FinTRAC imposed its largest-ever monetary penalty on TD in April after a 2023 compliance examination uncovered five violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations. But FinTRAC’s administrative money penalty – totalling more than $9.18-million – amounts to only about 1.5 per cent of the amount set aside by TD for its coming U.S. fines.

FinTRAC said it has the authority to exchange information with OSFI, including compliance examination findings involving Canada’s financial institutions. The financial-crime watchdog also shares information, including examination results and corrective actions, with the Financial Crimes Enforcement Network in the U.S.

FinTRAC is responsible for ensuring the compliance of several of Canada’s business sectors, including financial institutions, a spokeswoman wrote in an e-mailed statement. And those institutions are required to have controls in place to guard against various types of financial crime.

Finance Minister Chrystia Freeland has instructed financial regulators to resolve any outstanding problems at TD because U.S. officials have raised concerns about the bank’s ability to identify financial crime, according to a source.

U.S. regulators have also questioned why their Canadian counterparts previously failed to spot and remedy problems with TD’s anti-money-laundering risk controls, another one of the sources said.

OSFI and FinTRAC both report to Ms. Freeland, who is monitoring TD’s regulatory problems in Canada and the U.S., one of the sources said.

Department of Finance spokesperson Caroline Thériault did not provide answers to questions regarding OSFI’s assessment of TD. But she stressed that FinTRAC’s review was solely focused on Canada.

“The government continues to work closely with its American counterparts,” Ms. Thériault said in an e-mail statement.

TD, meanwhile, is working to address OSFI’s concerns. The bank is remediating its RCM program. Along with leaders across the bank’s businesses, that work has been overseen by Monica Kowal, TD’s senior vice-president and chief compliance officer; Denise Morris, vice-president of compliance; and Emily Jelich, vice-president of compliance, one of the sources said. (Ms. Jelich is retiring from the bank at the end of June, according to a different source.)

In January, TD hired Erin Morrow, who previously worked in compliance at New York-based Citibank, as its deputy chief compliance officer, that person added.

TD is investing in its risk and control infrastructure, outlays that are creating a drag on its earnings. Last year, the bank said it expected to post an adjusted net loss of $200-million to $250-million per quarter this year in its internal corporate segment as a result of that spending.

Unlike with FinTRAC, OSFI’s findings from its assessment of TD will not be disclosed to the public because of secrecy provisions in Canadian law.

An OSFI spokesperson said that the regulator cannot comment on confidential matters with the bank, but it expects board members to be engaged in mitigating non-financial risks.

“We expect boards to comprehensively examine their oversight of non-financial risks and synthesize them into an enterprise-wide approach to protecting their institutions from threats to their integrity and security,” Superintendent Peter Routledge said in an e-mail statement.

OSFI is, however, expected to share supervisory information about TD with the Office of the Comptroller of the Currency, which regulates national banks in the U.S., because of an existing information-sharing agreement. The two banking regulators have shared supervisory information about TD in the past, including the bank’s performance in the OCC’s 2017 sales practices review, according to a fourth source.

“The OCC does not comment on specific banks or supervisory activities,” a spokesperson wrote in an e-mailed statement.

OSFI last updated its RCM requirements for banks a decade ago. That guidance requires banks to review and update their RCM frameworks at least once a year to keep abreast of evolving regulatory compliance risks.

The pro-active testing of controls is the cornerstone of an effective RCM program. That risk-based testing creates feedback loops for a bank’s individual business units, which are then expected to use the information to fix any weaknesses.

In TD’s case, failures of its risk-based testing may have led to faulty controls, one of the sources said.

TD’s problems with its RCM framework date back years. In 2015, its RCM program was supported by Thomson Reuters Corp. The bank, however, experienced a software problem that necessitated a rebuild of its RCM program, one of the sources said.

(Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe.)

Thomson Reuters declined to comment.

Then, in 2016, TD replaced the Thomson Reuters platform with one from Archer Technologies LLC, an enterprise risk-management company based in Overland, Kan.

TD, though, experienced problems during the implementation process, said the source, who stressed there was nothing wrong with the Archer platform. Banks sometimes experience technology glitches when trying to pair new technologies with their legacy systems.

TD’s remediation process is also trying to resolve the remainder of these RCM problems, another source said.

Archer did not provide comment.

The bank has also been consolidating data that were fragmented across its various businesses to ensure that it is being pulled into the technology platforms that monitor and identify risks, according to a source.

FinTRAC’s compliance examination, which was conducted in 2023, identified weaknesses in the processes and controls that TD had in place for assessing client risk. That technology problem has since been resolved by the bank, that source added.

When asked if FinTRAC is conducting any further remediation work with TD, the spokeswoman for the financial intelligence unit said in the e-mail: “When serious deficiencies are identified during a compliance examination of financial institutions, FINTRAC requires the creation of detailed action plans for corrective action. For Canada’s large banks, the Centre monitors the progress of these action plans on a quarterly basis at a minimum.”

As for OSFI, this isn’t the first time the banking regulator has flagged problems with TD’s approach to managing its anti-money-laundering risks. OSFI officials raised the matter directly with then-chief executive officer Ed Clark in 2010 and 2011, according to a fifth confidential source.

Mr. Clark declined to comment.

For its part, TD has hired risk consultancy Proviti, a wholly owned subsidiary of Robert Half Inc., for advice on improving its anti-money-laundering controls, one of the sources said.

“In keeping with Protiviti’s policies, we do not publicly comment on client matters,” wrote Lisamarie Lukas, Protiviti’s senior director of communications.

The bank has already launched an overhaul of its U.S. and global anti-money-laundering program and has invested more than $500-million to enhance its platforms and remediate the weaknesses.

In an internal memo to employees, TD CEO Bharat Masrani said the bank is overhauling its anti-money-laundering program by hiring new leaders and hundreds of employees, redesigning controls, building new processes, deploying new technology and implementing improved training.

“We did not meet our expectations or our regulatory obligations to monitor, detect, report and respond to suspicious activity. As a result, criminals broke through our defences and used the bank to launder money,” Mr. Masrani said in the memo.

“This is absolutely unacceptable. While our systems stopped a lot of activity, I am deeply disappointed there were serious instances where we failed to stop these criminals. It goes against our values and everything we believe.”

Toronto-Dominion Bank’s second-quarter profit beat analysts’ estimates on a boost in capital markets even as profit fell 22 per cent from the same quarter last year, weighed down by costs related to the U.S. investigation into the lender’s anti-money laundering practices.

TD TD-T -1.60%decrease earned $2.56-billion, or $1.35 per share, in the three months that ended April 30. That compared with $3.31-billion, or $1.69 per share, in the same quarter last year.

Adjusted to exclude certain items, including restructuring costs and a US$450-million provision to cover penalties it’s facing as a result of a lengthy U.S. regulatory and law enforcement investigation, the bank said it earned $2.04 per share. That edged out the $1.85 per share analysts expected, according to S&P Capital IQ.

“We delivered significant positive operating leverage while continuing to invest in our business, including our risk and control infrastructure,” TD chief executive officer Bharat Masrani said in a statement.

TD expects to incur fines or other penalties stemming from probes by the U.S. Department of Justice and other agencies related to its anti-money-laundering practices. The discussions with three U.S. regulators and the Department of Justice are ongoing, and the bank anticipates further penalties.

“The bank has been co-operating with U.S. regulators and authorities in good faith for many months and is working diligently to bring these investigations to resolution so that investors can have more clarity,” TD said in a press release. “A comprehensive overhaul of TD’s U.S. AML program is well underway, and will strengthen our program globally.”

Separately, The Globe reported Wednesday that Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, identified deficiencies with TD’s regulatory compliance management program during a recent assessment.

Scotiabank analyst Meny Grauman said that TD’s second-quarter results were a “a big beat with a big asterisk.”

The results that beat analyst expectations by a wide margin “sounds like a very positive result for any bank let alone one that has underperformed the peer group so dramatically over the past few months,” Mr. Grauman said in a note to clients. “And yet we label this quarter as mixed given both the source of the beat, and of course the elephant in the room which remains TD’s ongoing AML issues in the US – on which we got no new information (as we had expected).”

TD is the first major Canadian bank to report earnings for the second quarter. The rest of the Big Six banks release financial results next week.

The bank maintained its quarterly dividend at $1.02 per share.

In the quarter, TD set aside $1.07-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $870-million against loans that the bank believes will not be repaid, based on models that use economic forecasting to predict future losses. Those provisions for impaired loans jumped 58 per cent from the same quarter last year, particularly in unsecured loans including credit cards and auto debt.

In the same quarter last year, TD set aside $599-million in provisions.

As Canadians adjust to higher borrowing costs, more borrowers are defaulting on debt, prompting banks to set aside more money for loans that are more likely to default.

“The increase in impaired is as expected in this cycle. If you look at last year, impaired was still low, comparatively speaking,” TD chief financial officer Kelvin Tran said in an interview. “We expect that to continue to put some pressure in in the second half of the year.”

Total revenue rose 11 per cent in the quarter to $13.82-billion, bolstered by the bank’s Canadian personal and commercial unit, wealth management and capital markets.

But expenses surged 24 per cent to $8.4-billion, which the bank said was driven by the provision for investigations related to the bank’s anti-money laundering program, higher employee-related expenses, restructuring charges and investments in its risk and control infrastructure.

Late last year, Canada’s largest lenders embarked on restructuring programs to trim mounting expenses, largely by reducing salary, technology and real estate costs.

In the second quarter, TD booked a $122-million after-tax restructuring charge, and said that it expects another $50-million cost next quarter to complete the program. TD expects $400-million pre-tax in savings for this fiscal year.

The bank has reduced its workforce by 3 per cent while reinvesting in hiring to remediate weaknesses in its risk and control infrastructure. Since the fall, TD has brought on several senior leaders with experience in compliance and anti-money laundering at U.S. banks to lead its turnaround plan.

“This is a continued build that we need to do,” Mr. Tran said. “You have subject matter experts, process experts, technology experts. We continue to look at that and prioritize the best and optimal way to sequence that spending.”

Canadian personal and commercial banking profit was $1.74-billion, up 7 per cent from a year earlier, as higher revenue offset rising provisions for credit losses and expenses. Loan balances rose 7 per cent year over year.

Profit from the bank’s U.S. arm slumped 59 per cent to $580-million, weighed down by expenses related to the U.S. regulatory and law enforcement investigation, as well as lingering charges related to the terminated deal to acquire Tennessee-based First Horizon Corp.

The wealth management and insurance division generated $621-million of profit, up 19 per cent from the same quarter last year. And capital markets profit jumped 141 per cent to $361-million as TD integrates its acquisition of New York investment bank Cowen Inc., and benefited from higher trading-related revenue, underwriting fees and lending revenue.

“The acquisition of TD Cowen added capabilities that are very important to TD,” Mr. Tran said. “If you look at our revenues, it’s a record a quarter of $1.9-billion. And if you compare that to an average quarter of a full year prior to the TD Cowen acquisition – so that’ll be 2022 – revenue is up 50 per cent. So that talks about the power of the combined franchise in a more constructive market.”

Nvidia Corp. NVDA-Q -0.46%decrease on Wednesday overshot Wall Street estimates as its profit skyrocketed, bolstered by the chip-making dominance that has made the company an icon of the artificial-intelligence boom.

Its net income rose more than sevenfold compared with a year earlier, jumping to US$14.88-billion in its first quarter that ended April 28 from US$2.04-billion a year earlier. Revenue more than tripled, rising to US$26.04-billion from US$7.19-billion in the previous year.

The company reported earnings per share adjusted to exclude one-time items of US$6.12, well above the US$5.60 Wall Street analysts had expected, according to FactSet. It also announced a 10-for-1 stock split, a move that it noted will make its shares more accessible to employees and investors.

And it increased its dividend to 10 U.S. cents a share from four U.S. cents.

Shares in Nvidia rose more than 4 per cent in after-hours trading to US$991.85. The stock has risen more than 200 per cent in the past year.

The company, based in Santa Clara, Calif., carved out an early lead in the hardware and software needed to tailor its technology to AI applications, partly because founder and chief executive officer Jensen Huang began to nudge the company into what was then seen as a still half-baked technology more than a decade ago. It also makes chips for gaming and cars.

The company now boasts the third-highest market value on Wall Street, behind only Microsoft and Apple.

“Nvidia defies gravity again,” Jacob Bourne, an analyst with Emarketer, said of the quarterly report. While many tech companies are eager to reduce their dependence on Nvidia, which has achieved a level of hardware dominance in AI rivalling that of earlier computing pioneers such as Intel Corp., “they’re not quite there yet,” he added.

Demand for generative AI systems that can compose documents, make images and serve as increasingly lifelike personal assistants has fuelled astronomical sales of Nvidia’s specialized AI chips over the past year. Tech giants Amazon, Google, Meta and Microsoft have all signalled they will need to spend more in coming months on the chips and data centres needed to train and operate their AI systems.

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