Toronto-Dominion Bank’s U.S. retail banking operations are getting sideswiped by interest-rate cuts.
The lender’s U.S. retail division had enjoyed better earnings growth than at its Canadian operations since the second quarter of 2018. But that streak ended in the fiscal first quarter after three U.S. Federal Reserve rate cuts since last July hurt net interest margins, pushing them down to 3.07 per cent — the tightest in more than two years.
Key Insights
-The U.S. retail division, which includes a stake in online brokerage TD Ameritrade, has been a key driver for the bank, with a branch network that stretches from Maine to Florida. In the fiscal first quarter, it underperformed the bank’s domestic business. Profit at the U.S. operations fell 7.6 per cent, compared with a 30 per cent increase for the lender’s Canadian business, which was hurt a year earlier by charges.
-U.S. Federal Reserve cuts are taking a toll on margins in the retail division. Net interest margins were down in the three months through Jan. 31 from 3.18 per cent in the fourth quarter and 3.42 per cent a year earlier.
-The bank’s TD Securities capital-markets division showed improvement, following the pattern of other Canadian banks with higher investment-banking fees and trading revenue. The unit’s quarterly earnings totaled $281 million, compared with a $17 million loss a year earlier, when results were hurt by lower trading revenue and higher costs.
Market Reaction
-Toronto-Dominion shares have gained 0.4 per cent this year through Wednesday, compared with a 0.4 per cent decline for the eight-company S&P/TSX Commercial Banks Index.
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-First-quarter net income rose 24 per cent to $3 billion, or $1.61 a share. Adjusted per-share earnings totaled $1.66, missing the $1.68 average estimate of 12 analysts in a Bloomberg survey.
-The bank increased its quarterly dividend 6.8 per cent to 79 cents a share.
