TD, CIBC see profit bump helped by U.S. operation but analyst reaction mixed

TD, CIBC see profit bump helped by U.S. operation but analyst reaction mixed
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TORONTO — Two of Canada’s biggest lenders posted a jump in their latest quarterly earnings, but while Toronto-Dominion Bank’s performance beat analyst expectations, the Canadian Imperial Bank of Commerce fell short for the first time in four years.

TD Bank Group and CIBC both reported fourth-quarter net income increases of roughly nine per cent to $2.96 billion and $1.27 billion, respectively.

Both Toronto-based banks benefited from a presence south of the border, as both TD and CIBC’s U.S. operations delivered a double-digit increase in net income during the three months ended on Oct. 31.

The quarter “capped a strong year” for CIBC, said its chief executive Victor Dodig, as the lender made progress on its strategy, including ramping up the proportion of earnings it derives from outside of Canada.

“Our U.S. region has grown from nine per cent of total CIBC earnings in 2017 to 16 per cent this year, showing we are well on our way to our target of 17 per cent in 2020,” said on a conference call Thursday.

CIBC’s Canadian commercial banking and wealth management earned $333 million, up from $287 million, while the U.S. commercial banking and wealth management division earned $131 million, up from $107 million a year ago.

The quarter capped off a year of record net income for CIBC, up 12 per cent to $5.28 billion for the 12 months ended Oct. 31, but still missed analyst estimates.

On an adjusted basis, CIBC said it earned $3 per diluted share in the quarter, up from an adjusted profit of $2.81 per diluted share in the same quarter last year. Analysts on average had expected a profit of $3.04 for the quarter, according to Thomson Reuters Eikon.

This marked the first miss for CIBC in four years, said Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets. CIBC’s Canadian banking performance was “solid” but margins in its U.S. operations begun to show “weakness,” he said.

Canada’s fifth-largest lender saw its U.S. commercial earnings retrace from a strong third quarter, down 19 per cent sequentially, said John Aiken, an analyst with Barclays in Toronto.

“Coupled with the overall miss against expectations was a surprising step back in profitability in CIBC’s U.S. operations; its platform for future growth,” he said in a note to clients.

Meanwhile, TD beat expectations with adjusted profit that it says amounted to $1.63 per share for the quarter, up from an adjusted profit of $1.36 per share a year ago. Analysts on average had expected a profit of $1.62 per share, according Thomson Reuters Eikon.

TD said its Canadian retail business earned $1.74 billion in its fourth quarter, up from $1.66 billion in the same quarter last year, boosted by strong volumes and market share gains.

The bank’s U.S. retail operations, including TD Ameritrade, earned $1.11 billion, up 44 per cent from $776 million a year ago.

For its full financial year, TD earned $11.33 billion, up from $10.52 billion in 2017.

“I am extremely pleased with our earnings performance in the fourth quarter, which capped a very strong year,” Bharat Masrani, TD’s president and chief executive, said in a statement.

“2018 represented a year of tremendous progress as we advanced key strategic priorities and continued to innovate to strengthen our competitive advantage.”

TD’s American banking business, which has more than 1,200 locations along the U.S. coast, generated outsized earnings while its domestic operations were weighed down by higher expenses, analysts said.

“The U.S. business continues its excellent momentum and Wholesale rebounded after a weaker Q3… Canadian retail performance looks to be tracking slightly below peers thus far,” said Scott Chan, an analyst with Canaccord Genuity in a note to clients.

Companies in this story: (TSX:CM, TSX: TD)

Armina Ligaya, The Canadian Press

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