TD’s CEO sees a “fragmented” path after the highest earnings estimates; CIBC has incurred higher costs than Reuters

By Nichola Saminather

TORONTO (Reuters) – Toronto-Dominion Bank issued a cautious note on next year’s forecasts after better-than-expected gains due to inflation and stimulus measures, and the Imperial Commercial Bank of Canada’s calculations failed due to higher spending and loan losses. provisions.

The two banks also teamed up with rivals to announce a rise in share purchases and dividends, after financial regulators lifted restrictions on capital distribution last month.

TD, Canada’s second-largest bank, was shocked by the 5-point margin expansion in U.S. retail business that ended Oct. 31 in the fourth quarter compared to the previous quarter. It also released $ 123 million ($ 96 million) in pre-set reserves to cover loan losses.

But its CEO warned that the bank’s medium-term goal would be difficult to meet in earnings per share adjustment from 7% to 10% in 2022.

“Although we have a good momentum since the beginning of the year, the path is likely to be uneven,” CEO Bharat Masrani said in an analyst call.

Executives described the macroeconomic environment as “complex,” characterized by high inflation and uncertainties about the economic trajectory and the financial health of consumers as pandemic-related stimulus payments are eliminated.

Layoffs and commercial activity to provide loan losses, which are ready to contribute and return to normal levels this year, and the pressure of the U.S. Paycheck Protection Program to forgive loans will also be challenging, Masrani said.

While TD maintains high loan losses to reflect these allowances, it will “very seriously” consider any acquisition of financial services in Canada to use excess capital, “because there are not many options presented,” Masrani said.

The CIBC, the country’s fifth-largest bank, saw a 10% increase in revenue, but that was clouded by a 13% increase in spending. It also received $ 78 million in provisions, higher than expected, as a 36% drop in the amount of money stored in its Canadian banking unit offset the layoffs made in other divisions.

The bank said it expects spending growth in 2022 to rise to a single figure, but aims to provide a positive operating leverage for the medium term, with revenue growth outpacing spending expansion.

“While we may have a negative operating leverage at the beginning of the year, we will focus on a positive operating leverage throughout our business over the next year,” Hratch Panossian said in a call to the analyst.

DIVIDEND ITINERARIES

TD shares rose nearly 5% in Toronto to C $ 96.50, while CIBC fell 2.8% to C $ 137.28, the six-month low. The broader share reference rose by 1.45%.

TD said it would increase its dividend by 12.7% and buy up to 2.7% of the outstanding shares.

CIBC said it will raise its dividend by 10.2% to $ 1.61 per share and buy up to 2.2% of the shares.

Canadian banks have faced pressure from low margins and higher variable compensation costs this quarter as some of the previous pushbacks on capital markets business and reserve releases have been reversed.

But it seems that the recovery in non-mortgage loans in Canada is taking place, albeit at different rates.

Credit card lending in both banks rose 3.1% compared to the previous quarter. TD’s business loans grew by 2.6% compared to the previous quarter, at the same pace as mortgage growth. CIBC business loans rose 0.85% compared to a 3.4% increase in home loans.

TD reported fourth-quarter net income rose to C $ 2.09 per share, beating analysts ’average estimate of C $ 1.96.

CIBC’s quarterly adjusted earnings per share were C $ 3.37, compared to the expected C $ 3.53.

($ 1 = $ 1.2817 Canadian dollars)