TD Bank's quarterly earnings fall short of expectations

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TD Bank Group's earnings fell in its fiscal first quarter, weighed down by its U.S. operations as the bank restructures its balance sheet and manages the fallout of money-laundering compliance failures.

The Toronto-based bank reported 2.79 billion Canadian dollars (US$1.95 billion) in net income for the three months ended Jan. 31, down from CA$2.82 billion a year ago. Earnings per share of CA$1.55 fell short of analysts' expectations of CA$1.61 according to S&P.

Revenue rose to CA$14.05 billion from CA$13.71 billion a year ago, beating analysts' estimates of CA$13.2 billion. Net interest income rose 5% from a year ago while noninterest income fell 0.7%.

Provision for credit losses edged higher to CA$1.21 billion from CA$1 billion a year ago.

"U.S. AML remediation remains our top priority and we continue to make consistent progress to strengthen the bank," President and CEO Raymond Chun said in a press release Thursday. "The strategic review is advancing as planned, and we have taken early action, such as our divestiture of Schwab, as we develop our strategy and roadmap for the future."

The bank's American subsidiary was slapped with a $3 billion fine and a $434 billion asset cap in October as part of settlements with law enforcement and regulators for major anti-money-laundering blunders.

The bank launched the review of its strategies — to reassess priorities, organic opportunities, efficiency and capital allocation alternatives — shortly after the regulatory penalties were announced. In December, Chun said "everything is on the table" regarding divestitures in the U.S.

On Feb. 10, the bank said it planned to sell its entire stake in Charles Schwab through a secondary offering and share repurchases by the brokerage firm. On Thursday, TD said it received proceeds of about CA$21 billion from the sale and expects to recognize a net gain of about CA$8.6 billion in its fiscal second quarter.

TD's balance sheet restructuring continued as planned during the fiscal first quarter. The bank sold about US$13.1 billion of bonds in the quarter as part of its goal to get rid of US$50 billion of lower-yielding investment securities and reinvest the proceeds into higher-yielding assets. In all, since the bank announced the restructuring on Oct. 10, the bank has sold about US$15.9 billion of bonds for a loss of US$875 million pretax.

The bank expects to complete the restructuring by the end of June, with a net interest income benefit at the upper end of its previously disclosed range of US$300 million to US$500 million pretax in the current fiscal year.

TD is also reducing its U.S. bank assets by about 10%, selling residential mortgage loans and paying down short-term borrowings.

TD's U.S. retail bank reported a 61% drop in net income from a year ago. Net income from the bank's Schwab investment was CA$199 million.

The bank said its wealth management and wholesale banking segments delivered record revenue. The Wealth Management and Insurance group posted a 15% increase in revenue, driven by insurance premium growth, higher fees, higher interest income and increased transactions. Wholesale Banking delivered a 12% increase in revenue, reflecting higher trading-related revenue and underwriting fees, the bank said.