TD, CIBC profits weaken

TD Bank’s forecast for the global economy is a little more stormy for 2011, but chief executive Ed Clark expects the bank to weather the choppy waters ahead.

TD Bank’s forecast for the global economy is a little more stormy for 2011, but chief executive Ed Clark expects the bank to weather the choppy waters ahead.

“I think we feel this kind of odd feeling that when you look at the world — I think you have to feel more nervous about the world than you felt six months ago,” Clark said told a meeting with financial analysts to discuss the bank’s fourth-quarter results.

“You have all of these big structural issues around the world, whether it’s the trade imbalance with China, fiscal problems in the U.S. and obviously the sovereign (debt) crisis in Europe. And yet, when we talk to our operators and we get down to the ground, people today would be more optimistic.”

“So on the ground we’re quite pleased with what we are seeing and how our operating business is actually operating,” he said.

The bank earned $994 million or $1.07 per diluted share for the three months ended Oct. 31 compared with a profit of $1.01 billion in the same period a year ago, or $1.12 a share.

TD said it was hurt by higher costs and weaker results at its wholesale banking division.

On an adjusted basis, stripping out one-time items, earnings per share were $1.38 compared with $1.46 in the prior-year period.

The average analyst estimate had been for a profit of $1.46 per share, according to those polled by Thomson Reuters.

TD’s overall revenue lifted to $5.02 billion, compared with estimates of $4.91 billion, with most of the bank’s major divisions — including its main operations in Canada and the United States — contributing to the growth.

Return on equity slipped to 9.7 per cent from 11 per cent a year ago.

National Bank raised its dividend to shareholders on Monday, but TD chose to hold steady with its current payment.

“Our dividend policy is linked to the board’s outlook on long-term sustainable growth in earnings rather than on capital levels,” said Clark, who noted the bank hoped to update investors on the situation after its next quarter.

TD Bank has steadily expanded its U.S. operations in recent years, up and down the East Coast.

It also owns about 40 per cent of TD Ameritrade (Nasdaq:AMTD), a discount brokerage based in the U.S. Midwest. And earlier this year, TD picked up South Financial Group Inc., a bank in the U.S. southeast, for US$191.6 million.

Meanwhile, CIBC (TSX:CM) says its fourth-quarter profits slipped 22 per cent to $500 million as the bank contended with higher losses in its structured credit portfolio and lower fees from its trading and investments businesses.

The bank reported that earnings amounted to $1.19 per share, down from $1.56 a share or $644 million in the same period a year earlier.

Results were particularly weak in its wholesale division, where CIBC reported a quarterly loss for the operations which serve large corporate clients, mid-sized companies, real estate developers and investors with various financial services.

On an adjusted basis, overall earnings were $1.68 per share, above analyst expectations of $1.64, according to those polled by Thomson Reuters.

Revenue was $2.48 billion for the period, compared to $2.36 billion at the same time last year, and below expectations of $2.96 billion.

CIBC’s retail banking division rose to a profit of $576 million compared to $468 million a year ago, but was down from $599 million in the third quarter.

In wholesale banking, CIBC posted a loss of $56 million compared to a profit of $160 million last year.

Trading revenues, which are part of the division, slipped to $238 million from $503 million. Corporate and investment banking revenues were also about 20 per cent lower to $136 million.

Nevertheless, the bank was “pleased with the progress wholesale banking made in 2010, which was a year of continued volatility in markets,” said CIBC president and chief executive Gerry McCaughey.

“The stability of our wholesale banking business reflects the hard work put in to refocus our strategy.”

Provisions for bad loans were tightened to $150 million compared to $424 million a year earlier.

Barclays analyst John Aiken said the bank managed to beat his predictions, which were in line with the average estimates, but noted that he still considered the quarter “disappointing.”

“CIBC managed to exceed our estimates on the back of lower provisions and taxes than we had forecast,” he said. “While the credit story should be a positive, we note that despite flat core revenue growth, core expenses increased by 6.6 per cent, generating some very strong negative operating leverage.”