Dive Brief:
- Canada’s second largest bank by assets, TD Bank, increased its earnings by 4% to $3.1 billion, up from $2.4 billion last year, in the first quarter of 2020, but it was the only major Canadian bank to miss analysts’ expectations as it wrestled with challenges in its U.S. operations.
- "We’re off to a good start in fiscal 2020," Bharat Masrani, the bank’s CEO, said on the bank’s earnings call Thursday. "We expect full year earnings per share growth to be moderate again this year."
- The bank’s adjusted earnings per share for the quarter was $1.66, up 6% from $1.57 this same time last year but below the $1.69 analysts were expecting.
Dive Insight:
The bank’s U.S. retail operations generated $717 million in earnings, up 2% from a year ago, but the volume growth was offset by margin compression — down to 3.07% from 3.42% a year earlier — driven largely by the Federal Reserve’s three cuts to short-term interest rates last year.
Riaz Ahmed, the bank’s CFO, said margins were also impacted by the new lease accounting standards that went into effect in the U.S. last year. Those standards track an international rule known as IFRS 16, which requires companies to include operational leases on their balance sheet, something they haven’t had to do before.
"The adoption of IFRS 16 would have put a 4 basis point pressure on margin in the U.S. segment," Ahmed said on the call.
Another of the bank’s U.S. operations, TD Ameritrade, contributed $869 million in earnings, a 7% drop from the previous year that reflects the company’s decision to follow the lead of Charles Schwab and stop charging commissions on trades.
Masrani said the drop was expected because of that new policy, but going forward that’s going to be less of a factor because TD Ameritrade is being sold to Schwab.
"That run rate will be recaptured once the Schwab deal is closed," he said, "and we start seeing some of the synergies flow through."
TD Bank will continue to hold about a 13% stake in TD Ameritrade after the sale.