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 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.
The bank maintained its quarterly dividend at $1.02 per share.
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.
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, largely from deterioration in its consumer and commercial lending portfolios.
In the same quarter last year, TD set aside $599-million in provisions.
Total revenue rose 11 per cent in the quarter to $13.82-billion. 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.
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.